Can a Virginia lawyer pass credit-card merchant fees on to the client, and how should those fees and chargebacks be handled with the trust account?

Plain-English summary

The opinion revisits the committee's earlier credit-card opinions (LEO 186-A and LEO 999) and resolves three questions left open as credit-card use became common: whether a lawyer may pass the transactional or service fees on to a client paying by card, whether those fees may be deducted from the lawyer's escrow account, and whether the lawyer may allow the card company to charge a "chargeback" against the escrow account. The controlling rule is Rule 1.15(a) on segregation of client and lawyer funds.

On the first question, because it turned on truth-in-lending law, the committee sought an Attorney General's opinion, which concluded that state and federal law do not prohibit passing merchant fees through to clients, but that under federal law the fees are a "finance charge" that must be disclosed before the client commits to the transaction and becomes obligated for the lawyer's services. The committee found this consistent with LEO 1247 (interest charges on past-due accounts require the client's agreement) and with Rule 1.5(a) and (b), which require the fee to be reasonable and adequately explained.

On the second and third questions, the committee applied Rule 1.15(d)'s prohibition on commingling and "salting" the escrow account, recognizing only the bank-charges and mixed-funds exceptions. It concluded that the fees may be deducted from the escrow account where the client has agreed to pay them, but cautioned about the risk of giving a financial institution access to client funds, and opined that the better practice is to deduct merchant fees, and to handle chargebacks, through the operating account, with the lawyer monitoring and promptly replacing any escrow funds subjected to a chargeback. The opinion overrules LEO 186-A to the extent it is inconsistent.

In practice

Under the Virginia rules as they stood when the opinion issued, the committee holds that a lawyer may pass credit-card merchant fees on to a client who pays by card, provided the fee is disclosed and the client consents; the Attorney General read state and federal law to permit the pass-through, but federal truth-in-lending law requires the fee to be disclosed as a finance charge before the client becomes obligated. The opinion holds that, under Rule 1.15, those fees may be deducted from the escrow account where the client has agreed, but it cautions against letting the bank debit the escrow account and concludes that the better practice is to run merchant fees and chargebacks through the operating account, with the lawyer promptly covering any escrow funds hit by a chargeback. Fees must be reasonable and explained under Rule 1.5. The opinion overrules LEO 186-A to the extent of any inconsistency.

Common questions

Q: Can a Virginia lawyer charge the client the credit-card processing fee?

A: Yes, with disclosure and consent. The opinion, relying on an Attorney General's opinion, concludes that state and federal law do not prohibit passing merchant fees to the client, but federal law requires the fee to be disclosed as a finance charge before the client becomes obligated.

Q: Can merchant fees be taken out of the trust (escrow) account?

A: They may be where the client agreed to pay them, but the opinion cautions against it. The committee concludes the better practice is to deduct merchant fees from the operating account so the financial institution does not gain access to client funds.

Q: Who covers a credit-card chargeback against the trust account?

A: The lawyer. The opinion concludes the lawyer is ethically bound to promptly cover any chargeback that puts other clients' funds at risk with the lawyer's own funds, and advises routing chargebacks through the operating account or an inter-account transfer.

Q: Does this opinion change the older credit-card guidance?

A: Yes in part. The opinion overrules LEO 186-A to the extent it is inconsistent, while building on LEO 999 (mixed-funds deposits) and LEO 1510 (merchant fees and escrow handling).

Background and rules framework

The opinion interprets Rule 1.15 of the Virginia Rules of Professional Conduct (Model Rule 1.15), governing safekeeping of property, including the requirement to segregate client funds (Rule 1.15(a)) and the prohibition on commingling lawyer and client funds (Rule 1.15(d)), with the bank-charges exception in Rule 1.15(a)(1) and the mixed-funds exception in Rule 1.15(a)(2). It also applies Rule 1.5(a) and (b) (Model Rule 1.5) on reasonable and adequately explained fees, and relies on an Attorney General's opinion reading federal truth-in-lending law (Regulation Z) and prior opinions LEOs 186-A, 999, 1247, and 1510.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 / Va. Rule 1.15(a), (a)(1), (a)(2), (d) (safekeeping property; bank-charges and mixed-funds exceptions; no commingling)
• Model Rule 1.5 / Va. Rule 1.5(a), (b) (reasonable fees; adequate explanation)

Statutes and regulations:

