Arrangements with the credit card company must be made to ensure fees go into an IOLTA or escrow account.
I am a young lawyer and I want to start using credit cards since I am having difficulty getting clients to pay me. Are there any rules or regulations about using credit cards by an attorney?
There is nothing in Pennsylvania Rules of Professional Conduct that mentions the word credit card. But, lawyers have been using credit cards probably for about 10 to 15 years now; perhaps longer.
In this modern age where clients, particularly in the areas of domestic and criminal law, never seem to have any money, a credit card is an exact way to get monies up front and one’s fees paid.
When using credit cards for legal fees, all the requirements for fees have to be observed. Rule 1.5 is the rule involving fees. Fees cannot be excessive. Rule 1.5(b) requires a fee agreement or fee letter. Rule 1.15 requires unearned fees to be maintained in one’s IOLTA account. Rule 1.15 requires an accounting if requested by a client as to fees.
One of the problems is how the credit card payment is set up. The question is where does the money go? Some lawyers in the past had credit card accounts that put the monies directly in their operating account. That was dangerous because many times the funds weren’t earned or the fees were not nonrefundable. Those funds have to be placed in the escrow account (IOLTA account).
Obviously, the bank accounts used have to be with eligible banking institutions as required by Pennsylvania Rules of Disciplinary Enforcement 221. According to Rule 221, these banks have to comply with requirements for interest that can be used by the court to fund law related projects. The banks that are qualified by Rule 221 exist on the Pennsylvania IOLTA Board website.
In dealing with debit and credit cards, lawyers must not allow them to be tied into an escrow or trust account. There is also a concern if a lawyer lost a credit card or debit card, someone could take clients’ funds and misuse them.
Further, with one’s escrow account in using credit or debit cards, any fees associated with the use of the debit or credit cards have to come out of the attorney operating account.
Having said that, if one is using and receiving credit card payments, then the vehicle must be to deposit those in the escrow or IOLTA account unless they are monies already earned and they can go directly into the operating account. Rule 1.15 requires all client’s funds (which includes unearned legal fees) have to go into the operating or IOLTA account. One cannot have the credit card fees deducted from an attorney’s IOLTA or escrow account. That’s prohibited by Rule 1.15 of the Rules of Professional Conduct.
Another problem can arise if there is a dispute concerning the funds. For instance, normally if one purchases something by a credit card such as a pair of shoes, if the shoes are not useable and the merchant won’t accept a return, then the person can dispute the credit card account. At times, if the dispute is accepted, the monies are returned.
But, it’s a different situation with attorneys when the funds are going into their IOLTA/escrow account. Since the attorney is receiving fees for legal services, there must be an arrangement with the credit card company so that company cannot withdraw fees or seek chargebacks or returns out of the IOLTA account. This could create a very serious problem if allowed. For instance, let’s say an attorney received a credit card fee and placed the fee in his or her escrow account. The lawyer performed the services and withdrew the fee as earned. But, the client, for whatever reason, complained to the credit card company and the credit card company accepted the client’s complaint and took the money back out of the lawyer’s escrow account. At that point, the credit card companies would be taking other clients’ money. That is not acceptable and could put the lawyer in a conversion situation.
What most attorneys do under those circumstances is to have an agreement with the credit card company that such withdrawal fees or chargeback fees can only be made through the attorney’s operating account. They can never be made in any escrow account.
There used to be some tax issues involving fees and credit cards, but this writer is not sure of the extent of that and an attorney using credit cards perhaps might want to check with their accountant. Credit cards companies at one point had to report their transactions to the Internal Revenue Service. This, at times, could create problems, because sometimes the fees wouldn’t be earned until next year and other times they would. Whether that’s still the practice is uncertain, but should be looked into.
Therefore, attorneys can use credit card fees, but they must be aware of the rules of ethics and comply with them. Using a plastic card cannot give one immunity from not keeping funds segregated and not allowing improper invasion of other client’s funds.
Lawyers also have to maintain records of the funds they receive. Therefore, when one uses a credit card, the lawyer also still has to have ledger sheets and running balances on the ledger sheets and maintain their accounts appropriately. Therefore, if a lawyer is using credit cards, they have to either electronically—or by hand—reflect the monies are going and coming out in their escrow account, attorney account, and general ledger sheets, and the client’s ledger sheets. The bottom line is that there must be arrangements with the credit card company to ensure that fees that are not earned go into the IOLTA or escrow account. There can be no chargebacks out of those accounts or fees out of those accounts. There must be a separate arrangement that any fees or costs or chargebacks would come out of the attorney operating account. Otherwise, a lawyer would clearly violate Rule 1.15 and face potential serious disciplinary action.
The best practice is to avoid dating former clients.
I represented a client in a litigation case which has been concluded. The client and I became friends and now we wish to begin a romantic relationship. Is there any prohibition under the rules from starting this romantic relationship?
The Rules of Professional Conduct prohibit having sexual relations with a client when the representation is actively ongoing. Rule 1.8(j) states very clearly as follows: “A lawyer shall not have sexual relations with a client unless a consensual relationship existed between them when the client-lawyer relationship commenced.”
The purpose for the rule is because of the fiduciary relationship and which creates almost a conflict. A lawyer could take advantage of a client. Comment 17 to the rule notes that it would be unlikely that the client could give an adequate informed consent because of the unequal relationship. It should be noted also that having sexual relationships with constituents of a corporation or organization a lawyer is representing is also prohibited. The reason is that because of the conflict situation. Rule 1.8(j) has been around now for several years. Prior to its adoption, there was always a question of whether a lawyer could or could not, but the normal conflict of interest rules usually would preclude a dating relationship in the past.
The question here is a dating relationship with a former client. The key for a lawyer is whether or not the attorney-client relationship is truly over. Any practicing lawyer notes that clients and cases sometimes seem to go on forever even when the main essence of the litigation is concluded. There is always something else to do or a problem that arises or the client is back for additional advice.
A careful review of the Rules of Professional Conduct and the comments find no rule that would prohibit a lawyer from having a sexual relationship with a client once the representation is truly over. Unfortunately, in this world, trust is not a strong component anymore. Clients can become one’s enemy or adversary very easily, particularly if the client thinks they can get an advantage. Having sexual relations with a former client or a dating relationship can create some problems down the line when it ends. The former client is embittered and/or sees they can get an advantage now that the relationship is over and they’ve been spurned. Perhaps they’ll allege there was still an ongoing attorney-client relationship. One way to perhaps prevent that is for any lawyer who wishes to date a former client to make sure that the lawyer sends a letter indicating the attorney-client relationship is concluded and finished. If fees are still owed or things of that nature, then the relationship is not over.
The better practice is not to date former clients. Clients come to attorneys for advice. The lawyer helps these clients. Clients often return to a lawyer if the representation worked well and a good relationship in terms of attorney-client develop and between the lawyer and the client. By dating a former client, one makes it very difficult for that client to come back in an attorney-client relationship. Further, if the former representation requires the lawyer to get involved again, there’s now an issue about the dating situation. Obviously, no one wants to undermine a true romantic healthy dating relationship. But, lawyers should be very wary about dating former clients for the above reasons. Also, lawyers must remember that the unequal relationship between a lawyer and a client doesn’t necessarily change even though there’s no longer a case where the lawyer is representing that client. The best practice is not to have a relationship with a former client if a lawyer can avoid it. But, the realities of the world and people’s feelings sometimes interfere with doing everything to perfection.
Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pa. 19381.