Accepting Credit Card Payments for Legal Fees
There has been a shift in the public adopting new behaviors in how they transact and purchase goods and services. What’s becoming apparent is that clientele, in general, want the option of paying legal fees by nontraditional methods such as by credit card or other electronic means, including payment apps (Venmo), and third-party financing of legal fees.
This is a five-part series on the ethical issues involved in the payment of legal fees by non-traditional means. This article explores the evolution of credit card payments for legal fees and expenses and the ethics inherent in accepting credit card payments. Guidance will be provided to help mitigate risks.
Clio’s Legal Trends Report (2020) shows that 40% of clients would never hire a lawyer who did not take credit or debit cards. Accepting credit cards for payment of legal fees for attorneys representing individuals is a must in the current economic climate. However, there are various ethical issues involved in accepting credit card payments for legal fees. The MSBA will try and address each issue, beginning with the evolution of approval by the Maryland Ethics Committee of lawyers accepting payment for legal fees and expenses via credit cards. The major reasons credit card payments for legal fees are challenging are the ethical and fiduciary duties imposed by the Maryland Rules of Professional Conduct and the requirement to protect your client’s funds in the trust account.
ABA Formal Opinion 338
Maryland, like all states, has adopted the ABA’s Model Rules of Professional Conduct. In 1974, the ABA overturned its longstanding position that payment of legal fees by credit cards was not permissive. In Formal Opinion 338, the ABA concluded that the use of credit cards for payment of legal services, expenses, and interest on delinquent accounts is allowed, provided the lawyer complies with certain guidelines as follows:
- All advertising related to a credit card plan shall be subject to pre-approval by the state or local bar having jurisdiction over the professional ethics of the attorneys
- No directory shall be printed listing the names of attorneys accepting credit cards
- No promotional materials will be supplied by the credit card company to the attorney as advertisement
- An attorney may not increase the fee for legal services rendered to the client who pays by credit card
- Charges made by lawyers to clients to be paid by a credit card shall only be for services actually rendered, not future services
- The attorney shall observe their obligation to preserve the confidences and secrets of their clients.
In 2000, all of the above advertising requirements were withdrawn by the ABA in Formal Opinion 00-419.
Maryland Committee on Ethics
The Maryland Committee on Ethics considered and adjudicated multiple opinions associated with the ethical and fiduciary duties imposed by the Maryland Attorneys’ Rules of Professional Conduct (“Rules of Professional Conduct”) when accepting credit card payments for legal fees. The onus of ensuring that all credit card payments for legal fees earned and unearned are compliant is solely on the attorney. Comprehension of the nuances associated with these payments should be carefully reviewed when deciding if and how credit card processing will work in your firm.
Credit Card Payment for Legal Services and Expenses Authorized
Four years after ABA Formal Opinion 338 (“ABA Opinion”), the Maryland Committee on Ethics (“Ethics Committee”) incorporated the ABA Opinion into Docket 78-19. The Ethics Committee concluded the use of credit cards for the payment of legal services rendered (already provided) and expenses actually paid out on a client’s behalf is authorized subject to the provisos contained in the ABA Opinion. (Note: the opinion did not address credit card payments for retainer fees or future legal fees and expenses.)
Advising Clients of Acceptance of Credit Card Payments for Legal Fees and Displaying Credit Card Logo
In 1979, the Ethics Committee considered the propriety of advising clients whether they may pay their legal fees owed by credit cards and whether an attorney could restrict which credit cards would be acceptable. The Ethics Committee also considered whether lawyers would be allowed to display an emblem or sign notifying clients of their firms’ acceptance of credit cards. In Docket 79-31, the Ethics Committee concluded attorneys could advise clients they are allowed to pay legal fees by credit cards and could also restrict which credit cards they are willing to accept. The committee also ruled that attorneys may display an emblem or sign notifying clients of their acceptance of credit cards.
Credit Card Payments Acceptable for Hourly Legal Services Rendered on Behalf of Clients, Interest on Delinquent Accounts Allowable by Credit Card if Client Agrees
The Ethics Committee addressed whether a lawyer could accept credit card payments for hourly legal services rendered on behalf of clients in Docket 89-52. The Ethics Committee reiterated its previous opinion in Docket 78-19. Specifically, the Ethics Committee opined law firms may allow the use of credit cards for the payment of legal services actually rendered and reimbursement of legal expenses actually paid out on a client’s behalf as long as the lawyer observed the following:
- Charges made by the lawyers to clients pursuant to a credit card plan shall be only the client
- The attorney “shall scrupulously observe their obligation to preserve the confidences of their client”
The Ethics Committee also concurred with the ABA Opinion stating a lawyer can charge his client interest on delinquent accounts with a credit card payment provided the client is advised that the lawyer intends to charge interest and the client agrees to the payment of interest on accounts that are delinquent for more than a stated period of time. (Note: the opinion did not address credit card payments for retainer fees and future legal fees or expenses.)
