Ezel / Ethics Opinions / NYSBA
NYSBA 2003-05-15

Can a New York collection lawyer accept credit card payments from a client's debtors, deduct the fee, and pass on the card processing charges?

Short answer: The opinion concludes a collection lawyer may accept debtors' credit card payments, must deposit them in a trust or IOLA account, may deduct an agreed non-excessive fee and disbursements (but not disputed fees), and may charge the client for card processing fees only if the client agreed.
Currency note: this opinion is from 2003
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Disclaimer: Advisory only. Not binding precedent.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NY State Bar Ethics Opinion 763: Credit card payments from debtors and fee deduction

Short answer: A collection lawyer may accept credit card payments from a client's debtors, must place the funds in a trust (or IOLA) account, may deduct an agreed, non-excessive fee and disbursements before remitting the balance to the client, may not withdraw disputed fees, and may pass the card processing charge on to the client only if the client agreed.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association'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. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.

View original opinion

Plain-English summary

A debt-collection firm proposed letting the debtors of its creditor-clients pay overdue accounts and judgments by credit card. The firm would collect the payment (acting like a retail "merchant" that pays the card bank roughly 2% per charge), deposit it in trust, deduct its agreed fee (customarily about 25%) and disbursements, and remit the rest to the creditor-client. The committee assumed throughout that the firm's fee was not excessive under DR 2-106(A).

The committee revisited its older opinions allowing lawyers to accept credit card payments (N.Y. State 117, 362, 399) and relaxed two of their conditions. It dropped the requirement that the bank waive holder-in-due-course defenses, and it dropped the ban on displaying a credit card decal, which it said was superseded by substantive law after Bates v. State Bar of Arizona, 433 U.S. 350 (1977), and the advertising rule DR 2-101(A). To that extent the committee modified N.Y. State 117 and 362.

Because the payments here come from third parties (debtors) and belong primarily to the creditor-client, the committee held the funds must go into the lawyer's trust account, or an IOLA account if small or briefly held (DR 9-102(A) and (B); Judiciary Law section 497). Under DR 9-102(B)(4), the lawyer may withdraw the portion that is the lawyer's fee when due, but if the client disputes the lawyer's right to it, the disputed portion must stay in the account until the dispute is resolved while the undisputed balance is promptly remitted. The committee emphasized fee-writing duties: a contingent fee (a fee dependent on collection) requires a writing under DR 2-106(D), and most new matters require a letter of engagement under 22 NYCRR Part 1215, with notice of the client's fee-arbitration rights under DR 2-106(E) and Part 137. Finally, the firm may pass the card processing charge to the client only if that is part of the understanding with the client; otherwise the charge must come out of the firm's fee or its own operating account.

In practice

Under the Code and court rules as they stood in 2003, the opinion concluded that a collection lawyer accepting debtor credit card payments must treat the collected funds as client and third-party property: deposit them in a trust or IOLA account, withdraw only the agreed, non-excessive fee and disbursements when due, and never withdraw a fee the client disputes. The opinion held the lawyer must promptly remit the undisputed balance and, on a dispute, comply with the fee dispute resolution program where applicable.

The opinion concluded the lawyer should document the fee arrangement, with a contingent-fee writing under DR 2-106(D) where the fee depends on collection and a letter of engagement under Part 1215 for most new matters. On the card processing charge, the opinion held the lawyer may bill it to the client only if the client agreed; otherwise the lawyer absorbs it.

Common questions

Q: Can a New York collection lawyer let a client's debtors pay by credit card?

A: Yes. The opinion concludes a lawyer may accept credit card payments from a client's debtors on the client's behalf, modifying the older safeguards from N.Y. State 117 and 362.

Q: Where do the credit card payments go?

A: Into a trust account, or an IOLA account if the funds are small or briefly held. The opinion holds the funds belong primarily to the creditor-client, so DR 9-102 requires they be kept separate.

Q: Can the lawyer deduct the fee before paying the client?

A: Yes, the agreed, non-excessive portion when due under DR 9-102(B)(4); but the opinion holds that if the client disputes the fee, the disputed amount must stay in the account until the dispute is resolved.

Q: Can the lawyer pass the credit card processing fee to the client?

A: Only if the client agreed. The opinion concludes that otherwise the charge must be deducted from the firm's fee or paid from the firm's operating account, not passed to the client.

Background and rules framework

The opinion interprets New York's former Code of Professional Responsibility and related court rules: DR 9-102(A) and (B)(4) (safekeeping and withdrawal of client and third-party funds), DR 2-106(A), (D), and (E) (reasonable fees, contingent-fee writings, fee arbitration), with 22 NYCRR Part 1215 (letter of engagement) and Part 137 (fee dispute resolution). The Model Rules analogues are Rule 1.15 (safekeeping property; disputed funds) and Rule 1.5 (fees, including contingent-fee writings). New York replaced this Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.

Citations and references

Rules of Professional Conduct:

  • MR 1.15 (safekeeping property; holding disputed funds)
  • MR 1.5 (fees; contingent-fee writing)
  • NY DR 9-102(A), DR 9-102(B)(4), DR 2-106(A), DR 2-106(D), DR 2-106(E)

Statutes and court rules:

  • N.Y. Judiciary Law section 497 (IOLA)
  • 22 NYCRR Part 1215 (letter of engagement); Part 137 (fee dispute resolution)

Cases:

  • Bates v. State Bar of Arizona, 433 U.S. 350 (1977), First Amendment right to truthful price advertising

Other opinions cited:

  • N.Y. State 117 (1969), 362 (1974), 399 (1975): credit card payment of legal fees; modified here

See also

Source