YourABA October 2012 Masthead

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Credit cards: Service charges
and chargebacks


Peter Geraghty, Director, ETHICSearch
ABA Center for Professional Responsibility


Susan J. Michmerhuizen
ETHICSearch Counsel

A) You have a small real estate and probate practice, and you accept credit cards for payment of legal fees. At the end of the month, you are checking the payments received from the credit card company and find a discrepancy between the amount for which you billed and the sum received from the company. Upon closer inspection, you realize that pursuant to your contract with the company, it has deducted a percentage of the amount charged on the card as a service charge.

In today’s difficult financial climate, you have tried to keep your billing rates low to attract new clients, but this new expense is an additional burden on your practice budget that is already stretched thin.

Can you ask the client to shoulder some of these fees? 

B) You have been retained to defend a client in a civil matter. In these types of matters, you typically require a $5,000 retainer against fee charges that you deposit into your client trust account. The client wishes to pay the retainer using his credit card.

What, if any, ethics issues are implicated if you accept payment via credit card?


In ABA Formal Opinion 00-419, Use of Credit Cards for Payment of Legal Fees (2000); Withdrawal of Formal Opinions 320 (1968) and 338 (1974) and Informal Opinions 1120 (1969) and 1176 (1971), the ABA Standing Committee on Ethics and Professional Responsibility stated that it had in Formal Opinion 338 “accepted, per se, the propriety of using credit cards to pay legal fees.” However, because of numerous advertising and other restrictions that Opinion 338 carried forward from earlier ABA ethics opinions that were no longer justified under the current Model Rules, the committee withdrew it along with three other opinions, but reaffirmed that lawyers may use credit cards for legal fees.

State bar opinions; credit card fees

Many state bar ethics opinions had approved the acceptance of credit cards for fee payments before the ABA issued Opinion 00-419, although often with a sense that to do so was somehow unseemly, giving a number of conditions for their use. 

Some of these earlier opinions addressed situations in which a lawyer was approached by a financing company to solicit his or her client’s participation in a program in which the financing company would issue the client a card and then grant the client credit. Two opinions, one from Nebraska and another from Michigan, addressed the ethics issues raised by what seems to have been the same the same plan. See, e.g., Nebraska Ethics Opinion 94-3 (1994) (prohibiting lawyers from “promoting” credit card plan and requiring that the lawyer chargesnext hit only for services actually rendered or cash actually paid on behalf of the client) and Michigan Informal Ethics Opinion RI-168 (1993) (prohibiting lawyer from charging “additional fees to compensate for the fact that the lawyer will be receiving less than 100 percent of the client’s billings by using the credit card company”); Mississippi State Bar Opinion 135 (1987) (lawyer must not encourage participation in credit card plan, position must be that he accepts the plan as a convenience for clients who desire it, and he may not increase his fee for legal services rendered as a result of the plan; (3) the chargesnext hit must be only for services actually rendered or cash actually paid by the lawyer on behalf of the client).   

More recent state bar opinions reflect the increasing use of credit cards for all manner of purchases and tend to view the allocation of credit card fees and service charges as a matter of agreement between the lawyer and client. See, State Bar of Arizona Opinion 08-01 (2008) (agreement must state whether the client or lawyer is responsible for additional provider previous hitcharges); Disciplinary Board of the Hawaii Supreme Court Opinion 45 (2003) (charges associated with the use of previous hitcreditnext hit previous hitcardsnext hit may be billed to the client if the client consents in advance); Kentucky Bar Association Opinion E-426 (2007) (lawyer may pass on to clients any resulting transactional costs if the lawyer informs them in advance what charges they are responsible for); Missouri Opinion 20000202 (2000) (lawyer should also explain to the client whether the lawyer will previous hitcreditnext hit the client with the full amount or the amount actually deposited); North Carolina State Bar Opinion 247 (1997) (lawyer may pass these service charges on to the client after full disclosure to the client); Utah Ethics Opinion 97-06 (1997) (lawyers may accept payment for fees and costs by credit card). See also New York State Bar Association Opinion 763 (2003).

