Use of credit cards to pay legal fees and costs

Background:

There are three segments to the proposed opinion. The first relates to the use of credit cards for payment of legal fees. The second relates to the use of credit cards for payment of advance fees or retainers. The third relates to the use of credit cards for advance payment of costs.

I concur with the Committee’s conclusions as to the first and second segments (though my reasons vary from the Committee’s) and disagree with the Committee’s conclusion of the third segment.

The Committee focuses its conclusions on essentially two factors. The first is that deposit of advance fees into clients’ trust accounts is not mandatory under current regulations and second that there is an intermediary that has control over client funds for a short period of time before being moved into the lawyers’ control.

Argument:

Re Segment Two:  (Use of credit cards for fees not yet earned — advance retainers/fees)

I agree with the conclusion that credit cards may be used for payment of retainers/advance fees.  However, the rationale, I believe, is not helpful.

While it may be true that lawyers are not required to place advance retainers or fees into their clients’ trust accounts under California law, I would suggest that almost every lawyer in the State believes that this is a requirement and acts accordingly. Thus, pinning the conclusion re use of credit cards on this premise is not helpful to the basic thinking of the State’s lawyers. Rather, the conclusion should be premised on the economic realities of today’s banking/commercial world, not on the technicality that the Supreme Court has avoided to date an analysis of this issue.  (See below for more discussion on this issue.)

Re Segment Three:

The Committee concludes that a credit card may not be used for advance payment of costs. This conclusion fails to recognize the economic realities of today’s commercial world.

1.                   Credit cards today do involve an intermediary, the bank and its agencies dealing with credit cards.

2.                   There is very little difference between an intermediary for credit cards and the intermediary for acceptance of payment when checks are used. Neither is legal tender under the law and both require certain processes to be completed before money can be placed into the attorney’s accounts.

3.                   In effect, the intermediary is an agent of either the lawyer or the client and the use of credit cards is a voluntary act requiring the participation of both the attorney and the client.  While the Committee may require the use of descriptive language in an engagement agreement to facilitate the use of credit cards (so as to apprise clients of any perceived risk of this method of payment), it is today’s commercially accepted means of payment of obligations.

4.                   The credit card company does not control the funds, even for a second, without being under contractual license to both the client and the lawyer. The credit card company cannot act independently as to the clients’ funds.

5.                   Assuming the worst, that the credit card company will act on its own and mis-direct funds, both the client and the lawyer have recourse against the credit card company, the same as where a bank may mis-direct funds in the account of a lawyer’s clients’ trust account.

6.                   Further, since the credit card company, in the case of deposited funds, can be viewed as the agent of the lawyer, the lawyer would still be responsible to the client for the deposited funds.

7.                   The bank/credit card company/merchant account can be viewed an agent of the attorney in the same fashion as an employee of the lawyer or a sub-contractor (e.g., outside accountant who maintains the clients’ trust account) of the lawyer needed in today’s more advanced economy.

8.                   The Committee appropriately highlights the change in thinking since 1970 where the “use of credit cards for payment of legal fees was deemed unprofessional.” However, the Committee fails to give full credit to today’s realities. Most obligations today are paid by credit card; many fewer are paid by check; and almost none are paid by cash, the only form of legal tender.

9.                   Use of credit cards, a voluntary act by the client, makes payment by clients easier. Many clients find the use of cards far easier and more effective than use of checks. Oftentimes, there is a more permanent record for the client by use of credit cards.

10.               And, for the benefit of clients, there is an added advantage. Use of credit cards enables the user to protest a payment even after payment is made. Usually, up to six months, a credit card company will reverse the charge if a complaint is filed by the user. As an attorney, it is better to receive payment by check or cash than it is to receive payment by credit card; no protest to the bank can me made. However, the proposed opinion removes a benefit to the client otherwise available.

11.               Bates v. State of Arizona recognized that some commercial activities, such as advertising, take precedence. In that case, the First Amendment was deemed to have governed “advertising.” In this instance, the Commerce Clause might be invoked to suggest that current commercial activities are acceptable, accepted and do not do injustice to the protection of clients’ interests.

12.               Technology has enabled us to make many changes. For example, today email is accepted as correspondence in lieu of mail hand-delivered or posted by the U.S. Post Office. Credit cards, likewise, are accepted in lieu of cash. The current draft Opinion fails to fully recognize this commercial reality.

13.               In Mass. Bar Association Ethics Opn. 78-11 (1978), cited in a footnote of the Committee’s report, the Mass. Bar said: “Our purpose in requiring that credit cards be used only in connection with previously rendered services was to minimize the possibility of a tripartite dispute among the lawyer, the client and the bank.” They went on to allow use of credit cards for both payment of fees earned as well as payment for fees yet to be earned. Their basis was the Bates case in recognizing certain commercial practices as the reality of today’s economic world.

14.               The California Bar should follow suit. And, as noted earlier, any tripartite dispute favors the clients’ interest, not the lawyers.  This, thus, gives the public greater protection.

I respectfully urge the Standing Committee on Professional Responsibility and Conduct to reconsider the rational for its conclusion in Segment Two and to reverse it conclusion in Segment Three.

Categorized in: Cash Flow - Finances