Honorable Howard B. Brown, Jr.
Banking Commissioner
44 Capitol Avenue
Hartford, CT 06106

Dear Commissioner Brown:

You have requested our advice concerning the types of accounts that are available for deposit of funds pursuant to section 51-81c of the Connecticut General Statutes, as amended by Public Act 89-196. Section 51-81c established the Interest on Lawyers Trust Accounts program (“IOLTA”). As amended, section 51-81c requires lawyers and law firms having clients’ funds accounts to deposit clients’ funds which are less than ten thousand dollars in amount or are expected to be held no more than sixty business days in interest-bearing accounts. Interest on such accounts is paid to the Connecticut Bar Foundation (CBF), an organization qualified under section 501(c)(3) of the Internal Revenue Code. The CBF distributes the funds it receives to non-profit legal services organizations and for law school scholarships based on financial need.

In your request for advice you have asked specifically whether NOW accounts are available for the deposit of clients’ funds under the IOLTA program. Your inquiry focuses on language contained in subsection (a) of the statute which states:

Under the program, clients’ funds, which are less than ten thousand dollars in amount or are expected to be held for a period of not more than sixty business days, shall be deposited by participating lawyers and law firms in interest-bearing accounts specifically established pursuant to this program. Funds deposited in such accounts?shall be?subject to withdrawal upon request?by the depositor and without delay. (emphasis added.)

The keystone of the IOLTA program is the ability of each lawyer’s clients’ funds account to generate interest, since that interest is the source of funds for the program. However, section 51-81c(a) not only requires lawyers and law firms to deposit clients’ funds in interest bearing accounts, but it further requires that such funds be available for withdrawal upon request of the depositor and without delay. If the phrase “without delay” is construed to mean that the account must be a demand deposit account, then the statute contains conflicting provisions, since federal law prohibits the payment of interest on demand deposits.1?See?12 U.S.C. ee?329.1(b) and 371a, 12 C.F.R.?ee?204.2(b) and 329.1(b). The phrase “without delay” does not necessarily mean that clients funds must be deposited in a demand deposit account, however.

NOW (negotiable orders of withdrawal) accounts are not demand deposits but, rather, are a special class of savings deposits. They are like checking accounts, which are demand deposits, in that they may be accessed by negotiable or transferable instruments. 12 U.S.C.e?1832(a). Unlike demand deposits, however, depository institutions may pay interest on NOW accounts by virtue of the fact that the depository institution has reserved the right to require at least seven days written notice prior to withdrawal. As your letter acknowledges, banks rarely, if ever, have required notice prior to withdrawal from NOW accounts. NOW accounts are marketed as interest-bearing checking accounts and funds are made available for withdrawal to depositors without delay. In this respect, Connecticut banks mirror the practice throughout the United States.?See?e.g. S.Rep. No. 368, 96th Cong., 2d Sess., reprinted in 1980 U.S. Code Cong. & Ad. News 236, 242-243 (“Under the definition of a NOW account a depository institution may require a depositor to give 30 days notice before withdrawal from a NOW account is made, similar to the notice requirement on any savings account,?although such notice may not be required in?practice.” (Emphasis added.)); Emmanuel N. Roussakis,?Commercial Banking in an Era of Deregulation?at 134-136 (1989) (“A NOW account differs from a demand deposit in that,?technically, an institution is not required to honor NOW checks immediately, but may withhold payment for seven days or more.”); Comment, The Negotiable Order of Withdrawal (NOW) Account: “Checking Accounts” for Savings Banks? 14 B.C. Ind. & Comm. L. Rev. 471, 486-87 (1973).

In addition, certain federal regulations are drafted in a manner that recognizes the practice by banks of treating NOW accounts as interest-bearing checking accounts. Federal Reserve Board Regulation CC, governing availability of funds, defines “account” to include both demand deposit accounts and NOW accounts. 12 C.F.R.e?229.2(a). The regulations require banks to make funds deposited in both types of accounts available for withdrawal on the same schedule. 12 C.F.R. e?229.10. Thus, the regulations ignore the possibility that the NOW account notice requirement will be imposed.

