May a California attorney accept payment of earned legal fees, deposits for unearned fees, and advances for costs and expenses by credit card?

Currency note

This opinion was issued in 2007, before the State Bar of California's adoption of the November 1, 2018 revisions to the Rules of Professional Conduct. The opinion interprets former Rules 1-320, 3-100, 3-700, 4-100, and 4-200, together with Business and Professions Code section 6068. Current Rules 1.5 (fees), 1.6 (confidentiality), 1.15 (safekeeping funds), 1.16 (declining or terminating representation), and 5.4 (professional independence) now address these issues. The State Bar's editor's note on the official PDF specifically cautions that under current Rule 1.15, advance fees must be deposited in a Client Trust Account, which materially affects the analysis in Issue 2 below. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule reference.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the State Bar of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.

About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. The opinion text is reproduced at the bottom; the official source (linked) controls.

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Plain-English summary

The hypothetical: Attorney wishes to accept credit-card payments from clients for (1) earned fees, (2) fees not yet earned, and (3) advances for costs and expenses. Attorney intends to absorb the service charge debited by the credit-card issuer.

On the credit-card mechanics: the committee adopted the framework described in United States v. Ismoila (5th Cir. 1996) 100 F.3d 380. Issuing banks issue cards to consumers; merchant banks hold accounts with businesses. When the merchant bank approves a sale, it immediately credits the business and is later paid by the issuing bank. The merchant bank may invade the funds in the merchant account via chargebacks if the cardholder disputes the charge. To the extent the merchant account is subject to invasion, it cannot be deemed a Client Trust Account.

Issue 1 (earned fees by credit card): Yes. The committee re-examined California State Bar Formal Opinion 1980-53 and the older ABA opinions (Informal Opinions 1120 (1969) and 1176 (1971) calling credit-card payment of fees "unprofessional"), noted that the ABA withdrew those by Formal Opinion 00-419 (2000), and concluded that an attorney may accept earned fees by credit card. The attorney must discharge the duty of confidentiality under Business and Professions Code section 6068(e) and former Rule 3-100; the description on the charge slip must not reveal confidential information without the client's informed consent and should be general, such as "for professional services rendered." Citing Hooser v. Superior Court (2000) 84 Cal.App.4th 997, even the fact of representation may fall within the attorney-client privilege. The committee further held that absorbing the merchant service charge does not run afoul of former Rule 1-320 (no fee sharing with non-lawyers), because the purpose of Rule 1-320 (per Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, Gassman v. State Bar (1976) 18 Cal.3d 125, and L.A. County Bar Association Formal Opinion 510 (2003)) is to prevent control over the attorney's services from shifting to lay persons. A merchant service-charge debit, which compensates the attorney for a convenient method of receiving funds owed, does not implicate that purpose. The committee also held that exposing the client to credit-card interest and late charges does not by itself implicate Rule 4-200 (unconscionability), because the client chooses to subject himself or herself to those charges.

Issue 2 (deposit for fees not yet earned by credit card): Yes, under former Rule 4-100. Footnote 11 explained that, in Baranowski v. State Bar (1979) 24 Cal.3d 153, the California Supreme Court left open whether the predecessor of Rule 4-100 required deposit of advance fees in a CTA, and subsequently approved Rule 4-100 with the State Bar's express statement that the requirement was "unworkable in light of the realities of the practice of law." The Court later declined to approve a proposed rule amendment requiring advance fees to be paid into trust accounts. The committee acknowledged that T & R Foods, Inc. v. Rose (1996) 47 Cal.App.4th Supp. 1 construed Rule 4-100 to require advance-fee deposit in a CTA, but did so without consideration of the Supreme Court's action and inaction. Because deposit of unearned fees in a CTA was not required, the attorney may accept the deposit by credit card into a merchant account. The committee added a prudential observation: because Rule 3-700(D)(2) requires prompt refund of unearned advance fees, the attorney may wish to transfer the funds into a CTA after receipt to ensure availability for refund. The editor's note (added later by the State Bar) makes clear that current Rule 1.15 changes this analysis by requiring deposit of advance fees in a Client Trust Account.

Issue 3 (advances for costs and expenses by credit card): No. Rule 4-100 expressly required advances for costs and expenses to be deposited in a Client Trust Account. Because the merchant account is subject to invasion via chargebacks, the attorney cannot deposit cost advances directly via credit card. The committee distinguished reimbursement of costs and expenses already paid, which is not an "advance" and need not (and indeed may not) be deposited in a CTA; reimbursement may be accepted by credit card.

