Heated hearing on SB 31: lawyers, nonprofits warn changes to IOLTA would strip funds for civil legal aid

Senate Bill 31 attracted the largest turnout and most contested testimony in the Senate Judiciary Committee. The bill would alter how interest on pooled attorney trust accounts (IOLTA) is handled and give clients more explicit options for whether interest from nominal, short-term funds stays in pooled IOLTA accounts (which currently fund grants) or is placed into other account types.

Carlo Canty, president of the Montana Justice Foundation (MJF), and Alyssa Chambers, MJF executive director, strongly opposed the bill and described the Justice Foundation’s role distributing IOLTA revenue to nonprofit legal-aid programs. Chambers told the committee that IOLTA funding supports services for seniors, veterans, foster children and survivors of domestic violence and that changing the structure would generate negligible client interest while removing the pooled revenue that supports statewide civil legal aid. MJF reported a recent fiscal-year IOLTA revenue near $800,000 and said 40 banks currently participate in the program.

Multiple legal practitioners and bar representatives warned of operational and federal-banking constraints: the State Bar witness explained that nominal pooled funds often cannot be placed in separate checking accounts that earn meaningful interest, and that federal banking rules limit how client funds may be held. Several attorneys said that imposing a client-choice requirement for every small retainer would create time burdens, potential fees for clients, tax-reporting consequences and an administrative load that would discourage the use of pooled accounts and thereby shrink the grant pool for services.

Opponents included Montana Legal Services Association (MLSA), CASA programs, the State Bar and dozens of private attorneys and nonprofit leaders who gave concrete examples of services supported by IOLTA grants — including travel to remote hearings, guardian ad litem fees and advocacy for domestic-violence survivors. Witnesses said MLSA handled nearly 5,000 cases in 2023, with roughly 2,000 helped in part by IOLTA-funded grants.

Sponsor Senator Barry Usher framed the bill as a restitution-of-rights and appropriations issue, asserting the legislature should consider how interest derived from client funds is allocated and whether the judiciary is, in effect, appropriating funds through court rules. Several senators probed separation-of-powers and constitutional arguments; bar representatives responded that IOLTA practice is widespread nationwide and that courts’ oversight of lawyer trust accounts derives from professional-conduct rules (cited in testimony as Rule 1.18).

After extensive testimony and questioning from committee members, the hearing closed. Opponents asked the committee to reject SB 31; proponents argued the bill restores client choice. Committee members expressed concerns about unintended consequences, and the record shows multiple follow-up requests for fiscal and drafting clarifications.