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Solicitors Client Accounts Balance incur Negative Interest

Neil Dineen



All of the major Irish banks now impose negative interest rates on solicitor client accounts.  This is despite the Law Society's significant lobbing efforts to exempt solicitor client accounts from such interest. 

This is the latest development in imposed negative interest rates on bank customers across the European Union since 2014 to encourage their customers to spend. The European Central Bank have welcomed negative interest as a way to encourage economic activity in the context of the impact of the pandemic on the European economy.  The negative interest rates vary across the Irish Banks from -0.5% to -0.9%. Additionally the trigger points vary across the banks from €1 million to €3 million.  

The bank's thresholds may have been established with the  intention of only impacting high net worth individuals and corporate clients. However, by imposing the charge on solicitor clients' accounts, they are affecting a large number of ordinary customers.

Impact of negative interest on Conveyancing transactions

Solicitor's clients will essentially now face a double charge in conveyancing transactions and will have to pay more money to meet the contract price. The Law Society has highlighted the injustice of these new charges and their impact of home buyers. James Cahill, president of the Law Society, stated: "We are deeply disappointed at this latest attempt by the banks to increase profits by penalising consumers, particularly future homeowners who already face significant financial challenges". However, the Banks insist that the application of negative interest rates are a reflection of the cost incurred in holding the funds on behalf of the customer.

The expectation is that it will now become common for vendor's solicitors in conveyancing transactions to insert a condition in the contract stating that if the amount of any deposit being held by the Vendor's Solicitor is reduced as a result of the application of negative interest, then the vendor shall be entitled to call on the purchaser to make up the deficit.

In smaller transactions it is likely that the costs of negative interest will be recovered by way of the application of a set charge.

Anticipated Development

It is expected that Irish Banks will eventually extend negative interests to all consumer accounts, possibly with the exception of small deposits.  The period of time for which negative interest rates apply will be contingent on economic recovery and the return of inflation in Europe. However it is predicted that Europe will experience a low growth inflation environment for the near term.
Written by Neil Dineen and Lyndsay Mason. 

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