Accepting Credit Card Payments? Beware of Fees and Chargebacks
It’s generally agreed that lawyers can accept credit card payments for their fees. A recent ABA article lists some of the potential pitfalls that lawyers should consider before incorporating this into their practices. First, will you be passing on the costs of the transaction to your client? If so, make sure that the charge is reasonable and agreed to in advance. RPC 1.5(b) requires that the rate or basis of expense for which the client will be responsible shall be communicated to the client, preferably in writing before or within a reasonable time after commencing the representation. Comment 1 to this rule allows a lawyer to seek reimbursement of expenses by charging a reasonable amount, agreed to in advance by the client, or by charging an amount that reasonably reflects the cost incurred by the lawyer. A recent WSBA Advisory Opinion affirms that such expenses include credit card transaction fees. However, as the WSBA Advisory Opinion points out, you should check to see whether credit card companies prohibit passing such charges on to the client. Although Visa and Mastercard have forbidden this in the past, a recent settlement may change this practice. Even if the credit card prohibits a surcharge, it cannot prohibit you from offering your clients a cash discount.
Another caution is chargebacks. A chargeback is the return of funds to a consumer, forcibly initiated by the credit card issuer at the customer’s request. A chargeback could be disastrous if it is against your trust account, particularly if you have already earned and removed the funds. This means the chargeback has taken another client’s money, or has left insufficient funds to cover other outstanding checks. You are required to notify the Bar if you receive notice of insufficient funds in your trust account.
If you take credit card payments directly into your trust account, make sure that the company cannot take chargebacks out of the trust account. An Oregon Ethics Opinion suggests that an alternative is to set up a direct transfer from your business account to your trust account to cover the chargeback. But problems could ensue if you don’t have enough money in your business account to cover the chargeback. A lawyer should exercise caution here.
Deposits and Earned Fees
Finally, if you are going to accept credit card payments for both advance fee deposits and earned fees, you are required to have two merchant accounts— one tied to the trust account and one tied to the business account. Earned fees and flat fees that meet the requirements of RPC 1.5(f)(2) and are paid by credit card need to be deposited into the business account. Advanced fees paid by credit card need to be deposited into the trust account. RPC 1.15A. Lawyers cannot deposit credit card receipts into their trust account then transfer the earned fees to their business account, nor can they deposit advanced fees into the business account and then transfer them into the trust account. RPC 1.15A, Comment 8.