Can a lawyer charge interest on a client's overdue legal bill, and what does the lawyer have to do first?

Plain-English summary

A lawyer asked whether he could charge a revolving interest account of one and one-half percent per month on uncollected client accounts. The opinion declined to address whether a statute permits such interest, because that is a question of law on which the Committee does not comment, and addressed only the ethical guidelines for charging interest on delinquent accounts.

The opinion relies on ABA Formal Opinion 338 (1974), which held that interest may be charged on delinquent accounts with the client's agreement, provided the client is advised the lawyer intends to charge interest and agrees to pay it on accounts delinquent beyond a stated period. It ties this to Rule 1.5(a) (a lawyer's fee must be reasonable) and Rule 1.5(b) (the basis or rate of the fee must be communicated to the client, preferably in writing, before or within a reasonable time after the representation begins), reasoning that applying Rule 1.5 secures both a clear fee agreement and the prerequisites for charging interest.

The opinion also discusses ABA Informal Decision C-741 (1964), which had found improper a small-print billhead legend reciting interest charges; the Committee viewed that decision as overruled by the Code of Professional Responsibility and Formal Opinion 338, but noted its observations still merit respect: the attorney-client relationship is highly personal, and interest accrual should not be used as a bargaining weapon over fee amounts or as an inducement to prompt payment. The opinion concludes a lawyer may charge interest if the client is advised and agrees to it for accounts delinquent beyond a stated period, and that arbitrary imposition without prior knowledge and consent is improper.

In practice

Under this opinion, charging interest on overdue legal bills is permissible only on an agreed basis: the lawyer must tell the client interest will be charged and the client must agree to pay it once the account is delinquent beyond a stated period, consistent with Rule 1.5(a) and 1.5(b). The opinion treats unilateral, arbitrary interest on all unpaid accounts without prior client knowledge and consent as improper, and notes interest should not be used as a bargaining lever over the fee or as a pressure device for payment. It does not decide the separate legal question of whether a statute authorizes the specific rate proposed.

Common questions

Q: Can a lawyer add interest to a client's unpaid bill?

A: Per this opinion, yes, but only if the client was advised interest would be charged and agreed to pay it on accounts delinquent beyond a stated period.

Q: Can a lawyer just print an interest charge on the billhead?

A: The opinion concludes arbitrary imposition without the client's prior knowledge and consent is improper, and discusses ABA Informal Decision C-741 disapproving a small-print billhead interest legend.

Q: Does the opinion decide what interest rate is legal?

A: No. The opinion states the legality of a given rate is a question of law on which the Committee declines to comment.

Q: How should the interest arrangement be set up?

A: The opinion ties the practice to Rule 1.5(b), which calls for communicating the basis or rate of the fee to the client, preferably in writing, before or within a reasonable time after the representation begins.

Background and rules framework

The opinion applies Mississippi Rule of Professional Conduct 1.5 (fees, the analog of Model Rule 1.5), specifically Rule 1.5(a) (reasonableness and its factors) and Rule 1.5(b) (communicating the basis or rate of the fee). It adopts the agreement requirement from ABA Formal Opinion 338 and discusses, as superseded but instructive, ABA Informal Decision C-741.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 / Mississippi Rule 1.5: fees, including Rule 1.5(a) (reasonableness) and Rule 1.5(b) (communicating the basis or rate of the fee).

Other opinions cited:

• ABA Formal Opinion 338 (Nov. 16, 1974): interest may be charged on delinquent accounts with the client's agreement.
• ABA Informal Decision C-741 (Mar. 31, 1964): disapproving a small-print billhead interest legend; viewed by the Committee as overruled but instructive.

See also

• MS Bar Ethics Op. 135: Paying Legal Fees by Credit Card
• MS Bar Ethics Op. 250: Non-Refundable Retainers
• MS Bar Ethics Op. 219: Accounting and Refunding Unearned Fees on Termination

Source

• Landing page: https://www.msbar.org/ethics-discipline/ethics-opinions/formal-opinions/100/
• Original PDF: https://www.msbar.org/media/1017/et_op_100-amended.pdf

Original opinion text

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

ETHICS OPINION NO. 100

OF THE MISSISSIPPI BAR

RENDERED January 29, 1985

AMENDED April 06, 2013

FEES - Interest may be charged on delinquent accounts with the client's agreement.

The Ethics Committee of the Mississippi Bar has been asked to render an option on whether any prohibition exists under current statute which would prevent an attorney charging a revolving interest account of one and one-half per cent per month on his uncollected accounts to clients. This inquiry addresses a question of law and therefore the Committee, as required by its bylaws, will decline comment on this issue.

The requester further makes inquiry regarding ethical guidelines to be addressed if interest is to be charged on uncollected accounts owed by an attorney's client. Inherent in the latter question is the threshold inquiry of whether any interest may be charged in delinquent accounts owed the lawyer.

The American Bar Association on Ethics and Professional Responsibility rendered Formal opinion 338 on November 16, 1974. In this opinion the Committee held that interest may be charged on delinquent accounts with the client's agreement. This opinion addressed primarily the use of credit cards for the payment of legal services and expenses and in resolving this issue favorably, the committee stated:

A necessary corollary to the use of credit cards is the charging of interest on delinquent accounts. It is the Committee's opinion that it is proper to use a credit card system which involved the charging of interest on delinquent accounts. It is also the Committee's opinion that a lawyer can charge his client interest providing the client is advised that the lawyer intends to charge interest and agrees to the payment of interest on accounts that are delinquent for more than a stated period of time. (Emphasis supplied.)

Rule 1.5(a) of the Mississippi Rules of Professional Conduct (MRPC), provides that a lawyer's fees shall be reasonable. It goes on to list the factors to be considered in determining the reasonableness of a fee. Rule 1.5(b), MRPC, further provides that 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.

Application of this Rule will not only assure a clear agreement regarding the fee itself but any interest that may be charged and it will accomplish the prerequisites for the charging of interest as set forth in formal opinion 338, supra.

Informal decision C-741 of the Committee on Ethics and Professional Responsibility of the American Bar Association, rendered March 31, 1964, found improper the practice of placing on the lawyer's billhead form in small print a legend reciting interest to be charged on delinquent accounts. It is this Committee's opinion that this decision has been overruled by the Code of Professional Responsibility and by Formal Opinion 338 of the Committee on Ethics and Professional Responsibility of the American Bar Association. Notwithstanding, the Committee believes that the observations set forth in the informal opinion merit respect and offer guidance when considering interest charges on delinquent accounts. This informal opinion observes that the professional relationship between an attorney and a client is highly personal when compared to business transactions which are impersonal and commercial in character. It notes that the accrual of interest on fees should not be used as a bargaining weapon in reaching agreement as to the amounts of the fees, nor should the proposed accrual of interest be used as an inducement to obtain prompt payment.

The Committee is of the opinion that a lawyer can charge his client interest, providing the client is advised that such charge will be made and agrees to the payment of interest on the account after it reaches a delinquent status for more than a stated period of time. The arbitrary imposition of interest charges on all outstanding uncollected accounts without the client's prior knowledge and consent would be improper.