ASHEVILLE, N.C. (828newsNOW) — Pisgah Legal Services has joined two other North Carolina nonprofits in a lawsuit challenging a state law that redirects millions of dollars from a program that helps people who can’t afford an attorney.
The lawsuit, filed Friday, Oct. 9, in Wake County, challenges changes to the North Carolina Interest on Lawyers’ Trust Accounts program, known as IOLTA, which has helped pay for free civil legal services for more than 40 years.
Pisgah Legal Services, Legal Aid of North Carolina and Charlotte Center for Legal Advocacy argue that lawmakers overstepped their constitutional authority by redirecting the money and restricting which organizations can receive grants.
The changes could have a significant impact in Western North Carolina, where Pisgah Legal Services helps people facing eviction, domestic violence, financial problems and legal challenges related to Tropical Storm Helene.
According to the lawsuit, Pisgah could serve at least 3,500 fewer people annually because of the funding changes. The organization received approximately $1.9 million in IOLTA funding in 2025, representing about 15% of its annual budget, according to previous reporting by 828newsNOW.
“Unless you are an attorney, you’ve probably never heard of IOLTA, but let me assure you, IOLTA funding has been a critical lifeline for people in need since the 1980s,” Pisgah Legal Services Executive Director Jackie Kiger said in a news release announcing the lawsuit.
She said losing that support could mean turning away domestic violence survivors, veterans, older adults, families at risk of losing their homes and people still recovering from Helene.
“Redirecting these funds away from legal aid programs will mean turning people away and forcing them to try to navigate complex legal systems alone,” Kiger said.
Helene recovery adds to concerns in WNC
For Pisgah Legal Services, the funding changes come as Western North Carolina continues recovering from Helene.
The organization serves 18 mountain counties and helped nearly 28,000 people in 2025, according to earlier reporting by 828newsNOW.
After Helene, its attorneys and staff helped residents navigate FEMA claims and appeals, insurance disputes, housing problems and other legal issues left behind by the storm.
Pisgah reported helping more than 3,800 people through disaster recovery clinics and securing $1.4 million in FEMA assistance, disaster aid and insurance appeals in 2025.
In an August interview with 828newsNOW, Kiger said the funding changes were especially troubling for a region still trying to recover from the disaster.
“It’s hurting the entire state, but from my perspective, the west is getting the worst of this, because we are already hurting and we have already been through a huge natural disaster,” Kiger said at the time.
She described clients who were able to obtain FEMA assistance, secure replacement housing or return to repaired homes with help from the organization’s attorneys.
The lawsuit says Pisgah received more than $1.8 million during its last full IOLTA grant cycle, including $700,000 specifically for Helene-related legal assistance.
Pisgah previously said it had approved a 2026 budget without relying on IOLTA funding, allowing it to maintain services in the short term. But the organization has warned that replacing the money will be difficult over time.
Where is the money going?
Unlike most government-funded programs, IOLTA does not use taxpayer dollars. It collects interest earned on certain bank accounts attorneys use to temporarily hold money belonging to clients.
Since the program began in 1983, it has awarded more than $134 million in grants supporting civil legal assistance and other programs designed to improve access to justice across North Carolina.
Under legislation signed by Gov. Josh Stein on July 7, up to $15 million a year in IOLTA revenue is directed to the state’s Private Assigned Counsel Fund. That program pays private attorneys appointed by courts to represent criminal defendants who cannot afford lawyers.
The legislation also allows up to $2.5 million annually in grants for programs supporting the administration of justice, but that money must come from funds IOLTA received before July 1, 2025. Those grants are subject to new eligibility restrictions.
Civil legal aid and criminal defense serve different purposes. Criminal defendants generally have a constitutional right to legal representation. People facing eviction, domestic violence, debt collection or other civil legal problems generally do not have the same guarantee.
In August, the North Carolina Office of Indigent Defense Services told 828newsNOW it welcomed the additional funding. The agency said low reimbursement rates had made it difficult to recruit and retain private attorneys willing to take court-appointed criminal cases.
Kerry Friedman, a retired attorney and former chairman of the IOLTA Board of Trustees and the Pisgah Legal Services board, said he supports funding for criminal defense but believes the state should pay for it without taking money away from civil legal aid.
“IOLTA funds should be used for the purpose for which they were intended, namely civil legal aid,” Friedman said.
Why lawmakers changed the program
The funding changes followed months of scrutiny by Republican lawmakers, who questioned the program’s oversight and the political advocacy of some organizations receiving grants.
In a statement reported by The Atlantic in July, House Speaker Destin Hall said lawmakers wanted to prevent the money from supporting progressive political causes and services for immigrants living in the country without legal status. He said redirecting the funding would instead help provide legal representation to underserved communities.
The legislation was part of a broader budget package signed by Stein, a Democrat, who criticized the IOLTA provisions.
Stein said the changes “cruelly punish” low-income North Carolinians who need access to justice, according to The Atlantic.
An April 2026 audit by the North Carolina Office of the State Auditor identified weaknesses in how IOLTA monitored approximately $30.3 million in grants.
The audit found that grants generally were awarded in compliance with eligibility requirements, but the program lacked adequate procedures to independently verify how recipients spent the money and whether they achieved their stated goals.
The findings did not establish that the money had been misappropriated. Auditors recommended stronger oversight and verification of grant spending.
The new law also changes appointments to the IOLTA Board of Trustees and restricts grants to organizations involved in certain immigration-related legal services, gender-transition medical treatment for minors or specified forms of public advocacy and lobbying.
What the lawsuit argues
The three nonprofits argue that the General Assembly exceeded its authority by changing a program established under the oversight of the North Carolina Supreme Court.
The court made participation in IOLTA mandatory in 2007 for attorneys who maintain qualifying client trust accounts.
The organizations contend that lawmakers interfered with the judicial branch’s constitutional authority to regulate attorneys.
They also argue that the new grant restrictions violate free speech protections under the U.S. and North Carolina constitutions because organizations can be disqualified based on activities supported by other funding sources.
The lawsuit asks the court to declare the challenged provisions unconstitutional and block their enforcement.
Those arguments are allegations in the lawsuit, not findings by a court.
The case names House Speaker Destin Hall, Senate President Pro Tempore Phil Berger, the North Carolina State Bar, the IOLTA Board of Trustees and the state of North Carolina as defendants.
The defendants’ responses to the lawsuit were not included in the announcement. Hall’s earlier comments about the funding changes were made before the lawsuit was filed.
Legal aid groups already feeling the impact
Elsewhere in North Carolina, the effects are already being felt.
Legal Aid of North Carolina said Monday, Oct. 12, that losing IOLTA funding has forced it to reduce staffing, close or consolidate offices and cut services across the state.
The organization received approximately $6.2 million in IOLTA funding in 2025 and expects to serve several thousand fewer North Carolinians in 2026 because of the loss.
According to IOLTA’s 2025 annual report, nearly 100,000 household members benefited from legal services provided by grant recipients in 2024, including 10,000 victims of domestic violence.
The Raleigh law firm Poyner Spruill is representing the three nonprofit organizations free of charge.
For Pisgah Legal Services, which has served Western North Carolina for nearly 50 years, the lawsuit comes as thousands of mountain residents continue dealing with housing, financial and other legal problems in the aftermath of Helene.
The case will now move through the court system.