When clients pay with plastic

Lawyers who accept credit cards and want to pass the transaction fees through to clients must disclose those fees or risk running afoul of federal truth-in-lending regulations, according to a proposed opinion from the Virginia State Bar’s Standing Committee on Legal Ethics.

LEO 1848 cites ethics opinions dating back to 1981 for the proposition that attorneys can accept credit cards ethically, so long as they jump through the right hoops.

Until recently, however, those hoops could be daunting. These obstacles, along with some attorneys’ distaste for establishing something so crass-sounding as a “merchant account,” have made many lawyers reluctant to accept plastic.

LEO 1848 suggests it’s time to get over the idea that it is somehow unprofessional to accept credit cards. “[T]he evolution and prevalence of the use of credit cards has changed dramatically with the passage of time,” the LEO says by way of explaining the need for an update. “Credit cards are much more widely used and accepted and are the preferable payment method by many clients.”

That doesn’t mean that lawyers can handle credit cards just like a typical retailer, reminds VSB Ethics Counsel James M. McCauley.

“The legal profession is unique because we have to be fastidiously careful with our clients’ money,” he said.

The difficulty comes in keeping track of retainers and other unearned deposits in attorneys’ trust accounts and transferring those funds to their operating accounts when that may be done legitimately.

As an example, an attorney can accept a credit card payment as a retainer, deposit it in his trust account and consider the transaction fee his bank charges as a cost of doing business. Legal ethics generally require the lawyer to immediately deduct the fee from the trust account and transfer it to the operating account to pay the bank.

Keeping track of those transaction fees, generally from 2 to 4 percent of the payment, can be tricky, however, because the fees may vary depending on the creditworthiness of the credit card holder and even whether the card is swiped in the attorney’s office or by recitation of numbers over the telephone.

The Richmond and Fairfax bar associations offer a credit card service for lawyers through Affiniscape Merchant Solutions, a Texas-based company that handles the transfers between trust and operating accounts seamlessly and ethically, according to Marcia Oliver Wright, who has a general practice in a two-attorney Alexandria firm.

“They do make it easy,” she said of the Affiniscape program.

She said about 60 percent of her clients choose to pay her fees by credit card. Wright said she does not have a terminal to swipe cards in her office. Rather, clients pay over the Internet and get an online receipt of the payment.

Truth in lending isn’t an issue for her because she absorbs the transaction fees, as does the Richmond firm of Barnes & Diehl PC, which specializes in domestic relations work.

The firm typically takes a credit card payment as a retainer but on occasion a client agrees to allow the firm to debit his credit card account as fees accrue, said Cathy Patton, the firm’s office administrator.

The truth-in-lending regulations kick in only when an attorney charges the transaction fees to the client as a cost.

“[T]he transaction fees must be disclosed before the client commits to the transaction since the transaction fees fall within the definition of a ‘finance charge,’ ” according to the proposed LEO.

“Specifically, the lawyer must disclose the amount of the finance charge prior to the time of honoring the client’s credit card and before the client becomes obligated for the lawyer’s services.”

The LEO says the fee and the transaction charge can be deposited into the escrow account as one transaction under the mixed funds exception, which requires the lawyer to “disburse any funds belonging to the lawyer into the operating account as soon as the deposit into the escrow account is cleared.”

Whether the attorney absorbs the transaction fee or passes it along to the client, “The Committee opines that best practices may be that all associated costs and fees be deducted from the lawyer’s operating account so as not to allow the financial institution potential access to funds not belonging to the lawyer.”

As for a challenge to a credit card payment by the client, “a lawyer is ethically bound to ensure that any chargebacks that potentially jeopardize other clients’ funds are promptly if not immediately covered with the lawyer’s own funds,” the committee said. “Advisably all chargebacks should be from the lawyer’s operating account or an interaccount transfer process by which funds from the operating account are transferred to the escrow account.”

That’s the big advantage of her company’s service, says Patricia Williams of Affiniscape. “We protect the trust account from invasion by the issuing bank.”

The company started providing the merchant account for attorneys as an extension of its original business of setting up systems for trade associations to take credit card payments from their members.

It did so with some trepidation because of a concern that attorneys might be “high maintenance” customers.

That hasn’t proven to be the case, even though attorneys are “definitely coming on board with plastic a lot later than some of the other professions,” she said.

LEO1848 is available on the VSB Web site, www.vsb.org. Comments on it should be sent to Karen A. Gould, Executive Director, 707 E. Main St., Suite 1500, Richmond, VA 23219-2800, by April 13.