Many of us have been debating whether we should take credit
cards for quite some time. On the one hand, there's a stigma
attached to accepting credit cards. For lawyers, it does not feel
entirely professional or dignified to reduce one's payment to such
an obvious process.
by Andrea Goldman, Esq. and John Marshall, Esq.
Most of us do not like asking for money. It's more comfortable
to work on retainer or send out a bill with the hope of getting
paid. There's also the issue of ethics. How does one handle credit
card payments when processing them through IOLTA and/or operating
accounts? What is the proper procedure? How does one avoid running
afoul of ethics rules?
While it is natural to want to avoid the distasteful notion of
commercializing the profession, it is time to realize that the
world has changed. We do not blink an eye when the doctor's office
expects our co-pay before treatment, and yet, as attorneys, many of
us still end up working without getting paid. The longer I
practice, the tougher I get about money. It took the experience of
reviewing my books and realizing that my receivables had
skyrocketed before I started taking a stand with clients and making
sure that they paid their bills.
It is hard to get used to getting the money up front, but in
this economy, it is quite possible that the amount you collect at
the beginning of a matter may be all the money that is ever
collected. Even though my engagement letter includes an Evergreen
retainer and the clients agree to replenish once the retainer drops
below a certain amount, the truth is, they rarely do. They
frequently just start paying their bills as they arrive, and most
clients do not rush to get the check in the mail. Shame on me.
When the ABA Techshow came to Boston, Jim Calloway, a noted law
practice management advisor, said he believes that all lawyers
should start taking credit cards. He felt that in this economy that
is the only way to ensure that one would get paid. After suing my
first client for fees, I now agree. As they say on the ABA's
Solosez, "you get more value from cleaning your own toilet than
from working for free."
For some reason, clients do not view legal services as a
commodity for which they should pay. It is our job to provide
clients with detailed bills and clear explanations that reflect the
value that we are providing. Despite the fact that I know that none
of my clients would steal a turkey from the supermarket, many do
not hesitate to "steal" my time. It is important to manage
expectations, ask for big enough retainers, and include a credit
card provision in your engagement letter. If payment is not
forthcoming, you have the right to run the credit card for the
Can lawyers take retainers on credit cards?
Here is the viewpoint from the Board of Bar Overseers: Credit
cards are here to stay and it is generally considered acceptable to
take payment of earned fees by credit card. But can a lawyer take a
retainer - an advance against unearned fees - on a credit card?
Ethics opinions across the country are divided on this question and
neither the Massachusetts Rules of Professional Conduct nor any
decisions by the Board of Bar Overseers or the Supreme Judicial
Court provide a direct answer. The Office of Bar Counsel strongly
discourages accepting payment of retainers by credit card for the
In Massachusetts, unearned
retainers must go into an IOLTA or other trust account until
earned. Credit card agreements generally permit the issuer to
"charge back" any payments subsequently disputed by the cardholder
and require that the issuer's chargeback rights attach to the
account where the funds were deposited.
Assume you accept a retainer on a credit card, which is
deposited to your IOLTA account. You do the work and pay yourself
from the retainer. Your client then contests your charges and the
issuer withdraws from your IOLTA account the disputed charges.
Since you have already paid yourself, this chargeback will draw
upon funds of other clients held in the account - funds that you
are required to safeguard.
The best and possibly only foolproof solution to this problem
would be to limit the issuer's chargeback rights to your operating
account. While some ethics opinions from other states suggest
taking credit card retainers into an operating account and
transferring the unearned portion to a trust account, or holding
earned portions of a retainer in a trust account until the issuer's
dispute period has ended, these would not be in compliance with the
current Massachusetts trust account rules.
There also exist other regulatory, bookkeeping and
confidentiality problems with credit card payments of fees. See
Vecchione, "No Easy Credit," www.mass.gov/obcbbo/credit.htm, on the
bar counsel's Web site. Lawyers taking credit card payments should
also be familiar with federal and state consumer credit, truth in
lending and consumer protection laws that may apply.
