Can a lawyer charge interest on overdue invoices when there is no written fee agreement?

Plain-English summary

A law firm asked whether, where it had no written fee agreement with a client, it could charge interest on invoiced accounts left unpaid for 30 days or more after notice to the client. The Rules do not address interest charges directly, but the committee read ER 1.5(b), which requires that the basis or rate of the fee be communicated to a client the lawyer has not regularly represented, preferably in writing, before or within a reasonable time after the representation begins.

The committee answered the question in the negative. It relied on its earlier Opinion 81-14, which permitted interest on a delinquent account only with the client's agreement, and concluded that ER 1.5(b)'s requirement to communicate the rate of the fee meant the client must receive notice that interest is to be charged, consent in writing, or be given the opportunity to bring the account current, before interest could begin to accrue. By the time the firm's invoices were 30 days overdue, the representation had typically proceeded for a substantial period, so an after-the-fact interest charge had not been communicated as ER 1.5(b) requires.

The committee was mindful of A.R.S. Section 44-1201(A), which allows a creditor to charge 10 percent interest absent a written agreement, but declined to decide whether that statute would permit a firm to charge interest without client consent, treating that as a question of law outside its jurisdiction. The opinion also encouraged the bar to use written fee agreements in all matters.

Currency note

This opinion was issued in 1986, before the State Bar of Arizona's adoption of the 2003 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer add interest to a client's overdue bill without a written agreement?

A: No. The opinion concluded that, absent a written fee agreement or the client's consent after notice with an opportunity to bring the account current, a lawyer may not charge interest on delinquent invoices.

Q: What did ER 1.5(b) require here?

A: The opinion read ER 1.5(b) to require that the basis or rate of the fee, including any interest charge, be communicated before or within a reasonable time after the representation begins, so a charge first imposed on an overdue account did not satisfy the rule.

Q: Did the committee decide whether the 10 percent statutory interest rate applied?

A: No. The opinion declined to decide whether A.R.S. Section 44-1201(A) permits a firm to charge interest without client consent, treating that as a question of law outside its jurisdiction.

Background and rules framework

The opinion applied ER 1.5(b) (Model Rule 1.5(b)), which requires that the basis or rate of a fee be communicated to a client the lawyer has not regularly represented, preferably in writing, before or within a reasonable time after commencing the representation. The committee read that requirement against its prior Opinion 81-14 and A.R.S. Section 44-1201(A) on statutory interest.

Citations and references

Rules of Professional Conduct:

• ER 1.5(b) / Model Rule 1.5(b) (communicating the basis or rate of the fee)

Statutes:

• A.R.S. Section 44-1201(A) (10 percent interest absent a written agreement)

Other opinions cited:

• Ariz. Op. 81-14: interest on a delinquent account permitted only with the client's agreement

See also

• AZ Ethics Op. 86-06: Earned-on-Receipt Fees
• AZ Ethics Op. 04-03: Client Funds, Liens, and Collection of Fees
• AZ Ethics Op. 04-02: Referral Fees and Division of Fees

Source

• Landing page: https://tools.dev.azbar.org/RulesofProfessionalConduct/ViewEthicsOpinion.aspx?id=544

Original opinion text

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

8/1986

Absent a written fee agreement or the client's consent after notice, interest may not be charged on delinquent invoices.

FACTS

The inquiring law firm contemplates charging interest on invoiced accounts unpaid for 30 days or more upon notice to the client where there is no written fee agreement.

QUESTION

Where no written fee agreement exists between the actorney and client, may the attorney charge interest on the past due balance on invoiced accounts unpaid for 30 days or more upon notice to the client?

ETHICAL RULE INVOLVED

ER 1.5. Fees.

OPINION

The Rules are silent on this issue. However, ER 1.5(b) encourages attorneys to reduce all fee agreements to writing.

"ER 1.5(b). When the lawyer has not regularly represented the client, the basis or rate of the fee shall be communicated to the client, preferably in writing, before or within a reasonable time after commencing the representation."

This committee has previously addressed this issue in May, 1981. Our Opinion No. 81-14 permits an attorney to charge interest on a client's delinquent account ". . . provided the charge is made with the client's agreement."

The committee is mindful of ARS § 44-1201(A) which allows a creditor, in the absence of a written agreement providing for interest, to charge interest at the rate of 10% per annum.

"ARS § 44-1201(Al. Interest on any loan, indebtedness, judgment or other obligation shall be at the rate of 10 per cent per annum, unless a different rate is contracted for in writing, in which event any rate of interest may be agreed to."

Nevertheless, the committee interprets ER 1.5(b ) to require communication of the "rate of the fee" either before the representation begins or within a reasonable time thereafter. In the situation presented by the inquiring firm, the representation has proceeded for at least 30 days and more than likely for a substantially longer period of time.

While the committee is prevented from answering questions of law pursuant to paragraph 6(a) of our Statement of Jurisdictional Policies, we are of the opinion that the client must receive notice that interest is to be charged, consent in writing thereto, or be afforded the opportunity of bringing the account current, before the interest begins to accrue.

The committee also wishes to encourage the bar to use written fee agreements in all matters. Written fee agreements foster the attorney/client relationship, increase the efficiency of practice, and help minimize fee disputes.

The committee answers the inquiring law firm's question in the negative. Absent a written fee agreement or the client's consent after notice with opportunity to bring the account current, interest may not be charged on delinquent invoices. The committee declines to issue an opinion on whether ARS § 44-1201(a) permits a law firm to charge interest without client consent in the absence of a written agreement as being a question of law.

Formal opinions of the Committee on the Rules of Professional Conduct are advisory in nature only and are not binding in any disciplinary or other legal proceeding. This opinion is based on the Ethical Rules in effect on the date the opinion was published. If the rules change, a different conclusion may be appropriate.

© State Bar of Arizona 1986