What happens to the interest earned on collected debt sitting in your debt collection attorney’s IOLA account?
When a creditor hires a debt collection attorney, the attorney aims to collect all that they can, including the principal, interest, and reimbursement of attorney fees. In a perfect world, the creditor would be able to collect what they are owed, plus the extra fees. But often this is not realistic. Although your debt collection attorney can demand interest from the debtor, they rarely agree to pay it. Collecting interest often takes going through the courts, where a judge can demand that they pay the debt plus interest in full. In the interest of resolution, clients usually accept the principal debt owed or a portion thereof.
When a debt is collected in litigation, arbitration, mediation, etc, the money is transferred to the lawyer who deposits it into a New York State Interest Lawyer Account Fund (IOLA). As the money sits in the account, it collects interest, as all bank accounts do. However, neither the law firm nor the creditor is entitled to keep the interest earned while the money is in the IOLA account.
IOLA Account Basics
Banks are required to send any interest accrued on an IOLA account directly to the state of New York. The interest becomes part of a fund that helps low-income New Yorkers obtain legal services that they would otherwise not have access to. IOLA’s mission is to use the interest collected to provide civil legal aid and justice system improvements at no cost to taxpayers, lawyers, or their clients.
On June 27th, 2025, New York Governor Kathy Hochul appointed six attorney trustees to the IOLA Fund: Pei Pei Cheng de Castro, Rahul Agarwal, Darren Cohen, Jason Hegt, and Sylvia Hinds-Radix. These appointees will join a 15-member Board of Trustees that will use the IOLA account funds to make grant awards to nonprofit civil legal aid organizations that help low-income New Yorkers. These organizations address civil legal problems affecting basic needs, such as food, shelter, employment, and health care. Last year, the IOLA board of trustees gave out over $511 million in grants from interest accrued on accounts.
Participation in New York’s IOLA program is not optional. Every New York attorney who handles client funds must maintain an IOLA account.
This does not mean that you are losing money using a New York debt collection attorney! The IOLA account does not pull from the principal owed to you from the debtor, or cut into the attorney fees. It is only uses the interest collected from the bank.
Using a New York debt collection attorney like Frank, Frank, Goldstein & Nager will help you get paid faster and recover more of the principal. Debtors are more likely to take notice if threatened by a suit. Debt collection attorneys improve cash flow and minimize losses to creditors.
Looking for an attorney to handle your debt collection case? Contact Frank, Frank, Goldstein and Nager by email or call +1 (212) 686-0100. We have the experience that pays.
