September 2014Volume 102Number 9Page 418

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Accepting credit-card payments? Mind your trust-account ps and qs

Make sure retainer-fee payments by credit card are going into your trust account and not your general office account, an ISBA ethics opinion admonishes.

More clients prefer to pay fees by credit card these days, and more lawyers are accommodating them, a practice that is typically good for client and lawyer alike. But credit-card transactions raise a few special ethics issues, one of which - payment for retainer fees - is the subject of ISBA Ethics Opinion 14-01, issued earlier this year.

As the opinion notes, lawyers must take care that the agreement they sign with the credit card processing company doesn't conflict with various ethical obligations to clients, notably the duty under Rule of Professional Conduct 1.15 to "hold property of clients or third persons that is in a lawyer's possession in connection with a representation separate from the lawyer's own property" - i.e., to avoid commingling.

Commingling isn't an issue when the payment is for services already performed. That money belongs to the lawyer, not the client. But when the client pays a security retainer fee "to secure payment for future services and expenses," he or she is paying for services that haven't yet been rendered. Those payments are the property of the client until the work is done, and as such must be deposited in the lawyer's trust account, not the lawyer's business account. According to the opinion:

[I]t would be improper to deposit credit card proceeds for "security" retainers into a lawyer's business account, even if the funds resided there only temporarily. Rather, security retainers, even when paid by credit card, must be deposited into a lawyer's trust account. A lawyer cannot circumvent this professional obligation by including disclosure statements in the engagement agreement with the client.
A lawyer who accepts credit card payments for both earned fees (the lawyer's property) and security retainers (the client's property) should designate two accounts - a trust account and a business account - with the credit card company. The lawyer would have credit card proceeds for earned fees, advance and general retainers deposited into his or her business account and credit card proceeds for security retainers deposited in his or her trust account. The lawyer would have to exercise care, or issue appropriate instructions to the credit card company, to ensure that funds are credited to the proper account.

This ability to direct fees separately into lawyers' business and trust accounts and thereby avoid commingling of funds is a key feature of lawyer-friendly credit card processors like ISBA partner vendor LawPay ( Lawyers should make sure the processing service they use can do likewise. LawPay also deducts processing fees only from a lawyer's business account, which eliminates the risk that processing charges will draw down the trust account below the minimum balance that may be required to refund unearned fees. Lawyers must take steps to make sure processing fees don't cause the trust account to drop below that level.

Service charges okay if disclosed

The opinion also points out client-confidentiality issues that can arise in credit card transactions - for example, in the description of the charge. It's best not to describe your service with a revealing phrase like "Jones divorce" or "Smith employment termination." Instead, "the description should be general in nature, such as 'for professional services rendered' or for 'fees and expenses,'" according to the opinion. "Moreover, lawyers should advise clients that certain information relating to their representation, such as the client's identity, will be revealed to the credit card company when the credit card is charged."

May a lawyer charge a service fee for credit card transactions? Yes, according to the opinion, but only if the "fee is reasonable and…is disclosed to the client, preferably in writing, before or within a reasonable time after commencing the representation, such as in the engagement agreement."

Your portal to Opinion 14-01 and other ISBA ethics information is

- Mark Mathewson

Matthew Hector is a Chicago lawyer.

Mark Mathewson is the ISBA director of publications.

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