Credit Card Payments Involving Bankruptcy and Domestic Relations Cases
The complexity of accepting credit card payments for legal services and expenses was addressed in Docket 91-5 when the Ethics Committee was asked to consider the ethical dilemma in accepting credit cards in matters that would ultimately result in the attorney undertaking bankruptcy proceedings for the client; and, accepting credit cards for payments in domestic relations matters when both parties’ credit is pledged. The Ethics Committee noted that there is no reference to the use of credit cards by a client for the payment of fees in Rule 1.5 of the Maryland Rules of Professional Conduct or any other rule.
The Ethics Committee concluded that a lawyer would be assisting the client in perpetrating a fraud on the credit card company, if the lawyer knows the client will be filing a petition in bankruptcy and the debt for the legal fee would be discharged in the bankruptcy proceeding. Therefore, the Ethics Committee concluded it would be improper for a lawyer to accept a credit card for the payment of any legal fee in this circumstance.
Accepting the use of a credit card to pay for representation in a domestic relations matter does not, per se, present an ethical problem, according to the Ethics Committee. As a general rule, if the credit card is issued in the name of the client, even though it may be a joint account with the spouse, the credit card may be used to pay the lawyer’s fees.
Credit Card Fees and Chargebacks in Trust Account
In 2001, the Ethics Committee, for the first time, considered the ramifications of accepting credit card payments for retainers and fee payments in Docket 01-15. Specifically, the committee analyzed potential fees charged for each transaction and any chargeback in an attorney’s trust account. Chargebacks occur if a client disputes a fee charged for legal services and the credit card company withdraws the funds from the attorney’s accounts until the disputed payment claims are resolved.
The committee did not find anything unethical, per se, when an attorney accepts a credit card payment for a retainer fee (future fees). The committee noted that this was a matter of contract principles, and a legal services contract should clearly enunciate who pays the service fee related to the use of the credit card. The committee also opined that unless the attorney and the client have entered into an agreement where the client has agreed to be responsible for any charge related to the use of the credit card or any chargeback, the attorney is obligated to deposit sufficient funds to cover the difference between a retainer or fee amount and the amount received from the client less the credit card fee or a chargeback. The committee stated Rule 16-607(b.)(2.) of the Maryland Rules permits a lawyer to pay the fee or a charge back in the trust account from their operating account.
The attorney would be obligated to deposit sufficient funds to cover such a chargeback, and that deposit could be made from the attorney’s operating account. The trust account rules also permit an attorney to enter into an agreement with a financial institution to have any fees or charges related to a trust account deducted from an operating account maintained by the attorney. The Maryland Rules of Professional Conduct permit attorneys to accept credit card payments for fees for legal services performed and for retainers for fees not yet earned. However, an attorney must cover fees either from an operating account or agreement with a financial institution.
Acceptance of credit card payment as retainer
The issue posed in Docket 02-23 regarded the acceptance of credit card payments for a retainer or deposit for legal services to be rendered (in the future). Specifically, the committee addressed whether Maryland Rules 16-101 through 16-612 and the Rules of Professional Conduct allow an attorney to arrange to have credit card payments deposited in the attorney’s trust account and to have any credit card charge-back debited from the attorneys’ operating account.
The committee concluded clients may pay retainers with credit cards and those payments shall be deposited into a trust account. As long as the potential for a chargeback to the trust account exists, those funds must remain in the trust account to avoid the possibility that such a charge-back would encumber funds belonging to other clients. Alternatively, as provided in Rule 16-607(b.)(2.) of the Maryland Rules, an attorney may make arrangements with the financial institution to debit any such chargeback from the attorney’s operating account.
May Credit Card Payments of Retainer Fees Be Deposited Into an Operating Account if Unearned Fees are Transferred on a Daily Basis Into a Trust Account?
In Docket 03-06, the Ethics Committee considered the issue of whether credit card payments for retainer fees could be deposited into an operating account if unearned fees (retainer fees) are transferred on a daily basis into the lawyer’s trust account. Alternatively, the committee considered whether a lawyer could have all credit card payments deposited to the trust account with the funds for earned fees being promptly transferred to the operating account. The committee concluded that a lawyer could deposit all credit card payments into their trust account with the funds for earned fees promptly transferred to the operating account. The committee noted however that this method would require an attorney to deposit and maintain sufficient funds to cover all potential account fees, chargebacks, and transaction rescissions. See Docket 01-15 and 97-14. The committee concluded that a lawyer could not temporarily deposit a retainer fee not yet earned into an attorney’s operating account because Rule 1.15 of the Maryland Rules of Professional Conduct requires that all such funds “shall be deposited in an attorney trust account.”
