Credit cards and lawyer trust accounts
By George A. Riemer
The American Bar Association issued an informal ethics opinion in 1969 which stated that it was unprofessional for lawyers to subscribe to credit card plans. This conclusion was reaffirmed in another ABA informal ethics opinion in 1971. ABA Formal Ethics Opinion 338, issued in 1974, overruled these opinions and concluded that lawyers could use credit cards for the payment of legal expenses and services, subject to certain restrictions.
Today, it is common practice for lawyers to accept credit cards payments for attorney fees and costs. Unfortunately, there appears to be a fair amount of confusion even now about how credit card payments are to be processed by lawyers. Do credit card payments have to go into your lawyer trust account or can they go into your office account and then into your trust account? Who pays the bank’s service charge? This article addresses these and other issues concerning the acceptance of credit card payments from clients.
DR 9-101(A) provides that all funds of clients, including advances for costs and expenses and escrow and other funds held by a lawyer or law firm for another in the course of work as lawyers, must be deposited and maintained in a lawyer trust account. Earned fee payments can be deposited into a lawyer’s office account, but funds belonging in part to a client and in part presently or potentially to a lawyer must be deposited in a trust account. The portion belonging to the lawyer can be withdrawn when due unless the right of the lawyer to receive it is disputed by the client. In that event, the disputed portion cannot be withdrawn until the dispute with the client is finally resolved. DR 9-101(A)(1) provides that funds reasonably sufficient to pay account service charges may be deposited in a lawyer’s trust account.
If credit card payments for unearned fees must be placed in a trust account, how are lawyers supposed to handle bank service charges on those payments? One way is to deposit an amount of money sufficient to pay credit card service charges in the trust account and replenish this deposit on a periodic basis. OSB Formal Ethics Opinion 1996-145 provides that lawyers may not deposit their own money into their trust accounts as a cushion to avoid detection of overdrafts. This would circumvent the bar’s trust account overdraft notification program. Such a deposit would not be for the purposes of paying bank service charges for maintenance of the trust account. A deposit to pay bank service charges under a lawyer’s credit card agreement with his her bank does not conflict, in my opinion, with the conclusion reached in Formal Ethics Opinion 1996-145.
Another option would be to deposit the credit card payment into the lawyer’s trust account and arrange for the lawyer’s bank to withdraw the service charge from the lawyer’s office account. This may or may not be acceptable to the bank.
The North Carolina State Bar issued an ethics opinion (RPC 247) in 1997 on the payment of fees by electronic transfer. The opinion indicated that earned fees paid by credit card could be deposited into the lawyer’s office account, but that if the lawyer’s bank would only deposit funds into one bank account and the deposit included both earned and unearned fee payments, the entire payment should be deposited into the lawyer’s trust account and the earned fees withdrawn from the trust account promptly. The opinion also indicated that the bank’s service charges could be charged to the client, with full disclosure to the client. Thus, it would appear proper, at least in North Carolina, for a lawyer to inform his or her clients that if they use a credit card to pay for legal services or costs, they will receive a credit on the lawyer’s account for the deposit, less the service charge the lawyer’s bank charges the lawyer for processing credit card payments. If the service charge to the lawyer was 3 percent, a $100 fee payment would result in a $97 credit on the client’s account with the lawyer. Most merchants include the cost of the use of credit cards in the cost of their merchandise or services. Thus, another way for a lawyer to address the service charge issue is to include it in his or her hourly rate without passing the service charge on to clients as a direct offset against individual payments on account thereafter.
In another North Carolina State Bar Ethics Opinion issued in 1998, 97 Formal Ethics Opinion 9, advice was asked about how lawyers should deal with bank chargebacks against prior client credit card payments. For example, a client may make a credit card payment and then notify her bank that she now disputes the charge. Depending on the circumstances, the lawyer’s bank may debit the lawyer’s trust account for the prior credit card payment. The opinion states, in part, as follows:
To avoid the potential jeopardy to the funds of other clients on deposit in a trust account, the lawyer must first attempt to negotiate an agreement with the bank that requires the bank to debit an account other than the trust account in the event of a chargeback. Some banks will route chargeback debits (and the discount fee for credit card charges) against a firm’s operating account. Some banks may require a merchant to maintain a separate demand deposit account in an amount sufficient to cover chargebacks. If a bank cannot or is unwilling to debit a separate account, (i.e. the bank requires all chargebacks to be debited from the account into which credit card payments are deposited), the lawyer must request that bank arrange an inter-account transfer such that the lawyer’s operating account, or other non-trust account, will be immediately debited in event of a chargeback against the trust account and the money promptly deposited into the trust account to cover the chargeback. If the bank will not agree to debit another account or arrange for inter-account transfers, the lawyer must establish a trust account for the sole purpose of receiving advance payments by credit card. The lawyer must withdraw all payments to this trust account immediately and deposit them in the lawyer’s 'primary' trust account. In this way, the risk that a chargeback will impact the funds of other clients will be minimized.
In conclusion, credit card payments for unearned or a combination of earned and unearned fees must be deposited into your lawyer trust account. Clients can agree, as an ethics matter, to pay the service charge for the convenience of using a credit card to pay their bill (the legal aspects of this are not being addressed in the article; note also that your credit card agreement with your bank may prohibit you from charging the bank service charge back to your customers). Lawyers can arrange with their banks to pay the service charge out of their office accounts or can deposit funds sufficient to cover credit card account service charges into their trust accounts. It is not proper to deposit credit card payments for unearned or a combination of earned and unearned fees into your office account, even if the funds are promptly deposited into your trust account. Lawyers are prohibited, except as explicitly authorized under DR 9-101, to commingle their own funds with the funds of their clients. Lawyers who fail to follow this basic rule court professional discipline. +
George Riemer is general counsel of the Oregon State Bar. He can be reached at 5200 S.W. Meadows Road, Lake Oswego, Ore. 97035; phone: (503) 620-0222, ext. 405; e-mail: email@example.com.