Credit Cards: Worth It to Work It Out
Law firms are businesses, whether you’re a solo working from a home office or a large firm with a midtown office. The point of a business is to make money, which means that when a client purchases your services, you need to collect payment. To collect payments consistently, you need to make it easy for clients to pay. Accepting credit cards is just about the easiest way to ensure clients have no excuse not to pay your bills.
For some reason, some lawyers have no problem with paying an insurance copayment for a 10-minute visit to their doctor’s office — yet when a client uses an hour of that same lawyer’s time, she will say it feels “unprofessional” to ask for payment. Asking for payment and saying, “I accept major credit cards”? Horrifying!
I have one thing to say to these horrified lawyers: Get over it. If you’re going to make money practicing law, you need to get paid, and taking credit cards makes it easy.
Yes, there are ethical considerations involved in taking credit cards, but it is well worth it to figure out the rules so you can take plastic.
Accepting credit cards at all. The original ethical concern was whether lawyers could accept credit card payments at all — even for fees already earned (which is basically just the same as taking a check and putting it straight in the firm’s operating account). The California and Texas bars, among others, opined on the issue in the late 1960s and early 1970s, finding that yes, it was okay for lawyers to take credit cards.
The issue back then was just that it seemed “unprofessional” to do so, because taking plastic gave the impression that legal services were a good to be sold, just like any other consumer product.
Accepting credit cards for earned fees. The profession has had to jump through the hoop of having ethics regulators opine on accepting cards for earned fees, even though there doesn’t seem to be an ethical issue here. Indeed, as regulators consider the point, they come to the consensus that once fees are earned and owed by the client, taking a credit card is no different than accepting cash or a check in payment of an invoice.
Accepting credit cards for nonrefundable retainers. Regulators have separately considered whether a nonrefundable retainer may be accepted by credit card. Again the consensus is yes, because a nonrefundable retainer is “earned” when received, since it is nonrefundable.
Accepting credit cards for advance fees. Here we arrive at the tricky part. What if the credit card charge is for a fee not yet earned? The issue here is that unearned fees are often required to be held entirely in a trust account. However, if you accept payment of the unearned fees by credit card, you will not actually receive the full amount of the unearned fees from the credit card-issuing bank. When the transaction goes through, bank fees associated with processing the card are deducted off the top. If you take a $3,000 advance fee, you should be depositing into trust the full $3,000. But, since the bank takes its 2 percent off the top, the deposit into the trust account is only $2,940. You have yet to earn the $60 — yet you have essentially spent it already.
Moreover, if an attorney is required to deposit unearned fees directly into trust, that means giving the credit card-processing bank access to the trust account. This may be an ethical dilemma as well: If the bank has access, then it can withdraw funds back from the trust account if the client disputes the credit card charge (called a chargeback). This can lead to an overdrawn trust account, surely an ethics violation.
It has also been asked whether the bank’s fee taken off the top of the legal fee deposit would be considered prohibited fee sharing.
Thankfully, ethics regulators are recognizing the realities of the business side of law practice and are finding ways to work around these ethical dilemmas. Equally helpful, there is a cottage industry cropping up of credit card processors specifically for lawyers.
I strongly advise any lawyer looking to take credit cards as payment to look carefully at your own state’s rules. This is an area where you want to make sure you’re not just following the herd, but that you have actually ensured your compliance with the rules applicable to your license.
Advance fees not required to be held in trust. California’s Rule of Professional Conduct 4-100 allows for advance fees to be held in trust, but they are not required to be held there. So, even if a credit card processing fee is taken off the top, as long as the lawyer is not deducting the fee from the client’s balance on deposit toward advance fees, no ethics violation is taking place. Many other jurisdictions have similar rules.
Bank charges are not fee sharing. The fee sharing issue has largely been found to be a non-issue after all. Regulators considering the purpose of the ban on fee sharing, which is to prevent a non-lawyer from having any influence over the representation, have found that paying an administrative fee to a banking institution does not implicate the purpose of the ban.
Business solutions to trust account concerns. In most attorneys’ minds, chargebacks to trust accounts are the biggest risk to taking credit cards. Let’s say a client allows you to charge his credit card, you put the funds in trust, then earn the fee and thus properly withdraw the funds from trust. If the client then calls the credit card company to dispute the fee, your trust account will be charged the disputed amount. One of two things will happen: The trust account will be overdrawn or your other clients’ money will be taken out to cover the chargeback. Either way, you have a serious trust accounting problem.
This concern isn’t one that needs to be resolved by ethics regulators, though. Business solutions get us around it. The right of a credit card issuer to charge back the trust account comes from the contract between the bank and the lawyer. So change it!
Law-Focused Credit Card Processors
There is a cottage industry popping up of credit card processors that cater to law firms — they understand this very important ethical issue and have terms different from standard retail credit cards when it comes to chargebacks on trust accounts. Three of these processors are PayProsLegal.com, LawCharge.com and LawPay.com (all of which I have explored, but none of which I am explicitly endorsing here). For example, they may have a dispute resolution process to mediate between the attorney and client before any chargeback is issued. Knowing how the dispute is being resolved allows the attorney to place disputed funds back in trust before they are withdrawn to be returned to the client. Or, the chargeback may be taken from the attorney’s operating account, avoiding violating the trust account at all.
You can also include language in your retainer agreement to help avoid chargebacks. For example, state that clients will not dispute a charge through their credit card issuer prior to attempting to resolve it with you.
Again, if you know the fees are being disputed, then placing them back in your trust account is the proper step to take anyway, and it protects against a chargeback overdrawing the trust account.
The law-specific credit card processors also avoid taking any fees from trust accounts. Instead, they link both your operating and trust account to your merchant account. So, when you receive funds from a client’s credit card, the full amount charged goes into trust, and the fees come out of your operating account.
Obviously, taking credit cards comes with some ethics questions, but there are ways to reconcile ethical concerns with the business world practicality of taking plastic. The alternative is that you will lose business from clients who do not have a chunk of cash for advance fees, or you will carry a high receivables balance — which may or may not get paid.
It is absolutely worth the trouble to look at your state’s rules and figure out how to make accepting credit cards work for your practice.
Megan Zavieh focuses her practice exclusively on attorney ethics, providing full and limited scope representation to attorneys facing state bar disciplinary action, and providing guidance to practicing attorneys on questions of legal ethics. She has been representing attorneys facing disciplinary action before the California State Bar since 2009 and is admitted to practice in California, Georgia, New York and New Jersey, as well as in Federal District Court and the U.S. Supreme Court. She blogs at California State Bar Defense and is a contributor at Lawyerist.com. Megan currently serves on the Executive Committee of the Solo and Small Firm Section of the State Bar of California.
More “On Balance” from Megan Zavieh
- Cloud Computing and the NSA: The U.K. Weighs In
- Attorney Discipline: Does Time in Practice Count?
- Random Trust Account Audits: Latest Wave of Regulator Concern
- Alien Status and Bar Admission