Can a lawyer charge interest on the unpaid portion of a client's legal bill?

Plain-English summary

The Committee was asked whether it is proper for an attorney to charge interest on the unpaid portion of a billing. It reviewed three ABA ethics opinions: Formal Opinion 151 (1936), which (under former Canon 12) held it improper to offer a discount for prompt payment; Informal Decision 741 (1964), which found it improper to print a flat interest-on-overdue-accounts notice on a billing form, reasoning that it might be a bargaining weapon in a fee dispute or operate like a prohibited prompt-payment discount, while allowing in special cases a promissory note bearing interest where a client able to pay chose to defer for convenience; and Formal Opinion 338 (1974), which stated a lawyer may charge interest provided the client is advised of the intent and agrees to pay interest on accounts delinquent beyond a stated period.

The opinion concluded these reflected a definite liberalizing trend, and, more importantly, that it could find no provision of the Code of Professional Responsibility that directly or indirectly prohibits charging interest on unpaid billings. It observed that the public would generally expect interest on an overdue bill as on any other debt. The opinion concluded that an attorney who intends to charge interest should inform the client of that intent to avoid later disputes, but that charging interest is not improper.

Currency note

This opinion was issued in 1979, before the Alaska Bar Association's adoption of the Alaska Rules of Professional Conduct (it applies the former Code of Professional Responsibility) and before the 2009 revisions to those rules. The rules on fees have since been recodified. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific point mentioned here.

Common questions

Q: Can a lawyer charge interest on an overdue legal bill?

A: The opinion concluded that no provision of the Code prohibits charging interest on unpaid billings.

Q: Does the lawyer have to tell the client first?

A: The opinion concluded that an attorney who intends to charge interest should inform the client of that intent to avoid later disputes.

Background and rules framework

The opinion treated interest on unpaid fees as a fee-practice question under the former Code of Professional Responsibility (the subject now addressed by Model Rule 1.5 on fees), tracing the ABA's evolution from former Canon 12 through ABA Formal Opinions 151 and 338 and Informal Decision 741.

Citations and references

Rules of Professional Conduct (former Code; cf. Model Rules):

• Former Canon 12 (fees) (cf. Model Rule 1.5)

Other opinions cited:

• ABA Formal Opinion 151 (1936); ABA Informal Decision 741 (1964); ABA Formal Opinion 338 (1974): charging interest on delinquent accounts with notice

See also

• Alaska Ethics Op. 85-5: Credit Card Fee Payment and Interest on Overdue Accounts
• Alaska Ethics Op. 86-1: Billing for Intra-Office Conferences
• Alaska Ethics Op. 95-4: Charging Clients for Disbursements and Expenses

Source

• Landing page: https://alaskabar.org/ethics-discipline/ethics-opinions/adopted-ethics-opinions-chronological/
• Original PDF: https://alaskabar.org/wp-content/uploads/79-1.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Ethics Opinion No. 79-1
Whether it is Proper for an Attorney to Charge Interest on Unpaid
Portions of a Billing.
The question posed to the Committee is:
Is it proper for an attorney to charge interest on unpaid portions of a
billing?
There are three opinions of the American Bar Association Committee on
Ethics which are pertinent to this inquiry.
Formal Opinion No. 151 (February 15, 1936) held that it was improper to
offer a discount to clients for prompt payment of fees. The opinion was
premised upon then-in-effect Cannon 12:
In fixing fees it should never be forgotten that the profession is a branch of the
administration of justice and note a mere money-getting trade . . .
Informal Decision No. 741 (March 31, 1964) held that it would be
improper to include the following language on an attorney's billing form:
Interest at the rate of six percent per annum will be charged on all accounts not
paid within thirty days.
The Committee's rationale for Informal Decision No. 741 was that the practice
might constitute a bargaining weapon which the attorney might use in
reaching an agreement as to the amount of fees where the fees owed were in
dispute. Furthermore, the Committee contended that even where the fees have
been agreed upon, the claim of interest would appear to be an inducement to
pay promptly, similar in effect to offering a discount for prompt payment, a
practice which was condemned in Formal Opinion No. 151, as discussed above.
On the other hand, Informal Decision No. 741 (1964) went on to state that in
special cases it would be appropriate for an attorney to accept a promissory
note for the amount of a fee, with interest to accrue until paid, and with the
provision that the client could prepay without penalty. This practice would be
acceptable, according to the Informal Decision No. 741, only where the client
was able to pay but desired that payment be deferred for his convenience
rather than of necessity.
Formal Opinion No. 338 (November 16, 1974) dealt generally, and
approvingly, with the use of credit cards for the payment of legal services; it
also contains the following statement:
It is also the Committee's opinion that a lawyer can charge-his client interest
providing that the client is advised that the lawyer intends to charge interest and
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agrees to the payment of interest on accounts that are delinquent for more than a
stated period of time.
The Alaska Bar Association Committee on Ethics notes in these opinions
a definite liberalizing trend toward the allowance of interest on unpaid billings;
more importantly, the Committee does not find any provision of the Code of
Professional Responsibility which directly or indirectly prohibits or condemns
the charging of interest on unpaid billings. The Committee believes that the
public generally would in fact be surprised if interest were not charged on
overdue billings as in the case of any other debt. If it is an attorney's intent to
charge interest on unpaid billings, he should of course inform his client of that
intent to avoid later disputes, but the Committee can find no reason either in
logic or under the provisions of the Code of Professional Responsibility which
would indicate that the charging of interest is improper.
Adopted by the Board of Governors on May 19, 1979.

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