New York On the Ethics of Expensing Credit Card Processing Fees to Clients

Here is my recent Daily Record column. My past Daily Record articles can be accessed here.

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New York On the Ethics of Expensing Credit Card Processing Fees to Clients

One of the key business challenges lawyers face is getting paid. When cash or check were the only choices, there was little payment flexibility available for law firms or their clients. Today, things have changed. Most billing and law practice management software programs have built-in features that streamline the billing process and allow law firms to offer payment convenience in ways never before possible. From payment plans to credit cards and even “Pay Later” legal fee loan options, lawyers and their clients have more options than ever.

Regardless of the payment method, lawyers must comply with the ethics requirements surrounding legal fees. As new payment methods become available, ethics committees often weigh in to ensure that lawyers have sufficient guidance when accepting alternative payment methods. 

One area that has received considerable attention from regulators over the years is credit card payments, which are now commonly accepted in most law firms. Despite their widespread application, novel ethics issues surrounding credit card payments occasionally arise, which require input, such as the recent issue addressed by the New York State Bar Association Committee on Professional Ethics in Ethics Opinion 1258A.

At issue was whether a lawyer may pass on merchant processing fees to clients as an expense. At the outset, the Committee acknowledged that accepting credit cards as payment has long been permissible in New York provided that 1) the legal fee is reasonable, 2) client confidentiality is protected, 3) the credit card company’s actions do not impact client representation, 4) the client is advised before the charge is incurred and has the chance to dispute any billing errors, and 5) any disputes regarding the legal fee are handled according to the fee dispute resolution program outlined in 22 N.Y.C.R.R. Part 137.

Next, the Committee turned to the issue of expensing credit card fees to clients, explaining that excessive fees or expenses are prohibited by Rule 1.5(a) of the New York Rules of Professional Conduct (Rules). 

According to the Committee, this prohibition applies to a merchant processing fee since it is considered an “expense” under the Rules. As long as lawyers avoid charging excessive fees as defined in Rule 1.5(a), it is permissible to pass on merchant processing fees incurred when legal fees are paid by credit card to clients as expenses.  

Next, the Committee turned to Ethics Opinion 1050 from 2015, which addressed credit card payments made in the context of advance retainers. In that opinion, the Committee permitted the inquiring lawyer to, “as an administrative convenience, charge a client a nominal amount over the actual processing fees imposed on the lawyer by a credit card company in connection with the client’s payment by credit card of the lawyer’s advance payment retainer.”  

Doing so was conditioned upon 1) notifying the client and obtaining consent and 2) ensuring the additional fee was nominal and the total amount of the advance payment retainer, the processing fees, and the convenience fee were likewise reasonable under the circumstances.

The Committee then turned to the case at hand and applied the same principles, concluding that when legal fees beyond the initial retainer are paid by credit card, a “lawyer may pass on a merchant processing fee to clients who pay for legal services by credit card provided that both the amount of the legal fee and the amount of the processing fee are reasonable, and provided that the lawyer has explained to the client and obtained client consent to the additional charge in advance.”

In 2024, lawyers have unprecedented flexibility in payment methods. However, a thorough understanding of your ethical obligations is essential, especially when your firm broadens client payment options. This opinion is an important reminder to carefully navigate ethics rules when accepting credit card payments from clients, especially as technology continues to evolve and impact how law firms do business. 

Nicole Black is a Rochester, New York attorney, author, journalist, and the Head of SME and External Education at MyCase legal practice management software and LawPaypayment processing, AffiniPay companies. She is the nationally-recognized author of "Cloud Computing for Lawyers" (2012) and co-authors "Social Media for Lawyers: The Next Frontier" (2010), both published by the American Bar Association. She also co-authors "Criminal Law in New York," a Thomson Reuters treatise. She writes regular columns for Above the Law, ABA Journal, and The Daily Record, has authored hundreds of articles for other publications, and regularly speaks at conferences regarding the intersection of law and emerging technologies. She is an ABA Legal Rebel, and is listed on the Fastcase 50 and ABA LTRC Women in Legal Tech. She can be contacted at [email protected].