No More Unlimited Insurance for Noninterest-Bearing Transaction Accounts

The FDIC has issued a notice reminding FDIC-insured depository institutions that, absent a change in law by January 1, 2012, the FDIC’s temporary unlimited insurance coverage for noninterest-bearing transaction accounts (“NIBTAs”) will expire December 31, 2012.  The temporary unlimited insurance coverage program was promulgated by the Dodd-Frank Act.  Lawyer Trust Accounts (“IOLTAs”) are among the accounts affected. 

Beginning January 1, 2013, NIBTAs will be aggregated with other account deposits for purposes of the standard $250,000 limit on deposit insurance coverage.  The FDIC is encouraging insured institutions to do the following in preparation for the change: (i) provide adequate advance notice to NIBTA account holders of the scheduled change (a sample notice is provided); (ii) remove notices regarding the unlimited insurance coverage by January 2, 2013; and (iii) review any account agreements and disclosures affected by the change and make appropriate modifications.

IOLTA Accounts Now Covered Under TAGP

The FDIC has issued a final rule that will revise the definition of “noninterest-bearing transaction account” to include Lawyer Trust Accounts (IOLTAs) under the Dodd-Frank Act.  Thus, IOLTAs will receive the same unlimited deposit insurance coverage that other noninterest-bearing transaction accounts receive under the FDIC’s Transaction Account Guarantee Program (TAGP).  Banks participating in TAGP are encouraged, but not required, to notify account holders that their IOLTAs will be fully insured through December 31, 2012.  Based on the original definition of noninterest-bearing transaction accounts under Dodd-Frank (which did not include IOLTAs), the FDIC required participating banks to notify account holders that their IOLTAs would no longer receive unlimited coverage after December 31, 2011.  A description of the final rule and a sample notice can be found here:

http://www.fdic.gov/news/news/financial/2011/fil11002.pdf