Law Practice Today

In today’s economic environment, which combines actual or perceived recession with a very real credit crunch that restricts cash flow for businesses and individuals, every lawyer and law firm should consider accepting the use of credit cards in payment for fees earned. Such acceptance makes it as easy as possible for clients to pay for legal services. Clients today live on plastic, so paying legal bills with credit cards is easier for them at a time when access to cash or savings is otherwise an issue. This creates a tremendous marketing advantage for the lawyer.

 

Convenience on Both Sides

Credit cards are a convenience for both parties. If you have the credit card information of the client and permission to charge his or her account, you get paid more readily and certainly more quickly. That gives you greater convenience and improved cash flow. The few dollars that you must pay in credit card processing fees to get paid (2% to 4%, depending on your volume, the card and your ability to negotiate with your bank and processing agent) are offset by the ease and assurance of payment and the speed of collection.

Accepting credit card payment has particular advantages for sole practitioners focusing on legal services for individuals. Consider the example of the family lawyer, in light of the emotional nature of the practice. Clients in such situations may be tempted to “win” by vindicating themselves at any cost, such as filing for bankruptcy after a divorce to get rid of their debt. When such risk exists, payment by credit card gives the lawyer immediate compensation and reduces the danger of becoming an unsecured creditor.

There should be no question about the legal standing of a credit card agent when fees are paid using a card. For example, California’s Standing Committee on Professional Responsibility and Conduct several years ago issued a formal opinion concerning use of credit cards for payment of earned and unearned legal fees and costs. In effect, the Committee opined that it is acceptable to use credit cards for payment of both fees earned and not yet earned, but not for costs or expenses. To focus on earned fees, the California opinion suggested that payment by credit card offers “parity” to both cash and check. This seems sensible, if confidentiality requirements are observed. The lawyer must describe the nature of the services to the credit card company in very general terms, such as “for professional services rendered,” while of course providing a more detailed service summary to the client. The credit card company is an implied agent-in-fact, if not one in law, of either or both the client and lawyer. Thus, parity should be given to credit cards as to checks and cash.

 

Risks to Avoid

However, accepting credit cards does pose risks for any lawyer who does not understand the rules or observe good business sense. Here are some important considerations to keep in mind.

• Be sure to spell out in your original engagement letter that credit cards will be accepted as payment. Stipulate how the card will be used and have the client sign an authorization to charge their cards. Send the authorization along with your bill, so that you know the client has received it.
• Do not charge clients for credit card processing fees. This is a marketing recommendation that can save you considerable grief. The processing charge is overhead, just like lights and rent. Unfortunately, too many lawyers still think of expense items as profit centers. In no other business do clients permit or accept such charges, and they increasingly resent them in the business of law. Raising your hourly rate would likely bring less client dissatisfaction than charging for credit card processing fees.
• Secure the client’s agreement that no dispute with the law firm will be raised with or adjudicated by the credit card company. In other words, the client agrees that the charge is non-refundable and cannot be reversed by the credit card company. Any dispute over fees paid by credit card should be settled between the lawyer and the client, governed by the rules of professional conduct.

Handling Disputed Fees

The issue of disputed fees is particularly significant. One of the benefits of paying with credit cards is that there is roughly a six-month window in which to raise a dispute and request that the credit card company reverse the charge. Payment for a disputed legal bill could be placed in a suspended account. At worst, the credit card company could reverse the charge, credit the customer and debit the law firm. But by getting the client’s prior agreement on how to handle such disputes, the credit card company, when shown the client's agreement, will not credit the client nor debit the law firm. The proper forum for adjudicating the dispute thus remains the State Bar disciplinary system, or the courts.

The same principle applies if the dispute is on the other side. Lawyers who consider suing a client to collect a fee are well advised to first offer arbitration of the fee dispute through the State Bar. I am not aware of any mandatory arbitration or mediation provisions anywhere in the country. That means that a client can always reject an offer of arbitration or mediation, but it also means that a lawyer can reject an arbitrator’s award and still sue for the fee after the hearing. State Bar associations generally seem to encourage the arbitration process, but, again neither the process nor the result is considered mandatory.

The real lesson, of course, comes back to the original fee agreement. Getting written stipulation on fees and how they are to be paid is the heart of that agreement. You will have an easier time meeting your client’s expectations and collecting your fee if you incorporate all essentials – including terms of payment and dispute resolution – in the engagement letter. Make sure clients understand that they’re entering a two-way relationship. The lawyer agrees to perform to the best of his or her ability in accord with professional standards, and the client agrees to communicate and cooperate fully – which includes paying the bill.