Oct. 21, 2020 – Can we pass on credit card fees deducted from client fee payments to our “Alternative to E-Banking Trust Account”?

Question

Our firm usually requires our clients to pay an advance on our hourly fees that we place in our trust account and then bill against. In order to permit clients to pay these advanced fees by credit card, we took the steps necessary to establish an “Alternative to E-Banking Trust Account” pursuant to SCR 20:1.15(f)(3)c. Recently, our office manager noted that our firm is paying a fair amount in credit card fees and asked whether we should be passing those costs on to clients.

Can we pass on credit card fees deducted from client fee payments to our “Alternative to E-Banking Trust Account”?

Answer

Previous ethical dilemmas articles in InsideTrack discussed whether it was permissible under the Rules of Professional Conduct (Rules) for a lawyer to hold a client responsible for charges associated with electronic payments, such as credit card or PayPal fees.

The first article, “Dilemma: Can You Add Credit Card Fees to Clients' Bills?” from March 18, 2020, explained why this is prohibited for lawyers processing such payments through an E-Banking Trust Account.

The second article, “Dilemma: Can Credit Card Fees Be Deducted from Payments into Operating Accounts?” from May 20, 2020, explained why lawyers accepting such payments into their operating accounts using the Alternative Protection for Advanced Fees are not prohibited by the Rules from holding clients responsible for such charges, provided that the lawyers ensures that such a practice does not violate the lawyer’s agreement with the payment processor or state or federal law, and that the client understands and consents to the charges.

This article discusses whether the Rules prohibit such a practice for lawyers using the “Alternative to E-Banking Trust Account” pursuant to SCR 20:1.15(f)(3)c. to receive electronic payments from clients.

The requirements for establishing an Alternative to E-Banking Trust Account (also known as an “All-in-One” trust account) were discussed in a previous article (“Using a Single Trust Account: What About Insurance?” – Feb. 20, 2019). Lawyers who establish a compliant “Alternative to E-Banking Trust Account” may accept electronic transactions, as defined by SCR 20:1.15(a)(2), into the trust account and need not transfer the funds to another trust account, as required when using an E-Banking Trust Account pursuant to SCR 20:1.15(f)(3)b.

Nothing in the language of SCR 20:1.15(f)(3)c either explicitly permits or prohibits a lawyer who accepts a client payment of fees by an electronic transaction into an “Alternative to E-Banking Trust Account” from holding a client responsible for any fees associated with that payment.¹

The Wisconsin Comment to the trust account rule does provide the following guidance:

Financial institutions, as credit card issuers, routinely impose charges on vendors when a customer pays for goods or services with a credit card. That charge is deducted directly from the customer's payment. Vendors who accept credit cards routinely credit the customer with the full amount of the payment and absorb the charges. Before holding a client responsible for these charges, a lawyer needs to disclose this practice to the client in advance, and assure that the client understands and consents to the charges. In addition, the lawyer needs to investigate the following concerns before accepting payments by credit card:

1. Does the credit card issuer prohibit a lawyer/vendor from requiring the customer to pay the charge? If a lawyer intends to credit the client for anything less than the full amount of the credit card payment, the lawyer needs to assure that this practice is not prohibited by the credit card issuer's regulations and/or by the agreement between the lawyer and the credit card issuer. Entering into an agreement with a credit card issuer with the intent to violate this type of requirement may constitute conduct involving dishonesty, fraud, or deceit, in violation of SCR 20:8.4(c).

2. Does the credit card issuer require services to be rendered before a credit card payment for legal fees is accepted? If a lawyer intends to accept fee advances by credit card, the lawyer needs to assure that fee advances are not prohibited by the credit card issuer's regulations and/or by the agreement between the lawyer and the credit card issuer. Entering into an agreement with a credit card issuer with the intent to violate this type of requirement may constitute conduct involving dishonesty, fraud, or deceit, in violation of SCR 20:8.4(c).

3. By requiring clients to pay the credit card charges, is the lawyer required to make certain specific disclosures to such clients and offer cash discounts to all clients? If a lawyer intends to require clients to pay credit card charges, the lawyer needs to assure that the lawyer complies with all state and federal laws relating to such transactions, including, but not limited to, Regulation Z of the Truth in Lending Act, 12 C.F.R. § 206.

The Wisconsin Comment point to concerns outside the Rules that a lawyer needs to address before holding a client responsible for credit card fees.

Thus, the lawyer who accepts credit card payments into their “Alternative to E-Banking Trust Account” is not prohibited directly by the disciplinary rules from holding a client responsible for those costs, but the lawyer who wishes to do so must contact the issuer to ensure that doing so does not violate the terms of service agreement. The lawyer must also “disclose this practice to the client in advance, and assure that the client understands and consents to the charges” and ensure that the practice complies with any relevant state and federal laws and regulations.

Endnotes

¹ SCR 20:1.15(f)(3)c.3 does require that the lawyer arrange for, among other things, any “fees deducted from deposits” to be deducted from the lawyer’s operating account. The Rule does not, however, prohibit a lawyer from seeking reimbursement for such charges.