May a lawyer charge a client interest on a past-due fee, for example by printing a notice that interest accrues on accounts unpaid more than thirty days?

Plain-English summary

The inquirer asked whether it was proper to print a notice on the reverse of debit notes stating that interest would be charged from the original billing date on accounts unpaid more than thirty days, referring to Federal Reserve Regulation Z and the Truth in Lending law and proposing to charge 1 1/2% per month (18% per year). He reported receiving similar debit notes from foreign associates whom he believed operated under a code of ethics.

The Committee reviewed the authorities, which generally hold that an attorney is not entitled to interest on an unliquidated demand for compensation, and surveyed opinions from the ABA and several other state committees (New York, Florida, Washington, Illinois). It drew on DR 2-106 and Ethical Considerations 2-19 and 2-23, which urge a clear fee agreement, preferably in writing, and discussion of billing and payment terms at the outset, especially where a matter will extend over a long period.

The Committee concluded that printing a notice unilaterally demanding interest on overdue accounts was improper, characterizing such "devices of the retail trade" as out of place in a personal professional relationship. It held that interest may be addressed only by agreement: where the fee arrangement initially contemplates delay in payment, the lawyer may seek the client's agreement to pay interest within legal limits, and where the client's convenience is served and there is no coercion or over-reaching, the lawyer may accept the client's note bearing reasonable interest for a past-due bill.

Currency note

This opinion was issued in 1974, before New Jersey's adoption of the 2004 revisions to the Rules of Professional Conduct, and predates the 1984 replacement of the Disciplinary Rules by the RPCs. It was decided under DR 2-106 of the Code of Professional Responsibility; fee questions are now governed by RPC 1.5. Subsequent rule amendments or later opinions may have changed the analysis, and a later opinion (Opinion 446) revisited the interest question. Treat this page as historical context, not current guidance.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 print a notice that interest accrues on bills unpaid after thirty days?

A: Under this opinion, no. The Committee found it improper for an attorney to demand interest on delinquent accounts through such a unilateral notice.

Q: Is there any way a lawyer may charge interest on a fee?

A: Yes, by agreement. The opinion permits the lawyer to seek the client's agreement to pay interest within legal limits where the fee arrangement initially contemplates delayed payment, or to accept a client's note bearing reasonable interest where there is no coercion or over-reaching.

Q: What was wrong with referencing Truth in Lending and an 18% rate?

A: The opinion treated the proposed notice as importing the customs of commerce into the professional relationship; it disapproved any practice that substitutes the devices of the retail trade for the personal professional relationship of attorney and client.

Background and rules framework

The opinion interpreted DR 2-106 (standards for fees) together with Ethical Considerations 2-19 and 2-23 of the 1969 Code of Professional Responsibility, which counsel a clear, preferably written fee agreement and the avoidance of fee controversies. In current New Jersey terms, fee arrangements are governed by RPC 1.5.

Citations and references

Rules of Professional Conduct:

• DR 2-106 (fees) and EC 2-19, EC 2-23, as in effect 1974; now MR 1.5 / NJ RPC 1.5

Other opinions cited:

• ABA Committee on Professional Ethics, Informal Decision C 741 (1964); Opinion 151 (1936)
• ABA Informal Opinion 909 referenced in the secondary literature (Wise, Legal Ethics)
• N.Y. State Bar Opinion 87 (1968); Florida Opinion 68-61 (1970); Washington Opinion 143 (1970)
• Illinois State Bar Opinion 380 (1972); Opinion 347 (1971)
• N.Y. County Lawyers Ass'n Opinion 601 (1972)

See also

• NJ ACPE Op. 446: An Attorney's Demand for Interest on a Delinquent Account
• NJ ACPE Op. 304: Multiple-Party Conflict and Fees Upon Withdrawal
• NJ ACPE Op. 644: Nonrefundable Retainers

Source

• Full text (Justia mirror): https://law.justia.com/cases/new-jersey/advisory-committee-on-professional-ethics/2004/acp293-1.html
• Issuing authority: New Jersey Supreme Court Advisory Committee on Professional Ethics, via the NJ Courts Supreme Court Committees page

Original opinion text

Reproduced from a full-text mirror of the official opinion for research purposes. The linked official source controls.