• Truth in Lending Act, 15 U.S.C. §1601; Regulation Z, 12 C.F.R. §226.9(d) (finance-charge disclosure)

Other opinions cited:

• Va. LEO 186-A (1981): overruled to the extent inconsistent (passing card fees to clients)
• Va. LEO 999 (1987): mixed-funds deposits of credit-card payments to escrow
• Va. LEO 1247: interest charges on past-due accounts require client agreement
• Va. LEO 1510: merchant fees and the trust account

See also

• VSB Ethics Op. 1865: Third-Party Liens on Settlement Funds
• VSB Ethics Op. 1858: Lawyer Indemnifying an Insurer as a Settlement Condition

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/1848.pdf

Original opinion text

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

Committee Opinion
April 14, 2009
LEGAL ETHICS OPINION 1848

USE OF CREDIT CARDS FOR LEGAL
SERVICES.

The Committee has received a request to revisit LEO 186-A (June 18, 1981), which involves
the use of credit cards. Specifically, the Committee has been asked to revisit the question of
charging clients the transactional fees associated with the use of credit cards. In LEO 186-A, this
Committee opined that a lawyer or law firm should not pass along a higher fee to a client for the
use of a credit card. The Committee cautioned that a lawyer should resist the temptation to pass
through to his clients’ charges imposed upon the lawyer by the credit card company whether by
means of a discount or by other means.
In addition to LEO 186-A, this Committee has previously opined regarding a lawyer’s use of
credit cards in LEO 999 (November 13, 1987) where the Committee determined that a lawyer
may use one escrow account for the deposit of all credit card transactions even when those
deposits include monies for earned and unearned fees. The opinion held that any deposit of
earned funds into a lawyer’s escrow account is permitted as long as there is prompt withdrawal
of these earned fees.
While these previous opinions dealt with specific aspects of credit card use, the evolution and
prevalence of the use of credit cards has changed dramatically with the passage of time. Credit
cards are much more widely used and accepted and are the preferable payment method by many
clients. Because of these issues and unresolved matters this Committee has revisited the use of
credit cards and determined that the previous opinions leave several important questions
unanswered:
1. May a lawyer legally pass along the transactional/service fees to the client who is
using a credit card to pay legal fees?
2. Is it ethical for the lawyer to allow those transactional/service fees to be deducted
from the lawyer’s escrow account?
3. Is it ethical for the lawyer to allow the credit card company to “chargeback” the
payment against the lawyer’s escrow account?
APPLICABLE RULES & OPINIONS
The appropriate and controlling rule relative to this hypothetical is Rule 1.15(a) 1 specifically
pertaining to the segregation of client funds and lawyer funds.
1

Rule 1.15 Safekeeping Property
(a)
All funds received or held by a lawyer or law firm on behalf of a client, other than reimbursement
of advances for costs or expenses, shall be deposited in one or more identifiable escrow accounts maintained at a
financial institution in the state in which the law office is situated and no funds belonging to the lawyer or law firm
shall be deposited therein except as follows:
(1) funds reasonably sufficient to pay service or other charges or fees imposed by the financial
institution may be deposited therein; or

Committee Opinion
April 14, 2009

Also pertinent to the Committee’s analysis is LEO 999, as referenced earlier in the opinion, as
well as LEOs 1247 and 1510.
ANALYSIS OF THE QUESTIONS PRESENTED
As the first question involves the legal interpretation of truth and lending regulations, the
Committee requested a legal opinion from the Office of the Attorney General as to whether
federal or state law permits a lawyer in private practice to pass along the transactional
costs/merchant fees to a client when he or she uses a credit card to pay for legal services. If the
law permits a lawyer to pass these costs or fees on to the client, are there any legal requirements
associated with the imposition of these fees or costs?
The Office of the Attorney General opined that state and federal law do not prohibit a Virginia
lawyer from passing through to their client the merchant transaction fees imposed by a credit
card issuer. However, based on interpretation of federal law, it is the opinion of the Attorney
General that when credit card merchant transaction fees are passed through to clients, the
transaction fees must be disclosed before the client commits to the transaction since the
transaction fees fall within the definition of a “finance charge.” 2 Specifically, the lawyer must
disclose the amount of the finance charge prior to the time of honoring the client’s credit card
and before the client becomes obligated for the lawyer’s services. 3
The analysis is consistent with this Committee’s opinion in LEO 1247 regarding the imposition
of finance charges on client’s past due accounts. The opinion states that an interest charge may
be imposed provided that the client has agreed to the fee amount and the imposition of the charge
(2) funds belonging in part to a client and in part presently or potentially to the lawyer or law firm
must be deposited therein, and the portion belonging to the lawyer or law firm must be withdrawn promptly
after it is due unless the right of the lawyer or law firm to receive it is disputed by the client, in which event
the disputed portion shall not be withdrawn until the dispute is finally resolved.
2

