New Overdraft
Notification Rule
by Don Hollingsworth
email:dhollingsworth@arkbar.com
Beginning July 1, 2002,
Arkansas will join many other states in requiring notification by financial
institutions of any overdraft in client trust accounts maintained by
attorneys. Attorneys are encouraged to read the new rule which can be
found in the December 20, 2001 per curiam opinion by the Supreme Court
of Arkansas. To access the opinion electronically, go to www.arkbar.com
and click on "New and Noteworthy."
There will be an overdraft notification
agreement between the Supreme Court, through its Office of Professional
Conduct, and financial institutions throughout the state. Since the
per curiam makes attorney consent to the reporting and production requirements
a condition of the privilege to practice law in Arkansas, financial
institutions will not have a separate agreement with the attorneys who
have client trust accounts with them.
An important element of the new rule is
that financial institutions will automatically notify the Office of
Professional Conduct of all overdrafts. Thus, the financial institution
is not being asked to evaluate circumstances of an overdraft. Instead,
the Office of Professional Conduct is responsible for determining whether
further action is necessary. For example, if the overdraft was caused
by an accounting error, verification of such can be supplied to the
Office. The Office of Professional Conduct will contact the attorney
or law firm to request an explanation of an overdraft notification.
If there is not a legitimate reason for the overdraft, the Office may
take other action, including an audit of the client trust account.
If a financial institution in Arkansas
does not agree to the overdraft notification, no attorney or law firm
trust account can be maintained with said financial institution. The
Office of Professional Conduct will post on the Supreme Court's website
a current list of approved financial institutions.
Attorneys need to take note of a new record
keeping requirement which the Supreme Court adopted in conjunction with
the new rule. "Every lawyer engaged in the practice of law... shall
maintain and preserve for a period of at least five years, after final
disposition of the underlying matter, the records of the accounts, including
check books, canceled checks, check stubs ... or other statements of
disbursements rendered to clients or other parties with regard to trust
funds or similar equivalent records clearly and expressly reflecting
the date, amount, source, and explanation for all receipts, withdraws,
deliveries and disbursements of the funds or other property of a client."
Section 28.G., Procedures Regulating Professional Conduct of Attorneys.
Some financial institutions have experience
with the overdraft notification since they operate in states which already
require the notification. The Office of Professional Conduct, through
its Executive Director Stark Ligon, has been contacting Arkansas financial
institutions about implementation of the notification agreements.
If you have questions about the new rule,
you should contact Stark Ligon at 501-376-0313 or stark.ligon@mail.state.ar.us.
Some attorneys new to private practice
may have questions about establishing or maintaining client trust accounts.
Susie Pointer, the Executive Director of the Arkansas IOLTA Foundation,
is a resource on these operational aspects of trust accounts, you may
contact her at 501-376 1801 or spointer@aristotle.net.
The Arkansas overdraft rule is based generally
on Rule 29 of the Model Rules for Lawyer Disciplinary Enforcement (1996)
of the American Bar Association. One of the reasons for enactment of
the rule in Arkansas and other states is the fact that operations of
client trust accounts is a primary source of disciplinary problems.
Even though the vast majority of Arkansas attorneys operate client trust
accounts properly, there are instances of attorneys misusing the accounts
or not paying close attention to the rules governing them.
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