It is in the above-described context that the phrase “without delay” in section 51-81c must be construed. At the outset, we note that this is not a term used in any statute governing NOW accounts or demand deposits. In?Dukes v. Durante, 192 Conn. 207 471 A.2d 1368 (1984), the Connecticut Supreme Court stated:

When faced with ambiguity in a statute, as we are here, we must resort to the rules of statutory construction. “It is an elementary rule of construction that statutes should be considered as a whole, with a view toward reconciling their separate parts in order to render a reasonable overall interpretation; the application, moveover, of common sense to the statutory language is not to be excluded.?United Aircraft?Corporation v. Fusari, 163 Conn. 401, 411, 311 A.2d 65 (1972);?Garbaty v. Norwalk Jewish Center,?Inc., 148 Conn. 376, 382, 171 A.2d 197 (1961). We must avoid a consequence which fails to attain a rational and sensible result which bears most directly on the object which the legislature sought to obtain.?United Aircraft?Corporation v. Fusari, supra 414;?Bridgeport v. Stratford, 142 Conn. 634, 644, 116 A.2d 508 (1955);?Sage-Allen Co. v. Wheeler, 119 Conn. 667, 679, 179 A. 195 (1935).”?La Providenza v. State Employees’Retirement Commission, 178 Conn. 23, 29, 420 A.2d 905 (1979). “‘In construing a statute a court considers its legislative history, language, purpose and the circumstances surrounding its enactment.?Delinks v. McGowan, 148 Conn. 614, 618, 173 A.2d 488 [1961];?Cassidy v. Tait, 140 Conn. 156, 160, 98 A.2d 808 [1953].’?State v. Sober, 166 Conn. 81, 91n, 347 A.2d 61 [1974].”?Winchester v.?State Board of Labor Relations, 175 Conn. 349, 356, 402 A.2d 332 (1978).

ID. at 214-15.?See?also?Waterbury Petroleum Products,?Inc. v. Canaan Oil & Fuel Co., 193 Conn. 208, 231, 477 A.2d 988 (1984) (“A cardinal rule of statutory construction is to construe statutes in a manner which gives effect to the apparent intention of the legislature.”);?Mystic Marine Life Aquarium, Inc. v.?Gill, 175 Conn. 483, 489, 400 A.2d 726 (1978) (“A statute is not to be interpreted to thwart its purpose.”)

Here, the primary purpose of section 51-81c, as amended by Public Act 89-196, is stated in the text of the statute:

(a) A program for the use of interest earned on lawyers’ clients’ funds accounts is hereby established. The organization administering the program shall use such interest to provide funding for (1) delivery of legal services to the poor by non-profit corporations whose principal purpose is providing legal services to the poor and (2) law school scholarships based on financial need….

To accomplish the purpose of the statute, clients’ funds must be deposited in accounts that earn interest. If the statute were construed to require clients’ funds to be deposited in demand deposit accounts, it would completely thwart the purpose of the statute, since no interest could be earned on such accounts. The entire statute would be rendered inoperative.

“[A] legislative act must be considered in its entirety and its parts reconciled and made operative so far as possible;?United Aircraft Corporaton v. Fusari, 163 Conn. 401, 411, 311 A.2d 65; and [ ] we assume that the legislature intended a reasonable and rational result to flow from its enactments.?Bahre v. Hogbloom, 162 Conn. 549, 557, 295 A.2d 547.”?McKinney v. Coventry, 176 Conn. 613, 621, 410 A.2d 453 (1979). The provisions of section 51-81c can be reconciled by taking cognizance of the fact that, as a matter of longstanding practice, funds deposited in NOW accounts are available for withdrawal “upon request by the depositor and without delay.” The willingness of the Federal Reserve Board to ignore the potential NOW account notice requirement in promulgating Regulation CC concerning availability of funds provides support for a construction of section 51-81c that takes into account the long standing practice with regard to NOW accounts. Accordingly, under a common sense interpretation of the statute, NOW accounts meet the statutory requirements for deposit of clients’ funds.

In summary, the words “without delay” in section 51-81c do not require that clients’ funds be deposited in demand deposit accounts. However, clients’ funds may be deposited in interest-bearing NOW accounts where as a matter of practice, funds are available for withdrawal upon request of the depositor and without delay.

Very truly yours,


Shelagh P. McClure
Assistant Attorney General


1?A demand deposit includes:

(1) Any deposit which has a maturity or required notice period of less than seven days;

(2) Any deposit regarding which the bank does not reserve the right to require at least seven days’ written notice prior to withdrawal or transfer of any funds from the account; or

(3) Any deposit from which, under the terms of the deposit contract, the depositor is authorized to make, during any month or statement cycle of at least four weeks, more than six transfers by means of a preauthorized or automatic transfer or telephonic (including data transmission) agreement, order or instruction, which transfers are made to another account of the depositor at the same bank, to the bank itself, or to a third party: … and provided further, that no deposit specified in this paragraph (3) will be deemed a “demand deposit” if the entire beneficial interest of the deposit is held by a depositor identified in paragraph (2) of section 2(a) of Pub. L. 93-100 (12. U.S.C. 1832) (a)(2).

12 C.F.R.e?329.1.?See?also?12 C.F.R. e?204.2(b). A regular checking account is a demand deposit.?Id.