The committee added that, to the extent any payment or deposit combines earned fees, unearned fees, and cost advances, the attorney may not accept it by credit card because of the cost-advance component.

Common questions

Q: May a California attorney accept earned legal fees by credit card?

A: Per the opinion, yes. The duty of confidentiality must be discharged: the charge-slip description must not disclose confidential information without the client's informed consent and should be general, such as "for professional services rendered." Absorbing the merchant service charge does not violate former Rule 1-320, and exposing the client to credit-card interest and late charges does not by itself implicate Rule 4-200.

Q: May the attorney accept a deposit for fees not yet earned by credit card?

A: Per the opinion as decided in 2007, yes, because former Rule 4-100 did not require advance-fee deposit in a CTA. The committee also noted that the attorney may, as a matter of prudence, transfer the deposited funds into a CTA after receipt to ensure availability for refund of unearned amounts under Rule 3-700(D)(2). The editor's note added to the official PDF flags that current Rule 1.15 requires advance fees to be deposited in a CTA; under current rules, this answer would change to the same analysis that applies to cost advances.

Q: May the attorney accept a deposit for advances for costs and expenses by credit card?

A: Per the opinion, no. Rule 4-100 requires cost advances to be deposited in a Client Trust Account, and the credit-card merchant account is subject to invasion via chargebacks before the attorney can transfer the funds. Reimbursement of costs and expenses already paid (which is not an "advance") may, however, be accepted by credit card.

Q: What charge-slip description satisfies confidentiality?

A: Per the opinion, the description should be general in nature, such as "for professional services rendered." Citing Hooser v. Superior Court (2000) 84 Cal.App.4th 997, the committee noted that even the fact that an attorney is representing a client may fall within the protection of the attorney-client privilege.

Q: Does paying the merchant service charge to the credit-card issuer count as sharing fees with a non-lawyer under former Rule 1-320?

A: Per the opinion, no. The purpose of Rule 1-320 is to prevent control over the attorney's services from shifting to lay persons. A service-charge debit, which compensates the attorney for a convenient method of receiving funds owed, does not implicate that purpose.

Background and rules framework

The opinion interprets former California Rules 1-320 (no fee sharing with non-lawyers), 3-100 (confidentiality), 3-700 (termination of employment and refund of unearned fees), 4-100 (client trust accounts), and 4-200 (unconscionable fees), together with Business and Professions Code section 6068. Functionally, the framework now corresponds, in current California numbering, to Rules 1.5, 1.6, 1.15, 1.16, and 5.4. Current Rule 1.15 in particular changes the analysis on advance-fee deposit, as the State Bar's editor's note on the official PDF flags.

Citations and references

Rules of Professional Conduct (former, in effect at time of opinion):

• Former California Rule 1-320
• Former California Rule 3-100
• Former California Rule 3-700(D)(2)
• Former California Rule 4-100, including 4-100(A)
• Former California Rule 4-200

Statutes:

• California Business and Professions Code section 6068(e)

Cases:

• Baranowski v. State Bar (1979) 24 Cal.3d 153, definition of retainer and open question on advance fees in CTA
• Hooser v. Superior Court (2000) 84 Cal.App.4th 997, fact of representation may be privileged
• Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, purpose of fee-sharing prohibition
• Gassman v. State Bar (1976) 18 Cal.3d 125, fee-sharing prohibition
• T & R Foods, Inc. v. Rose (1996) 47 Cal.App.4th Supp. 1, construing Rule 4-100 to require advance-fee deposit (without considering Supreme Court history)
• United States v. Ismoila (5th Cir. 1996) 100 F.3d 380, credit-card transaction mechanics
• F.T.C. v. Overseas Unlimited Agency, Inc. (9th Cir. 1989) 873 F.2d 1233, merchant account subject to invasion
• Securities and Exchange Commission v. Interlink Data Network of Los Angeles, Inc. (9th Cir. 1996) 77 F.3d 1201, Rule 4-100 construction

Other opinions and authorities cited:

