Should lawyers take credit cards?

Issue May 2010

Many of us have been debating whether we should take credit cards for quite some time. On the one hand, there's a stigma attached to accepting credit cards. For lawyers, it does not feel entirely professional or dignified to reduce one's payment to such an obvious process.

by Andrea Goldman, Esq. and John Marshall, Esq.

Most of us do not like asking for money. It's more comfortable to work on retainer or send out a bill with the hope of getting paid. There's also the issue of ethics. How does one handle credit card payments when processing them through IOLTA and/or operating accounts? What is the proper procedure? How does one avoid running afoul of ethics rules?

While it is natural to want to avoid the distasteful notion of commercializing the profession, it is time to realize that the world has changed. We do not blink an eye when the doctor's office expects our co-pay before treatment, and yet, as attorneys, many of us still end up working without getting paid. The longer I practice, the tougher I get about money. It took the experience of reviewing my books and realizing that my receivables had skyrocketed before I started taking a stand with clients and making sure that they paid their bills.

It is hard to get used to getting the money up front, but in this economy, it is quite possible that the amount you collect at the beginning of a matter may be all the money that is ever collected. Even though my engagement letter includes an Evergreen retainer and the clients agree to replenish once the retainer drops below a certain amount, the truth is, they rarely do. They frequently just start paying their bills as they arrive, and most clients do not rush to get the check in the mail. Shame on me.

When the ABA Techshow came to Boston, Jim Calloway, a noted law practice management advisor, said he believes that all lawyers should start taking credit cards. He felt that in this economy that is the only way to ensure that one would get paid. After suing my first client for fees, I now agree. As they say on the ABA's Solosez, "you get more value from cleaning your own toilet than from working for free."

For some reason, clients do not view legal services as a commodity for which they should pay. It is our job to provide clients with detailed bills and clear explanations that reflect the value that we are providing. Despite the fact that I know that none of my clients would steal a turkey from the supermarket, many do not hesitate to "steal" my time. It is important to manage expectations, ask for big enough retainers, and include a credit card provision in your engagement letter. If payment is not forthcoming, you have the right to run the credit card for the amount due.

Can lawyers take retainers on credit cards?

Here is the viewpoint from the Board of Bar Overseers: Credit cards are here to stay and it is generally considered acceptable to take payment of earned fees by credit card. But can a lawyer take a retainer - an advance against unearned fees - on a credit card? Ethics opinions across the country are divided on this question and neither the Massachusetts Rules of Professional Conduct nor any decisions by the Board of Bar Overseers or the Supreme Judicial Court provide a direct answer. The Office of Bar Counsel strongly discourages accepting payment of retainers by credit card for the following reason:

In Massachusetts, unearned
retainers must go into an IOLTA or other trust account until earned. Credit card agreements generally permit the issuer to "charge back" any payments subsequently disputed by the cardholder and require that the issuer's chargeback rights attach to the account where the funds were deposited.

Assume you accept a retainer on a credit card, which is deposited to your IOLTA account. You do the work and pay yourself from the retainer. Your client then contests your charges and the issuer withdraws from your IOLTA account the disputed charges. Since you have already paid yourself, this chargeback will draw upon funds of other clients held in the account - funds that you are required to safeguard.

The best and possibly only foolproof solution to this problem would be to limit the issuer's chargeback rights to your operating account. While some ethics opinions from other states suggest taking credit card retainers into an operating account and transferring the unearned portion to a trust account, or holding earned portions of a retainer in a trust account until the issuer's dispute period has ended, these would not be in compliance with the current Massachusetts trust account rules.

There also exist other regulatory, bookkeeping and confidentiality problems with credit card payments of fees. See Vecchione, "No Easy Credit,", on the bar counsel's Web site. Lawyers taking credit card payments should also be familiar with federal and state consumer credit, truth in lending and consumer protection laws that may apply.

What to do if you decide to use credit cards

If you are now persuaded that taking credit cards is necessary, what are the best options for attorneys? There have been numerous conversations about taking credit cards on Solosez, and the one service that is touted by all is This is not meant to be an advertisement for Law Charge, but as it says on Tracy Griffin's Web site, the product is "designed by an attorney for attorneys."

These are the types of fees associated with maintaining a credit card account (from the Law Charge Web site):

  • Discount fee: This is a percentage of the transaction amount. It covers the costs of moving the money from the cardholder's account to your merchant account through the Federal Reserve's Automated Clearing House (ACH). The fee is determined upon the type of processing you choose.
  • Transaction fee: This is the fee charged for obtaining the authorization to deposit the funds to your account. It is usually between 15 and 75 cents per transaction, depending on the type of processing you utilize.
  • Set-up fees and equipment: Dependent upon the type of processing you choose, you may be charged a set-up fee or be required to purchase or lease equipment or software. Law Charge does not require you to purchase software and highly discourages the leasing of equipment as it is not cost effective.
  • Junk fees: These fees are where the banks and processors make money off you. You may be charged a monthly fee whether you process or not, a statement fee, or a service call fee. Law Charge does not charge any of these junk fees.

The first step in setting up credit card processing is to open a merchant account. This is usually your business operating account. Once your account is established, you can start receiving payments. You do not want the fees and other charges to go through your IOLTA account because this would violate IOLTA rules. One could buy or lease a point of sale terminal, but most attorneys process their payments through the Internet.

Some companies will require you to purchase software and others have online service. At Law Charge, you log into their secured Web site, and depending on the username and password you enter, the funds will be deposited to that account. You will have the option of depositing to either your trust/IOLTA account or your operating account. Regardless of which account you deposit to, all fees will be debited from your operating account.

What will it cost? This article is not intended to be a review of all of the various services out there, but at, the initial set-up fee is $200 for a virtual terminal to one's IOLTA and operating accounts. This includes a link for clients to go to the attorney's Web site to make payments. Electronic check conversion from the check writer's account is also included (automatic debit from the client's bank account). There is a $150 set-up fee just for a virtual terminal. The set-up fee is payable over time with no interest. There is no monthly minimum payment. If there is activity in a given month, the monthly rate is $10. Finally, the discount fee is currently 2.7 percent for the virtual terminal plus a 19-cent transaction fee. There is encryption for data privacy.

If clients dispute a bill, they can call Law Charge and ask for a retrieval request. Rather than issue a chargeback to the lawyer's operating account, Law Charge requests that the client and lawyer submit documentation to resolve the dispute. Law Charge has had one chargeback in 10 years. The company also supplies language to insert in one's fee agreement. The cardholder agrees that disputes will be settled through arbitration or the judicial process rather than issuing an automatic chargeback.

Other options has a rate of 2.9 percent plus 30 cents per transaction, but it is not clear whether there is a monthly minimum. Tracy Griffin suggests that one use Paypal for operating account payments only. The reason for this is that the payment goes first to Paypal and then to the attorney's account. IOLTA rules state that trust money has to go straight to a trust account which is an approved trust account depository. There is no set-up charge or monthly fee. The merchant rate requires a one-time application, qualifying monthly sales volume, and account in good standing.

Costco has an Internet processing rate of 1.99 percent plus 27 cents per transaction. There is a one-time $25 application fee and a $4.95 monthly statement fee, both of which are waived for executive members. A monthly minimum charge applies when qualified transaction fees and per-item charges are less than $20 per month.
Given the current economic situation, it is time for all lawyers to seriously consider taking credit cards. After all, you deserve to be paid.

Andrea Goldman is the principal of Law Office of Andrea Goldman and co-chair of the Law Practice Management Council. John Marshall is a member of both the Office of the Bar Counsel and the Law Practice Management Council.