Historically, law firms have accepted payments for retainers and services in two formats: check or cash. Clients are now demanding that attorneys start accepting credit and debit cards for the payment of fees.
Both the American and New York State Bar Associations have approved the acceptance of credit cards. Below are some best practice guidelines:
Ethical and professional considerations
• Client Confidentiality – One of the main tenants of attorney/client privilege is that attorneys should not reveal the existence of a relationship with a client. Thus, it is imperative that all firms who wish to accept credit cards obtain their clients’ consent to sharing their identifying information with the processing company.
• Comingling of Operating Account and Trust Funds – Firms are prohibited from comingling operating funds and client funds. Thus, attorneys must be diligent about ensuring all transactions are deposited into the correct account and that operating fees associated with payments are taken from the firm’s operating account and not its trust account.
• Accepting Credit Cards for Payments Other Than for Services Rendered – New York has specifically condoned the acceptance of credit cards for other services such as debt collection settlement payments where a contingency fee arrangement is in place.
• Passing on of Merchant Fees to Client – Firms should inquire whether credit card processing fees can be passed on to clients. Last year, the Second Circuit ruled against New York’s ban on these surcharges.
Choosing a Merchant Services Provider
After a firm has considered the ethical and professional issues raised by the use of credit cards, it must choose a credit card processor. There is no one-size-fits-all processor, and firms should interview as many processors as possible before making a final decision, while also considering:
• Software – A firm’s software bundle should be identified before choosing a payment processor to identify any system integration issues.
• Hardware – A firm’s hardware needs should be identified, i.e. an on-the-go mobile smart phone swiper or in-office wireless credit card machine.
• Cash Flow – Some processors hold funds for days before depositing them to a firm’s account.
• Processing Fees – The common fees charged by processors include startup cost, monthly fees, flat transaction fees, percentages of transaction fees, address verification fees, statement fees, and payment card industry (PCI) compliance fees. Additional factors that impact rates include card brand, card type (i.e. rewards) and customer location (e.g. Webpay, in-person, telephonic).
Additional Considerations
• Customer Service – Not every processor offers comparable service. Some only offer email.
• PCI Compliance – Firms that accept credit cards must ensure that they are compliant with the PCI Security Council standards regulating how merchants safeguard payors’ property and confidential information.
• IRS Compliance – Firms that accept credit cards are cautioned to ensure that their FEIN and legal name match what is on file with the Internal Revenue Service.
Nat Wasserstein is the Managing Director of Lindenwood Associates, a corporate development and renewal firm helping owners of businesses and professional practices navigate through times of change, redirection or crisis.
Getting Paid by Credit Card
A best practices guide for lawyers
By Nat Wasserstein