• California State Bar Formal Opinion 1980-53: interest on past-due receivables and credit-card history
• California State Bar Formal Opinion 2005-169: nondelegable duty to protect client funds
• ABA Committee on Ethics and Professional Responsibility Informal Opinions 1120 (1969) and 1176 (1971): early "unprofessional" view
• ABA Formal Opinion 00-419 (2000): withdrawing Informal Opinions 1120 and 1176
• ABA Formal Opinion 388 (1974): credit-card guidance
• State Bar Policy Statement on Use of Credit Cards for Payment of Legal Services and Expenses (Feb. 11, 1975)
• Bar Association of San Francisco Formal Opinion 1970-1
• San Diego County Bar Association Formal Opinions 1972-10, 1972-13, 1974-6, and 1983-1
• L.A. County Bar Association Formal Opinions 370 (1978), 374 (1978), 499 (1999), and 510 (2003)
• Colorado Bar Association Formal Ethics Opinion 99 (1997)
• Massachusetts Bar Association Ethics Opinion 78-11 (1978)
• New Mexico State Bar Association Advisory Opinion 2000-1 (2000)
• North Carolina State Bar Formal Ethics Opinion 97-9 (1998)
• Vapnek et al., Cal. Practice Guide: Professional Responsibility (The Rutter Group 2006) §§ 9:107-9:108
• Maggs, Regulating Electronic Commerce (2002) 50 Am. J. Comp. L. 665

See also

• CA COPRAC Op. 2005-169: Client trust account overdraft protection
• CA COPRAC Op. 2006-171: Fee dispute after trust account withdrawal
• CA COPRAC Op. 2006-170: Charging lien in contingency fee agreement

Source

• Landing page: https://www.calbar.ca.gov/legal-professionals/ethics-compliance-practice-resources/ethics/ethics-opinions
• Original PDF: https://www.calbar.ca.gov/sites/default/files/portals/0/documents/ethics/Opinions/2007-172_05-0009_Final_Published_Version_4-10-07-PAW.pdf

Original opinion text

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

Editor's Note: Regarding the Committee's discussion of accepting payment of advanced fees from a client by credit card, please note that this opinion was issued under former rule 4-100, which did not require the placement of advanced fees in a client trust account. Attorneys are advised to review current Rule of Professional Conduct 1.15.

THE STATE BAR OF CALIFORNIA
STANDING COMMITTEE ON
PROFESSIONAL RESPONSIBILITY AND CONDUCT
FORMAL OPINION NO. 2007-172

ISSUES: 1. May an attorney ethically accept payment of earned fees from a client by credit card?

2. May an attorney ethically accept payment of fees not yet earned from a client by credit card?

3. May an attorney ethically accept payment of advances for costs and expenses from a client by credit card?

DIGEST: 1. An attorney may ethically accept payment of earned fees from a client by credit card. In doing so, however, the attorney must discharge his or her duty of confidentiality.

2. Likewise, an attorney may ethically accept a deposit for fees not yet earned from a client by credit card, but must discharge his or her duty of confidentiality.

3. By contrast, an attorney may not ethically accept a deposit for advances for costs and expenses from a client by credit card because the attorney must deposit such advances into a client trust account and cannot do so initially because they are paid through an account that is subject to invasion.

AUTHORITIES INTERPRETED: Rules 1-320, 3-100, 3-700, 4-100, and 4-200 of the Rules of Professional Conduct of the State Bar of California. Business and Professions Code section 6068.

STATEMENT OF FACTS

Attorney desires to accept payments and deposits from her clients by credit card for (1) earned fees, (2) fees not yet earned, and (3) advances for costs and expenses. Attorney intends to absorb the service charge debited by the credit card issuer, which would accordingly result in reducing the amount netted.

DISCUSSION

1. An Attorney May Ethically Accept Payment of Earned Fees by Credit Card.

The first question is whether an attorney may ethically accept payment of earned fees from a client by credit card.

By way of background, a typical transaction involving a credit card issued by a bank operates as follows: "Issuing banks are members of [various] . . . not-for-profit associations of member banks that operate a worldwide communication system for financial transfers using credit cards. Issuing banks issue credit cards to consumers, enabling those consumers to make credit-card purchases at participating businesses. To accept credit cards, businesses must open an account with a merchant bank. Merchant banks, like issuing banks, are members of [the same not-for-profit associations], but merchant banks have accounts with businesses, not consumers. Once a business is electronically connected with a merchant bank, it can accept a consumer's credit card by processing the credit card through a point-of-sale terminal provided to it by the merchant bank. If the merchant bank approves the sale, it immediately credits the business for the amount of the consumer's purchase. The merchant bank then transmits the information regarding the sale to [the not-for-profit association in question], who in turn forward[s] the information to the bank that issued the card to the consumer who made the purchase. If the issuing bank approves the sale, it notifies [the not-for-profit association] and then pays the merchant bank at the end of the business day. The issuing bank carries the debt until the cardholder pays the bill." From all that appears, credit card issuers deposit funds on use of a credit card into the merchant account established for that purpose at the merchant bank; the merchant bank may invade the funds via chargebacks, that is, the imposition of debits, in the event that the credit card holder disputes the charge. Whether and, if so, under what conditions a merchant account might be rendered not subject to invasion is unknown to the Committee. But to the extent that a merchant account is subject to invasion, it is not, and cannot be deemed, a client trust account.

