Trust Accounts & ACH Transfers

So far this month, two different banks have called me to ask whether a bank us has a duty to notify us that a lawyer authorized an ACH transaction to a trust account.

The answer is “no.”  But, the fact that banks are asking whether they have a duty to provide information about a customer should tell you something about ACH transactions.

This is not my first post on trust accounts and ACH transfers.  Nor is this blog the only resource on the topic.  To wit:

• last June, I posted ACH Transfers & Trust Accounts;
• the VBA’s Professional Responsibility Committee addressed ACH transfers in Advisory Opinion 2017-1; and,
• the North Carolina State Bar addressed ACH transfers in this advisory opinion.

In that it’s Thursday, I have no problem taking the easy way out and simply pasting in something I wrote before.  #TBT !  Therefore, as a refresher, here’s an excerpt from my previous post:

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What’s an ACH transfer?  Good question.

This is an oversimplification:  an ACH transfer is an electronic transfer of funds that is processed by the Automated Clearing House.  An ACH transfer differs from a wire transfer in several respects.  Among them: funds sent via ACH transfer are not necessarily immediately available, and, ACH transfers can be reversed.  Here are some explanations of ACH transfers and how they differ from wire transfers:

• Know Your Bank: ACH vs. Wire Transfer
• Deposit Accounts: Difference Between Wire Transfer and ACH
• The Balance: Key Differences between ACH and Wire Transfers

The Vermont Bar Association’s Professional Responsibility Committee recently issued advisory opinion 2017-1. Per the opinion,

1. It is not a violation of the Rules of Professional Conduct to accept ACH transfers into a trust account.
2. An attorney should take steps to protect against ACH reversals.
3. If a reversal occurs, an attorney must act to protect client funds held in trust.

The North Carolina State Bar has also issued an advisory opinion on ACH transfers. It’s here.  The upshot: (1) an attorney may disburse immediately against funds credited to a trust account via ACH transfer; and, (2) if an ACH transfer is reversed, an attorney does not violate the rules as long as the attorney takes immediate action to protect other funds that in trust.

The NC opinion points out that ACH reversals are rare.  That’s a good thing.  However, I’m aware of two Vermont attorneys who had to deal with reversals.  It is not fun to wake up, look at your trust account statement, and see a reversal.  Simply, a reversal means that someone other than you or your firm caused money to leave your trust account.  And, often, the money that initially came in has been disbursed.  So, when the reversal occurs, the money leaving is money that belongs to a client other than the client for whom the funds were initially deposited.

As the Vermont opinion advises, take steps to protect your trust account. To quote the opinion:

• “Some banks now offer protection against ACH reversals, with names like ACH Debit Block or ACH Positive Pay. Some possible actions for an attorney to take
  to protect against ACH reversals are to ask the attorney’s bank to block reversals of ACH deposits, to set up a separate IOLTA account for ACH transfers, to set up a subsidiary account for a particular client that can only receive funds, and to give the attorney’s bank a list of entities that are authorized to withdraw from the IOLTA account.”

Check with your bank.  And, as I mentioned yesterday at the CCBA meeting, if your bank agrees to block reversals, still continue to keep an eye on your trust account! Last summer, a lawyer informed me that she’d had an ACH reversal, so she put a “block” on the trust account.  Somehow, the bank removed the block and another reversal happened.

As always, be careful out there.

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