Bar News - March 16, 2016
Ethics Corner: How to Accept Credit Card Payments the Ethical Way
QUESTION: Our office just started accepting credit cards. What should our office be doing to make sure we are complying with the New Hampshire Rules of Professional Conduct (NHRPC)?
ANSWER: In general, fee agreements between the lawyer and the client should be discussed fully prior to the lawyer being engaged for the representation and preferably reduced to writing. NHRPC Rule 1.5(b).
When credit cards are used, it particularly is important to have a writing that is acknowledged by the client, as the fee arrangement may require disclosure of certain confidential client-related information, otherwise protected under NHRPC Rule 1.6, to a third party, in order to process payment.
Another Rule 1.6 concern is the disclosure of a charge to an opposing party. This scenario is typically envisioned in the divorce or family law context where both parties still have access to each other’s bank statements and credit card statements. Thus, if a client is meeting with an attorney without disclosing that meeting to the client’s spouse – a charge on the credit card statement showing the firm’s name may inadvertently disclose the attorney-client relationship.
Additionally, a client’s payment of the lawyer’s fees by credit card may result in the client paying interest on any unpaid balance. Thus, the best practice for a lawyer who agrees to accept credit cards is to have a written agreement in which the client consents to limited disclosure of the firm as a party accepting a charge, as well as acknowledgement that the credit card user may incur interest charges.
Another issue to be aware of when accepting credit cards is the payment of an advance or retainer for services not yet rendered. The lawyer needs to ensure that if the lawyer withdraws or terminates the representation for any reason, the lawyer must promptly refund the money or issue a credit to the cardholder’s account. NHRPC Rule 1.15(c) requires that legal fees and expenses paid in advance be deposited into a client trust account that is separate from the lawyer’s own funds. Additionally, client trust funds may be withdrawn by the lawyer only as fees are earned and expenses incurred. NHRPC Rule 1.15(c).
Although the Rules are silent as to whether the attorney or the client is responsible for any processing fees often associated with credit card payments, NHRPC Rule 1.5(a) prohibits lawyers from entering into an agreement for, charging, or collecting an illegal or unreasonable fee for services. It is not clear that charging the client for the convenience factor of utilizing a credit card would be an illegal or unreasonable fee. Even so, practitioners may want to consider paying those processing fees from their own operating accounts, rather than using funds from a client’s trust account to do so. Another alternative is to have the client sign an agreement that identifies that the client is aware that the processing fees for the credit card are being charged directly to him or her, so that there is no confusion later.
One last issue that firms utilizing credit cards need to be aware of is the possibility of chargebacks. If a payment is made with a credit card and is then rescinded (usually this happens when the credit card company receives a complaint of a fraudulent charge), a firm’s IOLTA account may become out of balance in violation of NH Supreme Court Rule 50. Some, including the New Hampshire Supreme Court Attorney Discipline Office, have recommended maintaining two IOLTA trust accounts, one for credit card transactions and one for all other payment transactions. This organization of accounts is suggested to avoid issues, should a credit card processor “pull back” funds from a disputed charge. However, organizing the accounts in this fashion will not avoid an IOLTA account becoming out of balance if the credit card processer has access to pull funds from the IOLTA account.
One possible solution is to connect with a credit card processor who will agree to restrict its access solely to the firm’s operating account, in the event of a chargeback. Under this approach, a credit card processor would deposit the funds into the IOLTA but pull the chargeback funds, if any, from the operating account only. This arrangement would help ensure the firm avoids an unbalanced IOLTA account in violation of Rule 50. Also important under this approach is the need for the firm to keep enough funds in its operating account to cover any chargeback claims.
The NH Bar Association Ethics Committee provides general guidance on the New Hampshire Rules of Professional Conduct and publishes brief commentaries in New Hampshire Bar News. New Hampshire lawyers may contact the Committee for confidential and informal guidance on their own prospective conduct or to suggest topics for “Ethics Corner” commentaries by emailing Robin E. Knippers.