BAR ASSOCIATION OF NASSAU COUNTY
COMMITTEE ON PROFESSIONAL ETHICS

Opinion No. 1998-4

(Inquiry No. )

Topics:
Use of pre-authorized credit card charge form for payment of legal fees.
Digest:
Attorney may use pre-authorized credit card charge signed by client to pay attorney’s fees where services have already been rendered, the client approves the, bill or retainer, and the authorization is executed as a means of assuring payment or if a “general retainer” has been agreed to, but may not use the credit card charge signed by the client for the purpose of collecting attorney fees for services to be rendered.
Code Provisions:
EC 2-9
EC 2-16
EC 2-17
EC 2-23
EC 2-24
EC 2-25
EC 5-2
EC 5-21
EC 5-22
DR 2-106(C)(2)
DR 2-110(B)(4)
DR 4-101(A), (C)
Facts Presented:
Inquiring Attorney indicates that she or he accepts MasterCard and Visa credit card charges through a bank program sponsored by the New York State Bar Association. The attorney wishes to accept a pre-authorized charge form signed by the client which permits the attorney to keep the client’s signature on file and to charge the client’s account. The form authorizes either a one-time lump-sum payment in the future, or for periodically recurring charges in a fixed amount to be paid daily, weekly, or monthly for a period not to exceed one year. The client also has the right to cancel the authorization, but only by giving written notice to the attorney. Billing the client may be accomplished by the attorney affixing an invoice sticker to the statement identifying the client’s credit card account to be charged based upon the client’s signed authorization.
Inquiry:
May an attorney use a pre-authorized credit card charge form signed by the client to pay attorneys’ fees?
Determination:
Yes, under certain conditions. The attorney may use the procedure for recurring payments where the client has approved the attorney’s bill and the credit card charge authorization is used as a means of implementing its payment, but may not use tile pre- authorized credit card charge form signed by the client for purpose of collecting attorney’s fees for services to be rendered, except for “general retainers” or if the client agrees in writing with the amount and method of billing.
Analysis:
This Committee and other professional ethics committees have all recognized that a lawyer may participate in a bank credit card system whereby the client makes payment for legal services by use of a credit card. See N.Y. State 399, 362, 117; ABCNY Op. 199,5-1 (citing many other authorities); N.Y. County Op. 690 (1992); ABA Formal Op. 338 (1974). Our committee and the Association of the N.Y. City Bar committee have also indicated that attorneys are permitted to commercially factor their accounts receivable for legal fees. ABCNY Op. 1995-1 (1995); BANC 96-9. In each of these opinions however, the approval was given with substantial caveats and restrictions. Although many of these restrictions are no longer appropriate in light of the effective legal protections enacted and promulgated under Federal consumer credit laws for credit card users,1/ we believe the fee payment program is acceptable only if limited to services already rendered or pursuant to an approved “general retainer” or other written retainer agreement that expressly authorizes recurring periodic payments under which the client may utilize the lawyer’s services for a specific period and fee.2/

There are ethical prescriptions favoring a lawyer’s acceptance of payment by credit card charge. For example, EC 2-16 of the New York Code states, “Persons unable to pay all or a portion of a reasonable fee should be able to obtain necessary legal services, and lawyers should support and participate in appropriate activities designed to achieve that objective.” See also EC 2-24 and 2- 25, mandating that lawyers participate in programs “specifically designed to increase the availability of legal services.” Disciplinary Rule 2-1 01(C) expressly permits legal publicity and advertising to include “credit arrangements accepted.”3/

ABA Formal Opinion 338 (1974), which expressly overruled ABA Informal Opinions 1176 (1971) and 1120 (1969) under the ABA’s Code, contained several caveats protective of clients and lawyers: (1) publicity and advertising relating to a lawyer’s acceptance of credit cards must comply with applicable state and local ethical standards; (2) promotional materials must not be supplied to or used by lawyers except for the small insignia to be displayed on the attorney’s door or in his or her office; (3) the lawyer must not encourage use of credit cards for payment of attorney’s fees and expenses, but use it only for the client’s convenience, (4) the lawyer may not increase fees because of the client’s expected use of credit cards for payments; (5) the lawyer must use credit card payment only for services actually rendered or expenses actually paid by the lawyer on the client’s behalf; and (6) in using credit card programs the lawyer must preserve and protect the client’s confidences and secrets.4/ We expressly concur in and adopt these conditions.

In ABCNY # 1995-1 the City Bar Committee opined that arbitration procedures may be used at the client’s option for fee disputes when payment is made by credit card, but also advocated the use of other alternative dispute resolution mechanisms in collection of a disputed credit card charge. Also, the City Bar Committee recommended that unless the client signs each charge when presented to the bank for payment, that the client be provided with a copy of the lawyer’s bill or invoice at the same time it is presented to the bank. We also concur in both of these recommendations as ensuring “that the client is aware of the services being rendered and the charges associated with those services, thereby decreasing the potential for a subsequent fee dispute.” Id.

