By Whittney Dunn, Risk Manager, The Bar Plan Foundation
In 2020, it can be challenging to operate as a business that does not accept credit cards, even as a law firm. While accepting credit card payments for legal fees and expenses is ethically permissible, there are certain considerations inherent in this type of payment that would not exist for other service or retail businesses. This article analyzes the ethics and malpractice risks inherent in accepting credit card payments from clients and provide risk management guidance to mitigate those risks.
Trust Accounting and Commingling Issues
The primary reasons credit card payments are challenging for attorneys is because of the ethical and fiduciary duties imposed by the Rules of Professional Conduct and the inflexibility of some credit card processors who insist on the right to invade the depository account in the event the cardholder disputes a charge. This issue was reviewed in Missouri Informal Ethics Opinion 2014-05. How to follow the guidelines set out in that opinion depends on the type of credit card payments your law firm will receive and whether or not the credit card processing company will permit deposits and debits out of more than one account.
If the law firm will charge advance payments for fees and/or expenses onto the client’s credit card, the firm may not have these payments deposited directly into the operating account pursuant to Rule 4-1.15(a) and (c) unless the payment is an advanced flat fee that does not exceed $2,000. Conversely, a law firm taking payments only for fees that have already been earned by work performed and/or expenses that have already been incurred would be permitted to place these payments directly into the firm operating account. In the event of a credit card chargeback or any other reason for the credit card company to debit one of the law firm’s accounts, those amounts absolutely must not come from a law firm trust account.
Therefore, if a credit card processing company allows deposits and debits out of only one account, it would not be ethically permissible to utilize that credit card processing company for any advance fee or expense payments. It is permissible for the attorney to allow the credit card processing company to take debits only from attorney’s operating account and to make deposits only into attorney’s trust account so long as the attorney removes any funds that represent an earned fee or reimbursed expenses within a reasonably prompt period of time. See Comment  to Rule 4-1.15 for an analysis of what is reasonably prompt in these circumstances. A law firm could also ethically use a credit card processing company that makes debits only from the operating account and makes deposits into either the law firm’s trust account or operating account as designated by the attorney at the time the card is processed.
Additionally, you should ensure that the credit card processing service provides you with all necessary information and that the firm has a process in place to retain that information as necessary to comply with your duties to maintain trust accounting records pursuant to the trust accounting record keeping requirements. See Rule 4-1.15(f) and corresponding Comments  –  in Missouri. Lastly, your firm may wish to speak with an accountant to consider any tax implications of accepting credit card payments, particularly relating to money held in a trust account. Failure to properly report credit card transactions to the IRS could result in penalties and overdrafts of your trust account.
There are a number of credit card processing companies that primarily serve the legal profession, and, theoretically, these companies should be well-versed in the trust accounting requirements of attorneys. Nevertheless, the onus of ensuring these deposits and debits occur correctly as required by the Rules of Professional Conduct falls solely on the attorney. You should carefully review these requirements when deciding if and how credit card processing will work in your firm.
Confidentiality and Cyber Security Issues
In addition to the issues discussed above, lawyers must also protect the confidentiality of client information when providing a description to the credit card processing company of the goods and/or services provided. It is recommended that the service being billed for be only generally described. Similarly, as with any vendor, it is recommended that the contract with the credit card processing company include strict confidentiality provisions to ensure that the credit card processing company and its employees understand and protect the confidentiality of the client information available to them.
Confidentiality issues related to cyber security will also be a concern when contracting with credit card processing vendors. The Missouri confidentiality rule states, “A lawyer shall make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of the client.” See Rule 4-1.6(c) and related Comments  and . Your contract with the credit card processing company should contain provisions ensuring the following: (1) that the company has cyber security protections in place; (2) that there is a requirement to provide your firm with timely notice of any potential breaches; and (3) that you have a recourse against the company in the event a breach occurs that results in disclosure of or access to your client’s confidential information.
Communicating Payment Terms to Client
In addition to the trust accounting and confidentiality issues present when accepting credit card payments, lawyers must also be careful to explain the credit card payment terms to the client at the outset of the representation with the same care the lawyer would take in explaining any other legal fee arrangements. The information that should be reviewed with the client includes how and when the credit card on file will be charged and whether or not the client is responsible for paying any credit card processing fees.
