Several ethics committees have approved accepting credit cards as payment for legal fees for litigation support services. Credit card payments into trust accounts have been slower to be approved by these same committees.
Ethical dilemmas can arise when advance fee deposits are made by credit card. Credit cards have two functions that may impact deposits into trust and they are Chargebacks and Processing fees.
Chargebacks - Chargebacks are the first issue when accepting credit card fees into trust. Trusted funds entrusted to lawyers must be held inviolate. Funds held in trust should not be accessible to other entities. A credit card processor will attempt to claw back money deposited in a disputed transaction if a client disputes a charge. Credit card companies can access the trust account of law firms that use credit cards.
In addition, if the funds in dispute have already been transferred, the credit card company may be seizing trust funds belonging to another client. In addition to two angry clients, an ethics complaint is brewing in the law firm.
Resolution Ethics committees have come up with a variety of solutions for chargebacks to avoid becoming a moral hazard:
- Clients who deposit funds using credit cards can establish separate trust accounts with firms. Funds may be held in trust not only until they are earned, but also until the period during which a client can initiate a chargeback has passed. In general, credit card companies give a grace period of sixty days.
- Operational accounts are used to collect credit card fees. The processing fees and chargebacks of credit card transactions may also be deducted from an operating account in cases of contract credit card processors. It protects a law firm from having charge-backs that could create ethical violations, as the funds seized are not the law firms, but rather the clients.
Processing fees - Another issue is the processing fee. Typically, credit card processors charge a percentage amount per transaction, which is deducted from the net total deposited to the merchant. Typically, most charge between 2-3% of a transaction. Clients may deposit $1,000 into their law firm's trust account. He receives only $980 to deposit in the trust. As a processing fee, twenty dollars were collected. If a client expected the full sum to be available for bills or expenses related to their case, this could present ethical issues.
- Attorneys can avoid this issue by paying the processing fee themselves or charging their clients a surcharge for the amount.