What to do if you decide to use credit cards
If you are now persuaded that taking credit cards is necessary,
what are the best options for attorneys? There have been numerous
conversations about taking credit cards on Solosez, and the one
service that is touted by all is Lawcharge.com. This is not meant
to be an advertisement for Law Charge, but as it says on Tracy
Griffin's Web site, the product is "designed by an attorney for
These are the types of fees associated with maintaining a credit
card account (from the Law Charge Web site):
- Discount fee: This is a percentage of the
transaction amount. It covers the costs of moving the money from
the cardholder's account to your merchant account through the
Federal Reserve's Automated Clearing House (ACH). The fee is
determined upon the type of processing you choose.
- Transaction fee: This is the fee charged for
obtaining the authorization to deposit the funds to your account.
It is usually between 15 and 75 cents per transaction, depending on
the type of processing you utilize.
- Set-up fees and equipment: Dependent upon the
type of processing you choose, you may be charged a set-up fee or
be required to purchase or lease equipment or software. Law Charge
does not require you to purchase software and highly discourages
the leasing of equipment as it is not cost effective.
- Junk fees: These fees are where the banks and
processors make money off you. You may be charged a monthly fee
whether you process or not, a statement fee, or a service call fee.
Law Charge does not charge any of these junk fees.
The first step in setting up credit card processing is to open a
merchant account. This is usually your business operating account.
Once your account is established, you can start receiving payments.
You do not want the fees and other charges to go through your IOLTA
account because this would violate IOLTA rules. One could buy or
lease a point of sale terminal, but most attorneys process their
payments through the Internet.
Some companies will require you to purchase software and others
have online service. At Law Charge, you log into their secured Web
site, and depending on the username and password you enter, the
funds will be deposited to that account. You will have the option
of depositing to either your trust/IOLTA account or your operating
account. Regardless of which account you deposit to, all fees will
be debited from your operating account.
What will it cost? This article is not intended to be a review
of all of the various services out there, but at Lawcharge.com, the
initial set-up fee is $200 for a virtual terminal to one's IOLTA
and operating accounts. This includes a link for clients to go to
the attorney's Web site to make payments. Electronic check
conversion from the check writer's account is also included
(automatic debit from the client's bank account). There is a $150
set-up fee just for a virtual terminal. The set-up fee is payable
over time with no interest. There is no monthly minimum payment. If
there is activity in a given month, the monthly rate is $10.
Finally, the discount fee is currently 2.7 percent for the virtual
terminal plus a 19-cent transaction fee. There is encryption for
If clients dispute a bill, they can call Law Charge and ask for
a retrieval request. Rather than issue a chargeback to the lawyer's
operating account, Law Charge requests that the client and lawyer
submit documentation to resolve the dispute. Law Charge has had one
chargeback in 10 years. The company also supplies language to
insert in one's fee agreement. The cardholder agrees that disputes
will be settled through arbitration or the judicial process rather
than issuing an automatic chargeback.
Paypal.com has a rate of 2.9 percent plus 30 cents per
transaction, but it is not clear whether there is a monthly
minimum. Tracy Griffin suggests that one use Paypal for operating
account payments only. The reason for this is that the payment goes
first to Paypal and then to the attorney's account. IOLTA rules
state that trust money has to go straight to a trust account which
is an approved trust account depository. There is no set-up charge
or monthly fee. The merchant rate requires a one-time application,
qualifying monthly sales volume, and account in good standing.
Costco has an Internet processing rate of 1.99 percent plus 27
cents per transaction. There is a one-time $25 application fee and
a $4.95 monthly statement fee, both of which are waived for
executive members. A monthly minimum charge applies when qualified
transaction fees and per-item charges are less than $20 per
Given the current economic situation, it is time for all lawyers
to seriously consider taking credit cards. After all, you deserve
to be paid.
Andrea Goldman is the principal of Law Office of Andrea
Goldman and co-chair of the Law Practice Management Council. John
Marshall is a member of both the Office of the Bar Counsel and the
Law Practice Management Council.