More than 25 years ago, in California State Bar Formal Opn. No. 1980-53, the Committee opined that an attorney may ethically charge interest on past due receivables from a client, provided that the client gives his or her informed consent in advance. In the course of its analysis, the Committee stated: "The Committee on Ethics and Professional Responsibility of the American Bar Association initially concluded that use of credit cards for payment of legal fees was unprofessional because it was 'wrong' to put professional services in the same category as 'sales of merchandise and sales of nonprofessional services,' especially when all credit card publicity was directed to such sales. (ABA Committee on Ethics and Prof. Responsibility, informal opn. No. 1120 (1969).) The Committee reiterated that this conclusion applied even when the law firm agreed not to display promotional material and where collection of accounts by the banks was without recourse. (See ABA Committee on Ethics and Prof. Responsibility, informal opn. No. 1176 (1971).) [¶] However, upon adoption of the Code of Professional Responsibility by virtually all fifty states, the American Bar Association Committee on Ethics and Professional Responsibility overruled the latter two decisions and approved use of credit cards subject to [various] conditions for services actually rendered." (Cal. State Bar Formal Opn. No. 1980-53.)

In California State Bar Formal Opn. No. 1980-53, the Committee did not resolve the question whether an attorney may ethically accept payment of earned fees from a client by credit card.

The Committee is now of the opinion that the question should be answered in the affirmative. An attorney may ethically accept payment of earned fees by check or cash. By parity, an attorney may do the same by credit card. To be sure, a generation ago, the "use of credit cards for payment of legal fees" was deemed "unprofessional." (ABA Committee on Ethics and Prof. Responsibility, Informal Opn. No. 1120 (1969).) But for many years, that has not been the case.

Although the Committee is of the opinion that an attorney may ethically accept payment of earned fees from a client by credit card, in doing so, the attorney must nevertheless be careful to comply with various ethical obligations. For example, an attorney must discharge his or her duty of confidentiality to clients under Business and Professions Code section 6068, subdivision (e), and under rule 3-100 of the Rules of Professional Conduct of the State Bar of California. Credit card issuers require a description on the credit card charge slip of the goods or services provided. In furnishing such a description, the attorney may not disclose confidential information without the client's informed consent. To that end, the description should be general in nature, such as "for professional services rendered."

By contrast, an attorney does not implicate his or her duty not to charge the client an unconscionable fee in violation of rule 4-200 simply by accepting payment of earned fees from a client by credit card. To be sure, by accepting such payment, the attorney allows the client to subject him- or herself to interest and late charges imposed by the credit card issuer. There are many credit card issuers; each may set its own interest rates and late charges separately from the rest, and in addition, each may set interest rates and late charges separately for various classes of holders. If the attorney were attempting to subject the client to interest and late charges, the attorney would be ethically obligated to obtain the client's informed consent and comply with applicable law broadly defined, including the prohibition of rule 4-200 against unconscionability. But the attorney is subject to no such obligation if the client chooses to subject him- or herself to interest and late charges imposed by the credit card issuer. The attorney may choose to advise the client that the client's credit card issuer sets interest rates and late charges and that the client would do well to determine such rates and charges before using the credit card, but is not ethically obligated to do so.

Likewise, an attorney does not implicate his or her duty not to share fees with a non-attorney in violation of rule 1-320 simply by accepting payment of earned fees from a client by credit card and thereby making a payment to the credit card issuer through a debit of a service charge. The purpose of rule 1-320 is "to protect the integrity of the attorney-client relationship, to prevent control over the services rendered by attorneys from being shifted to lay persons, and to ensure that the best interests of the client remain paramount." A service-charge debit, which amounts to the attorney's payment for a convenient method of receiving funds owed the attorney, does not frustrate the purpose of rule 1-320, and for that reason does not come within the rule's proscription.

It follows that Attorney in the Statement of Facts may ethically accept payment of earned fees from her clients by credit card. Attorney may also ethically absorb the service charge debited by the credit card issuer. But as noted above, Attorney would have to be careful to discharge her duty of confidentiality to her clients.