Credit Card Transactions in General
Yes, lawyers in Maryland may accept credit card payments for legal fees and expenses owed and for retainer fees and expenses. Any service fees associated with credit card payments must be made by the attorney out of their operating account unless the legal services fee agreement (contract) clearly enunciates that the client is responsible for the service fee related to the use of the credit card. Any chargebacks are also the responsibility of the lawyer unless the legal services fee agreement (contract) clearly states that the client is responsible for all chargebacks. If the attorney is responsible for the service fee or chargeback, then a lawyer must use their operating account to cover the fees. Any retainer fees paid by credit card and not yet earned by the lawyer should be held in the trust account. Any earned funds may be transferred to the operating account, but the lawyer is required to deposit and maintain sufficient funds to cover all potential account fees, chargebacks and transaction rescissions.
Guidance to Mitigate Risks
The responsibility of ensuring that credit card payment deposits and withdrawals are in compliance with the Maryland Attorneys’ Rules of Professional Conduct is on the attorney. Guidance to mitigate the risks associated with accepting credit card payments follows.
- Communicate, communicate, communicate! Ensure your fee agreement discloses who is responsible for paying the service fee and chargebacks for the credit card payments. Continue to communicate to your client the terms of the legal fee agreement each time a payment is made by credit card.
- Ensure your trust accounts are protected. Under no circumstances should a credit card company have access to your trust account. Ensure that a credit card company withdraws service fees or chargebacks only out of the attorney’s operating account. An attorney may also allow a credit card company to debit money into either the attorney’s trust or operating account as designated by the attorney at the time the credit card payment is processed. To stay compliant, all fees earned may be deposited into the attorney’s operating account, but all unearned fees must be placed into the attorney’s trust account to avoid commingling. If an attorney is responsible for all service charges related to the credit card payments, then the attorney shall designate an account the credit card company may use for withdrawal of those fees (not the trust account). Remember, the onus of ensuring these deposits and withdrawals are done properly is on the attorney.
- Confidentiality. Protect your client’s confidentiality when processing credit card payments. A general explanation for a charge should suffice instead of a detailed accounting of the legal services provided. The credit card vendor agreement with your law firm should also contain a strict confidentiality provision so the vendor understands the heightened duty to protect the confidentiality for the legal services. Rule 19-301.6, “Confidentiality of Information,” of the Maryland Attorneys’ Rules of Professional Conduct may also be a concern when processing credit card payments.
- Payment Card Industry Data Security Standard (“PCI DSS”). More than 10.9 billion records with sensitive information were breached from July 2005 to July 2018, according to PrivacyRights.org. Under Md. Code Com. Law § 14-3501 et seq., data breaches notifications are required for breaches of personal information which includes the release of an individual’s name coupled with their credit card number. If your legal office is accepting credit card payments, then you are required under the law to protect the personal information of the credit card holder. The PCI DSS is a standard that all attorneys should adhere to if they are accepting and/or transmitting credit card information themselves for payment of attorney fees. A copy of the PCI DSS standards can be found here.
Credit Card Vendors
There are many companies out there that primarily serve the legal community for processing credit card payments for legal fees. They should be well aware of an attorney’s trust accounting requirements and more suited for the type of transactions lawyers are involved in. LawPay, an endorsed vendor of the MSBA, offers financial services to lawyers accepting credit card payments for earned fees and retainer fees. LawPay ensures credit card fees are taken only from the operating account and that all chargebacks are taken from the operating account and not the trust account unless otherwise specified. The Ethics Committee has clearly taken the position that the “use of credit cards for the payment of legal expenses and services is permitted under the Code, provided that all of its provisions are fully and completely observed.” The committee has also made it clear that caution should be exercised. An attorney should strongly consider using a vendor versed in the ethical and fiduciary responsibilities of an attorney before accepting credit card payments.
Join us in the coming weeks as we continue to cover in detail the payment of legal fees through non-traditional means.
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This is the first article of a five-week series that will discuss non-traditional payment of legal fees by credit card, payment apps or third-party financing. This series is designed to assist you in becoming aware of the ethical consideration a lawyer must consider before accepting payment of legal fees through one of these methods, as well as, providing guidance to mitigate risks.
Next week, the MSBA will address ethical issues involved in accepting payment for legal fees through payment apps like Venmo. The following week the MSBA will brief ABA Formal Opinion 484 regarding a lawyer’s obligations when clients use a third party to finance the lawyer’s fees. During the fourth week, the MSBA will summarize the Maryland Committee on Ethics’ opinion regarding third-party financing of legal fees. Finally, the MSBA will finish the series by summarizing all of the issues involved in accepting legal fees by credit card, through a payment app and through third party financing.