N.Y. State 362 (1974) permitted credit card charges from clients to pay a retainer or a presented bill or statement for services rendered but this 1974 ethics committee opinion contained many restrictions that would have made the acceptance of credit cards impractical if not impossible. It required that (1) if the bank sues the client, the bank must waive all defenses a holder in due course would have, (2) the attorney must fully and fairly disclose to the client prior to each credit card transaction that any defenses that the client has against the lawyer may be asserted against the bank, as well as the attorney, and that the attorney agrees to be bound by arbitration of any fee dispute with the client, at the client’s option, (3) the bank is bound by that arbitration and (4) the client may sue or request arbitration as against the lawyer even if the bank has already collected the charge from the client. Aside from the arbitration procedures made optional to the client under the above conditions, the other provisions dealing with limiting the credit-card-issuing bank’s rights are already adequately provided to the consumer under the Federal Truth in Lending Act as amended and implemented by Regulation Z, as revised in 1981, particularly the Billing Rights Statements required to be made at the time of the consumer’s original application and subsequently in annual disclosure requirements. These protections in fact provide far more protection for the credit card consumer or client then would be true for payment by check. See note 1 above.

In N.Y. County Op. 690 (1992), the ethics committee also approved a law firm’s acceptance of credit card charges, but specifically addressed issues as to depositing the proceeds of various types of fee payments in separate escrow or IOLA accounts, an issue not addressed here. In other respects, the opinion contained the same limitations as N.Y. State 362 (1974), requiring arbitration of fee disputes where credit cards are used at the client’s option, and the bank’s waiver of the “holder-in-due-course” defense, etc., which we consider inappropriate and overly onerous in light of the overriding and possibly contradictory protections of federal law on the use of credit cards. We also deem inadvisable to require arbitration of fee disputes in selective cases dependent on the particular method of fee payment. We agree, however, with the condition that client’s confidences and secrets be pres ed, for example, the nature of the legal services rendered should not be routinely provided to the credit card issuer or collecting bank.

Where the credit card payment replaces the customary check to pay the attorney’s fee for services rendered, the client must still be assured the opportunity to review the bill or statement before or shortly after payment is made by the bank to the attorney but before the client must pay the bank. If the client has approved payment in advance, the client must be given the opportunity, to review a bill or statement for services rendered or for expenses, or both, either before or shortly after the credit card charge has been sent to the credit card company, so that the client may have ample opportunity to dispute the charge through the 30-day dispute procedures provided under the federal truth-in-lending laws and regulations. Thus, while an attorney may accept the client’s credit card (under the limitations described) to make a lump-sum payment of an attorney’s fee for services rendered, the credit-card charge authorization shown to us by the Inquiring Attorney would permit taking that lump-sum at a future date before the client has approved the billing. Such arrangements for lump-sum payments at a future date or periodically recurring payments in advance without client approval expressly approving the amount or method of determining the fee would be inconsistent with the protective provisions of this and other committee opinions.

Also relevant here is the OCA-prescribed Statement of Client’s Rights, 22 NYCRR º 1210.1, which was recently ordered to be posted in every law office, by Joint Order of the Appellate Divisions, effective January 1, 1998. It provides in Items 2 and 4 in relevant part:

“2…. If you are not satisfied with how, your matter is being handled, you have the right to withdraw from the attorney -client relationship at any time (court approval may be required in some matters and your attorney may have a claim against you for the value of services rendered to you up to the point of discharge).”

“4…. You are entitled to request and receive a written itemized bill from your attorney at reasonable intervals.”

Other than a circumstance where a “general retainer” has been agreed to, the right of review provided would be rendered ineffective if the attorney could receive final payment before a bill is sent and the client has an opportunity to review same.

Advance payment without client approval may interfere with the right of the client to discharge the attorney. The client has the right to discharge the attorney and upon such action by the client, the attorney must withdraw from the representation. DR 2-110(B)(4). If a client then receives a final bill or invoice in advance of payment, the client may dispute the bill and decline to pay it simply by not writing a check; however, in the situation of a pre-authorized credit card, the client may contact the attorney in writing separately to cancel the charge authorization and must write the credit card company and follow the protective procedures prescribed by the federal law and regulations for disputing a charge.

Therefore, a pre-authorization to take a single payment or recurring payments for services not yet rendered without billing or sending notice of the charge promptly to the client may be unethical. However, a recurring credit card payment is permissible where the requirements of this opinion, ABCNY Op. 1995-1 and ABA Formal Opinion 338, which are summarized above, have been met and the services have already been rendered, or at the time of signing the authorization, the client agrees in writing to the amount of the fee or method of determining the fee.

[Approved by the Executive Committee on January 20, 1998; Approved by the Full Committee on March 25, 1998.]

l/ See, general The Law of Truth in Lending ¶7.05[4](1984), and chs.9–10(detailing “Billing Error Resolution” procedures and “Substantive Rights of Credit Cardholders,” etc.).

2/ A traditional “general retainer” has been defined as “an amount paid for reserving the availability of a lawyer,” generally for “a specific period of time.” It may “also provide that the lawyer be on call … if the client decides to use the lawyer” and that “fees for actual legal services performed may be credited against the retainer amount … or they might be billed in addition to the retainer.” ABCNY Op. 1991-3 (barring non-refundable fee agreements). See Matter of Cooperman, 83 N.Y.2d 4135, 633 N.E.2d 1069, 611 N.Y.S.2d 465 (1994) (barring non-refundable fee agreements)
.

3/ In addition, the ABA Code of Professional Responsibility EC 2-8 and DR, 2-101 (A)(b)(18) specify “credit card acceptability” as one of the necessary iter-ns to be included in a lawyer’s advertising materials.

4/ Of course, the client’s use of a credit card charge to be sent by the lawyer through third party banks and others before being paid by the client would implicitly waive any contention that the client’s identity and amount and method of payment is a “confidence” under the Code DR 4-101 (A); yet if not generally known this information may still constitute a “secret” under DR 4-1 01 (A).