Other recent opinions also give the green light to passing service charges on to the client.  See, e.g., Washington State Bar Association Opinion 2214 (2012) in which the Washington State Bar Ethics Committee stated that a lawyer may charge a client who pays the lawyer’s fee by credit card an additional amount to cover the fee charged by the credit card company if the lawyer notifies the client in advance and does not charge the client more than a fee that reasonably reflects the actual cost incurred for the transaction. The opinion goes on to caution that lawyers should carefully review the agreement with the credit card company, stating:

At the time of issuance, of this opinion, the operating agreements used by most of the major credit card companies prohibit charging customers extra fees to cover the cost of such credit card transaction fees and attempting to do so may place a lawyer in violation of obligations imposed by the credit card provider agreements. [note 1]. Before attempting to charge a client any fee to recover the costs imposed by credit card providers, the lawyer should carefully consult all applicable agreements and the contracting bank. — Washington State Bar Opinion 2214 (2012).

See also Virginia State Bar Opinion 1848 (2009), in which the Virginia State Bar Ethics Committee stated that lawyers who make it clear upfront that the client is responsible for the associated merchant fees may deduct those fees from client funds received by credit card from the lawyer’s escrow account. In preparation of this opinion, the Virginia committee sought an opinion from the Virginia attorney general on any legal issues that might be implicated in the passing along of service charges to the client. While the attorney general found no legal prohibitions, he did opine that under applicable federal law, the service charges would be considered finance charges, and if the lawyer were to assess such charges, the client would have to be informed of them before the lawyer’s acceptance of the credit card in payment of his legal fees.

The interplay between a lawyer’s business account and trust account requires that she stay informed about the specifics of the credit agreement and how it operates, setting a duty to understand the nuance of the finance agreement. Online banking adds a new level of needed expertise. In North Carolina State Bar Opinion 2011-7 (2012), the North Carolina Ethics Committee mandated that the firm’s managing lawyers educate themselves frequently and regularly about Internet security risks and best online banking practices when using online banking. Safety measures available to the firm include using strong password policies, encryption and security software; hiring a technology expert for advice; and making sure relevant firm members and staffers are trained on and are abiding by the security procedures.

For further information on the general topic of financing legal fees, see the ABA Ethics 20/20 Commission’s  Issues Paper on Alternative Litigation Financing. See also the August 2006 Eye on Ethics column “Litigation financing.

Trust accounts; chargebacks

Payment of advance fees by credit card could put a lawyer in the position of having a credit card company seek to carry out a credit “chargeback” against the lawyer’s trust account in the event that the client disputed the fee. This type of activity could easily upset the accounting requirements of the trust account or even leave the account unable to honor checks written for other purposes. See District of Columbia Bar Legal Ethics Commission Opinion 348 (2009). If a credit card is used in this fashion, the committee added, the lawyer must ensure that under no circumstances can the credit card company invade her trust account.

In Oregon State Bar Opinion 2005-172 (2005), the Oregon State Bar Ethics Committee stated that to protect against the consequences of a chargeback to the lawyer’s trust account, the lawyer should try to reach an agreement with the bank that chargebacks would only come out of his business account. If this was not possible, then the lawyer should have a system in place that would automatically replenish the funds removed from the trust account from the lawyer’s business account. “However it is ultimately handled,” the Oregon committee stated, “the lawyer is ethically bound to ensure that any chargebacks that jeopardize other client funds in trust are promptly covered with the lawyer’s own funds.” The Virginia committee reached the same conclusion. “Advisably all chargebacks should be from the lawyer’s operating account or an interaccount transfer process by which funds from the operating account are transferred to the escrow account,” the opinion states. Otherwise, the panel said, the lawyer must supervise and personally restore escrow funds that are subjected to a chargeback. Virginia State Bar Opinion 1848 (2009). Accord, Maryland Ethics Op. 03-06 (2003). 

Arizona Opinion 08-01 (2008) stated that a lawyer may not use a credit card for fee advances to be deposited into the lawyer’s trust account, but this position was subsequently modified by the Arizona Supreme Court’s amendments to Rule 1.15 of the Arizona Rules, which are located here. Michigan State Bar Informal Opinion RI-344 (2008) also mandated that credit card payments for as yet unearned fees go into the lawyer’s trust account and not his business account. The opinion suggested two accounts be used but allowed lawyers to have the funds initially deposited into their trust accounts and then transfer earned fees into their business account. Accord California State Bar Opinion 2007-172 (2007). 

For a further discussion of this “chargeback” issue, see the March 2009 Eye on Ethics column “Can you take the credit?”


As the majority of the recent state bar ethics opinions on this topic illustrate, with client consent, lawyers may pass along credit card service fees to their clients. When accepting payments via credit card for fee advances, lawyers should be mindful of the risks associated with chargebacks and should check the local rules and ethics opinions of the jurisdiction for direction as to how best to protect client funds. Your state or local bar association may also be able to provide you with guidance in this area.

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