97 N.J.L.J. 929, November 28, 1974

OPINION 293

Interest on Attorneys' Fees

This inquiry asks the propriety of a notice on the reverse of debit notes, stating that interest will be charged from original billing date on accounts unpaid more than thirty days. The particular notice proposes to refer to Federal Reserve Regulation Z, and the "Truth in Lending" law and proposes to charge interest at 1 1/2% per month for a total of 18% per year. The inquirer reports that he has received debit notes of similar nature from foreign associates who he believes operate under a code of ethics. Generally, the authorities hold that an attorney is not entitled to interest on an unliquidated demand for compensation. 7 C.J.S. 191-c at 1092. Citing the A.B.A. Comm. on Professional Ethics, Informal Decision C 741 (1964), it is stated in Wise, Legal Ethics 241 (2d ed. 1970):

They have decided that a lawyer should not state on his billhead that interest will be charged on unpaid balances after 30 days. If a lawyer takes a note for a fee, the note may bear legal interest, but the client must have a penalty-free right of pre-payment.

References to state bar opinions are found in Maru, 1970 Supplement to the Digest of Bar Association Ethics Opinions, American Bar Foundation: The New York State Bar Committee held it to be generally improper to charge interest, but that interest may be added in a judgment for fees due. Opinion 87, 40 N.Y.S.B.J. 607 (1968). Digest, supra, 6966. The Florida committee held that a note given for a portion of an unpaid fee may bear lawful interest comparable to that charged by a lending institution. Opinion 68-61, 44 Fla.B.J. 406 (1970), Digest, supra, 6573. The Washington committee held it to be demeaning to the profession to insist on payment of interest on open account balances; but, that absent coercion or discount, a note may be taken for reasonable interest. Opinion 143, 24 Wash.S.B.N. 10 (1970), Digest, supra, 7313.

Since the Maru & Clough compilation, the Committee on Professional Ethics of the Illinois State Bar Association has considered the interest question in its Opinion 380 (1972). The Illinois committee there held it improper to charge a client interest on past due fees regardless of whether the attorney and client have agreed upon the fee. Citing the A.B.A. Comm. on Professional Ethics, Informal Decision C 741 (1964), and its Opinion 151 (1936), it referred to former Canons of Professional Ethics, Canon 12 for the general elements in fixing fees and to Ethical Consideration 2-23, which urges a lawyer to avoid controversies over fees. And compare, Opinion 347 (1971), of the Illinois committee where it applied E.C. 2-23 to the question of when an attorney may sue a client for a fee. In its Opinion 380, supra, the Illinois committee observed that it did "not ... hold improper, payment of an agreed fee by the giving of an interest bearing note for the client's convenience."

Disciplinary Rule 2-106 sets out the standards in setting fees. The attorney should reach a clear agreement with the client as to the basis of fee charges to be made. If at all possible, it should be reduced to writing. Ethical Consideration 2-19, American Bar Association, Code of Professional Responsibility (1969). In this effort the time for billing and payment should be discussed. Where matters are to extend over a long period of time, the parties should plan on how bills are to be rendered and paid. A lawyer should realize that prospective clients may have had little experience in dealing with lawyers' fees. E.C. 2-19, supra. Full explanation is necessary. And, if a substantial delay in payment is likely, then a fair rate of interest must be agreed upon. It should not exceed the legal rate. In asking for interest the attorney should bear in mind the considerations stated in the Preamble Code of Professional Responsibility, American Bar Association (1969). Respect for the client and confidence in the lawyer compel exercise of the highest possible degree of ethical conduct. The lawyer's conscience is his guide. And, every effort should be made to work out an amicable resolution of any differences that may arise. The practice of law is part of the administration of justice. Devices of the retail trade such as monthly interest at 1 1/2% just do not belong in the practice. Compare N.Y. County Lawyers Ass'n., Committee on Professional Ethics, Opinion 601 (1972), where it was held that an attorney may not join a master charge plan for financing his legal fees. Any practice that ignores the personal professional relationship of attorney and client, and substitutes the customs of commerce reduces the respect and confidence of the bar and so is disapproved.

Tested by these principles, it is this Committee's opinion that it is improper for an attorney to demand interest on delinquent accounts. Where his fee agreement initially contemplates delay in payment, he may seek the agreement of the client to pay interest within legal limits. Where the convenience of the client is served and there is no coercion or over-reaching, an attorney may accept a client's note with reasonable interest for the payment of a past due bill.