May 20, 2020 – Can a lawyer pass along credit card fees to a client when the funds are deposited as advanced fee payments directly into an operating account?
Our firm bills most matters on a flat fee basis, and we usually ask for the fee to be paid in advance.
We use the “alternative protection for advanced fees,” as set forth in SCR 20:1.5(g), and deposit the advanced fees in our business account. We do permit clients to pay both advanced and earned fees by credit card.
Recently our office manager noted that our firm is paying a fair amount in credit card fees and asked whether we should pass those costs on to clients.
Can we pass on credit card fees deducted from payments to our operating account when using the alternative protection for advanced fees?
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Since 2007, Wisconsin lawyers have been permitted to accept credit card (or other forms of electronic payments) for earned and advanced fees.
It was previously not possible to accept advanced fee payments by credit card, because such payments were required to be deposited into a trust account and no electronic transactions were permitted into or out of trust accounts.
The 2007 changes loosened the restrictions in two different ways. The first was to permit lawyers to establish a “credit card trust account,” and the second was to establish a method to permit lawyers to deposit advanced fee payments directly into an operating, rather than trust, account. This article addresses the second option.
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The current SCR 20:1.5(g) permits a lawyer to deposit advanced fees – but not advanced costs – into an operating account, provided that the lawyer makes certain written disclosures to the client at the beginning and end of the representation, and agrees to participate in fee arbitration if the client makes a timely objection to the lawyer’s fees at the end of the representation.
The details of SCR 20:1.5(g) are beyond the scope of this article, but it is noteworthy that neither the rule nor its comment say anything about credit card fees.
SCR 20:1.5(g) was originally in SCR 20:1.15, the trust account rule, and the Wisconsin Comment to that rule did discuss credit card fees. That language survives in the Wisconsin Comment to the current version of the trust account rule:
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 comments thus point to concerns outside the rules that a lawyer needs to address before holding a client responsible for credit card fees.
Thus, lawyers who accept credit card payments into their operating accounts are not directly prohibited 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.
Note that a lawyer who accepts credit card payments for advanced fees using an e-banking trust account is governed by different rules, which are discussed in Can You Add Credit Card Fees to Clients' Bills? in the March 18, 2020, issue of InsideTrack.
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