Nov. 2, 2022 – Accepting electronic payments would become easier for Wisconsin lawyers under the terms of a rule petition filed with the state supreme court by the Office of Lawyer Regulation (OLR).
Filed on July 15, 2022,
Rule Petition 22-05 would amend Supreme Court Rule (SCR) 20:1.15, regarding attorney trust accounts, and the definitions section of SCR 21:1.0 to allow electronic payments into attorney trust accounts.
Badger State is an Outlier
According to a memorandum filed by the OLR in support of the petition, Wisconsin is the only state that doesn’t allow lawyers to process electronic payments directly into trust accounts, without taking additional steps.
Under current rules, one option is to maintain an electronic trust account in addition to a traditional trust account and pass electronic payments – once they’ve cleared – through the e-banking account into the traditional trust account.
The other option is to maintain a single “all-in-one” trust account into which electronic payments are allowed, so long as the lawyer takes out a bond or crime insurance policy and maintains commercially reasonably account security and either:
arranges for financial institutions and credit card companies to have chargebacks, ACH reversals, fees and surcharges related to electronic payments deducted from the lawyer’s business account; or
replace all money withdrawn by a financial institution or credit card company within three business days.
Compliance Can Be Expensive
“Right now, as the OLR’s memo in support of the petition explains, the process for accepting electronic payments into a trust account is very complicated,” says Christopher Shattuck, law assistance practice manager at the State Bar of Wisconsin (Practice 411™). “Many lawyers either think they’re not able to accept electronic transactions or, if they are accepting electronic transactions, are actually completing the process incorrectly.”
Maintaining a bond or crime insurance policy can be expensive, depending on one’s practice area, according to Christopher Shattuck, law practice assistance manager at the State Bar of Wisconsin (Practice 411™).
Under the current rule, the bond or crime policy is required to be in an amount large enough to cover the highest maximum daily account balance recorded during the previous year, Shattuck explained.
“If you are a firm that did one real estate transaction for a client and you had $3 million dollars in closing proceeds go into your trust account and then you transferred that out, you’d have to have a $3 million policy,” Shattuck said.
Complying with the conditions for maintaining an “all-in-one” trust account may not even be possible any longer.
According to the OLR memo, the only insurance company in the state that offered a bond or crime insurance policy for an “all-in-one” account no longer offers such a policy.
“While it is possible there may be other insurers willing to offer similar policies, compliance with this exception is wholly dependent on products that may or may not be available in the private marketplace,” reads the memo.
The current rules may also cause confusion among State Bar members.
“Right now, as the OLR’s memo in support of the petition explains, the process for accepting electronic payments into a trust account is very complicated,” said Shattuck.
“Many lawyers either think they’re not able to accept electronic transactions or, if they are accepting electronic transactions, are actually completing the process incorrectly.”
According to the OLR memo, the current rule “has adversely affected lawyers engaged in the practice of law in Wisconsin, limited client choice, increased administrative burdens, and restricted access to justice.”
“Prohibiting electronic payments has a negative effect on the ability of Wisconsin citizens to obtain legal representation and decreases access to justice for many, particularly lower income and younger individuals who are less likely to have traditional checking accounts,” the OLR memo reads.
Shattuck said that clients are increasingly asking to pay their legal fees with electronic payments.
“Wisconsin’s legal industry is constrained in a way that other industries are not, as electronic payments are common in virtually all facets of life,” reads the OLR memo.
Proposed Rule Change
The rule petition would make the following changes:
“Every check, draft, electronic transfer, or other withdrawal instrument shall be personally signed or, in the case of electronic, telephone or wire transfer, directed by one or more lawyers authorized by the law firm or a person under the supervision of a lawyer having responsibility under SCR 20:5.3.”
Jeff M. Brown is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by email or by phone at (608) 250-6126.
Additionally, the rule petition would amend SCR 20:1.15(f)(1) to specify that lawyers must, within three business days, reconcile accounts if an electronic payment is charged back or an ACH payment is reversed.
The rule petition would allow electronic payments for advanced fees and costs to be accepted into a lawyer’s operating account, as long as the lawyer transfers any unearned fees into a trust account within two business days.
That proposed change, according to the OLR memo, is borrowed from Maine and North Dakota, and would allow a lawyer to use a single electronic payment processor.
Under the rule petition, lawyers would remain responsible for all activity that occurs in their trust accounts under SCR 20:1.15(b)(1) and (g).
What Would the New Rule Mean?
“If you want to continue to have your E-banking trust account and just accept all electronic payments that way and transfer them over to your regular IOLTA account – if you’ve got a system set up and you don’t want to change it – that’s fine,” says Travis Stieren, trust account program administrator with OLR.
Travis Stieren, trust account program administrator with the OLR, said that lawyers who currently have E-banking trust accounts or all-in-one trust accounts won’t need to convert those accounts if the supreme court adopts the petition.
“They should already be an IOLTA account,” Stieren said. “We regard the new rule as permissive. We’re removing the restrictions on electronic transactions and not creating any new restrictive requirements. There would be no need for anyone to make any changes to the trust account they have.”
There would also be no need for a lawyer to close an E-banking trust account and have only a single trust account, Stieren said.
“If you want to continue to have your E-banking trust account and just accept all electronic payments that way and transfer them over to your regular IOLTA account – if you’ve got a system set up and you don’t want to change it – that’s fine,” Stieren said.
“It’s really up to the attorney and their particular practice. Some firms like to have more than one trust account – say, they use one for advanced fees and costs and one to put settlements in, and that’s fine. You can have as many trust accounts as you want, for whatever purposes.”
Stieren also said that adoption of the rule petition won’t require a lawyer to notify the State Bar and the OLR if the lawyer opens a trust account after the date of the annual certification on the lawyer's dues statement.
“If you make any changes to your trust account during the year – say you’re a government attorney and you hang out your shingle and open your trust account on February 1 – you’re not required to make a new certification at that time,” Stieren said. “The rule only requires you to annually certify which trust accounts you have at the time of the certification, which is due July 1.”
However, the OLR does receive notification when a lawyer opens a new trust account after the lawyer completes the
two required forms to open a trust account, even if that occurs between the dates of the annual dues certifications.
Otherwise, lawyers provide annual updates to OLR when they complete and submit their dues forms. The rule petition would not require lawyers to take any additional action, beyond that discussed above.
The only affirmative duty added under the proposed rule, Stieren said, is for a lawyer accepting electronic payments into a trust account to reimburse chargeback or reversal amounts within three business days.
“The new rule should be able to take effect without any kind of transition period,” Stieren said.
No Hearing Scheduled Yet
As of Oct. 26, the Wisconsin Supreme Court
hadn’t scheduled a hearing on the proposed rule petition.
Shattuck said that if the supreme court adopts the petition, the State Bar will produce guides and CLE programs on the new rule.