2. An Attorney May Ethically Accept a Deposit for Fees Not Yet Earned by Credit Card.

The second question is whether an attorney may ethically accept a deposit for fees not yet earned from a client by credit card.

At the outset, the Committee is of the opinion that just as the former hostility to the "unprofessional" use of credit cards for payment of legal fees does not justify a conclusion that an attorney may not ethically accept payment of earned fees from a client by credit card, neither does it justify such a conclusion with respect to accepting a deposit for fees not yet earned – so long as the deposit, as will be explained, does not include advances for costs and expenses.

Under rule 4-100, an attorney is subject to an ethical obligation to "deposit[]" "[a]ll funds received or held for the benefit of clients" into a client trust account. (Rule 4-100(A).) This ethical obligation is not qualified, conditional, or avoidable, and therefore does not allow the attorney, with or without the client's consent, to take such actions as depositing client funds initially into an account other than a client trust account and subsequently transferring them into a client trust account if or when reasonable or practicable. The attorney is subject to a concomitant ethical obligation, which is "both personal and nondelegable," to "take reasonable care to protect client funds" deposited into a client trust account.

Under rule 4-100, as it has been construed by the courts, an attorney is ethically permitted, but not required, to deposit fees not yet earned into a client trust account.

If an attorney were required to deposit fees not yet earned into a client trust account, the attorney would not be permitted to accept such a deposit from a client by credit card to the extent that the credit card issuer deposits funds into a merchant account that is subject to invasion. That is because to that extent: (1) the credit card issuer deposits the funds into a merchant account; (2) the attorney, however, must deposit the funds into a client trust account; (3) the attorney must take reasonable care to protect the funds deposited into a client trust account; and (4) before the attorney can assert control over the funds, the merchant bank may invade the funds in the merchant account, thereby putting the funds at risk beyond the attorney's protection. As a consequence, the attorney could not immediately deposit such fees into a client trust account or take care to protect them, but would have to cede control to the merchant bank, at least initially.

But because an attorney need not deposit fees not yet earned into a client trust account, the attorney may accept such a deposit by credit card, resulting in a deposit into a merchant account.

The fact that an attorney need not deposit fees not yet earned into a client trust account does not mean that, solely as a matter of prudence, the attorney should decline to do so. Upon termination of employment, an attorney is subject to an ethical obligation under rule 3-700(D)(2) to "[p]romptly refund any part of a fee paid in advance that has not been earned." Failure to deposit such fees into a client trust account risks their unavailability at the time, if any, at which they must be refunded. After they are deposited in a merchant account by a credit card issuer, such fees may ethically be transferred into a client trust account. By means of such a transfer, an attorney would ensure their availability should he or she be required to refund any or all of them to the client. Although not ethically required to make a transfer of this sort, the attorney may consider doing so solely as a matter of prudence.

It follows that Attorney in the Statement of Facts may ethically accept a deposit for fees not yet earned from her clients by credit card. As stated above, she may also ethically absorb the service charge debited by the credit card issuer. But again, as stated above, she would have to be careful to discharge her duty of confidentiality to her clients.

3. An Attorney May Not Ethically Accept A Deposit for Advances for Costs and Expenses by Credit Card.

The third question is whether an attorney may ethically accept a deposit for advances for costs and expenses from a client by credit card.

Under rule 4-100, among the "funds received or held for the benefit of clients" that an attorney is ethically obligated to deposit into a client trust account are "advances for costs and expenses." (Rule 4-100(A).)

Because an attorney must deposit advances for costs and expenses from a client into a client trust account, he or she may not ethically accept such a deposit by credit card, as explained above, to the extent that the credit card issuer deposits funds into a merchant account that is subject to invasion. It follows that the attorney may not ethically accept any payment or deposit from a client by credit card, whether for earned fees or fees not yet earned, if the payment or deposit includes advances for costs and expenses. The attorney, however, may accept reimbursement by credit card for costs and expenses already paid. By definition, reimbursement of costs and expenses already paid does not constitute an "advance" of such costs and expenses, and consequently it need not – and indeed may not – be deposited into a client trust account.

It follows that Attorney in the Statement of Facts may not ethically accept a deposit for advances for costs and expenses from her clients by credit card. She may, however, accept reimbursement by credit card of costs and expenses already paid.

This opinion is issued by the Standing Committee on Professional Responsibility and Conduct of the State Bar of California. It is advisory only. It is not binding upon the courts, the State Bar of California, its Board of Governors, any persons, or tribunals charged with regulatory responsibilities, or any member of the State Bar.