It is ethically permissible to include a clause in the fee agreement stating that the firm will bill the client for work performed, wait a specified period of time, and then charge the amount to the credit card on file if the client has not made payment through other means. It is also permissible to enter into a flat fee arrangement whereby certain milestones in the representation (e.g., discovery completion, trial, etc.) would trigger these previously agreed upon fees, thereby allowing attorney to charge those amounts to the credit card without separate authorization for each individual charge. However, setting up these types of payment arrangements is only allowed if the attorney actually explains these billing and payment terms to the client at the outset of the representation and ensures the client fully understands the arrangement. These payment terms should then also be confirmed in writing in the fee agreement. These requirements are analyzed in Missouri Informal Ethics Opinion 970040, which further suggests that the attorney set an upper limit to the amount that could be billed to the credit card absent additional express written consent of the client. Lastly, the attorney should provide the client with a credit card receipt of any transactions when the credit card is billed.
Another consideration when clients pay attorneys fees via credit card is who will be responsible for paying the processing fees charged by the credit card processing company. A firm may pass these fees on to the client so long as the following conditions are met: (1) the charges are clearly communicated to the client in advance; (2) the client gives informed consent to the arrangement; (3) the client is not charged any processing fees beyond those actually charged by the processing company; and (4) the arrangement is consistent with applicable law and the processing company’s terms and conditions. Alternatively, if attorneys wish to pay these processing fees themselves, they may do so only if the charges will come out of the attorneys’ operating accounts, not a law firm trust account. See Missouri Informal Opinion 2019-08 for more information related to this issue.
Credit Card Transactions Benefitting the Attorney
A related issue to accepting credit card payments from clients is the question of whether or not and how an attorney may use a credit card to pay legal expenses such as filing fees or necessary attorney travel on behalf of a client, particularly where that credit card is tied to any type of rewards program. Because the client will ultimately be billed for these expenses, the question is whether or not these benefits received as a result of the client’s payments should belong to the attorney or to the client.
Though there have not been any published disciplinary or ethics opinions related to this issue in Missouri, there is some disciplinary history to suggest that obtaining earnings or other benefits from client funds by using a credit card that benefits the attorney may violate Rule 4-1.15(a)(1) if the client had provided advance payment for the expense. There might also be commingling issues if the same card was used to pay for client expenses and firm operating expenses.
The most relevant ethics opinion in the country on this issue is Oklahoma Legal Ethics Opinion 330. This opinion states that Oklahoma attorneys may keep these reward points for their own benefit so long as the attorney did not violate the fiduciary duty to the client. In other words, the attorney could keep rewards earned when purchasing a flight, for example, but could not purposefully purchase a more expensive flight than necessary simply to accrue additional rewards at the client’s expense. Further, if a flight was purchased using the attorney’s own frequent flier miles, the attorney could not then charges the client for that trip for which the attorney did not personally pay anything out of pocket. This would be equally true for hotel rewards or any other rewards program.
The reasoning in the Oklahoma opinion presumes that any rewards earned for client expenses would be very small given the way most credit card rewards programs operate. In the event that a large amount of rewards accrued from expenses paid on behalf of a client, those rewards should be discussed with the client to allow the client to make an informed decision about what should happen to those rewards. If possible, it might be necessary to transfer those rewards to the client or, at the minimum, pay the client the cash value of the rewards.
Absent any specific authority on this issue in your jurisdiction, you should be cautious when using a rewards credit card to pay legal or travel expenses that will be reimbursed by a client. At a minimum, you should include a paragraph in your fee agreement explaining the potential use of a rewards credit card for such expenses and obtaining the client’s informed consent for you or your law firm to keep the rewards that may accrue.
A truly cautious attorney would also contact the relevant state ethics authority to ask for an opinion about whether or not and how an attorney may keep these credit card rewards. In fact, if you or your firm have any questions about the ethics or risk management issues related to credit card use in legal practice in general, you should contact the appropriate ethics authority in your state and reach out to The Bar Plan Risk Management Department at Foundation@TheBarPlan.com.
 While this article will focus on the ethics rules and opinions relating to these issues in Missouri, the outcomes would likely be similar in other jurisdictions because of the similarity of the Rules of Professional Conduct from state-to-state.
 Lawyers should review Rule 4-1.15(c) and Missouri Informal Ethics Opinion 2018-15 regarding advance flat fees not exceeding $2,000 to ensure these funds are handled appropriately.