“With regard to federal law, my staff reviewed the Federal Reserve Board Regulation Z to the Truth in Lending
Act and the Consumer Credit Protection Act (15 U.S.C. § 1601). We did not find any language prohibiting the pass
through of the merchant’s fee to the consumer. As to Virginia law, we discovered that Virginia Code § 2.2-614.1
allows governmental bodies and agencies to collect revenue via credit cards and pass through additional transaction
fees and costs to the consumer, subject to certain conditions. In addition, Virginia Code §46.2-212.1 allows the
Department of Motor Vehicles to accept payment of fines and fees by credit card and the Department may add to
such payment an amount of no more than four percent of the payment as a service charge for the acceptance of a
payment device. Our research on the questions posed by this inquiry, however, is merely preliminary and not
exhaustive.” Letter from Robert McDonnell, Att’y Gen. of Virginia, to Karen Gould, Executive Director, Virginia
State Bar (Oct. 20, 2008) (on file with the Virginia State Bar).

3

“In expanding upon this requirement, the staff of the Federal Reserve Board has commented that:
A person imposing a finance charge at the time of honoring a consumer’s
credit card must disclose the amount of the charge, or an explanation of
how the charge will be determined, prior to its imposition. This must be
disclosed before the consumer becomes obligated for property or services
that may be paid for by use of a credit card. 12 C.F.R. § 226.9(d)(1)(2008).”

Id.

Committee Opinion
April 14, 2009
and retains the right of prepayment without penalty. The opinion continues to say that the
imposition of finance or interest charges must be reasonable and adequately explained to the
client; citing to DR 2-105(A) which is substantially similar to Rule 1.5 (a) and (b); which
together require that the fee be reasonable and adequately explained to the client.
In answering question two, as to whether those transactional/service fees may be deducted
from the lawyer’s escrow account, the Committee looks to Rule 1.15(d) that imposes a general
prohibition against the commingling of a lawyer’s own funds with client funds. This rule
prohibits the practice of “salting” a escrow account. A lawyer cannot for his or her own purposes
maintain a sum of money on deposit in his or her escrow account. This Committee has
previously noted only two exceptions to the Rule:
1.

The bank charges exception permits a lawyer to make deposits of his or her own
funds to cover bank charges made for administration of the escrow account. This
exception is necessary to prevent invasion of client funds to pay such charges.
Rule 1.15(a)(1); See LEO 1510.

2.

The mixed funds exception. Where an item received by the lawyer includes
amounts belonging to the client and amounts to which the lawyer is entitled (such
as fees or reimbursement for previously advanced expenses), such an item must
be deposited in the escrow account. Rule 1.15(a)(2). See LEO 999.

Additional guidance regarding the use of credit cards, earned and unearned fees in relation to
the escrow accounting rules and record keeping, had been provided by this Committee
previously in LEO 999 and 1510.
In LEO 999, the Committee addressed the mixed funds exception and opined that all funds
taken by credit card, whether already earned or unearned, can be deposited into the lawyer’s
escrow account. The lawyer must disburse any funds belonging to the lawyer into the operating
account as soon as the deposit into the escrow account is cleared.
In LEO 1510, the Committee addressed the situations where financial institutions deduct the
associated merchant’s fees from the operating account while processing deposits only to the
lawyer’s trust escrow account. This situation provides the lawyer with more control over trust
escrow account disbursements, especially by third parties such as the financial institution. While
the lawyer may deposit personal funds into the trust escrow account in advance to cover
recurring costs, such as merchant fees, it may be difficult to estimate and track the amount of
merchant fees that could possibly be incurred, and client funds could be potentially at risk.
Based on this analysis, the Committee opines that where the lawyer remains ultimately
responsible for the merchant fees, the lawyer’s contract with the financial institution should
include an arrangement whereby those fees will be deducted from the lawyer’s operating
account. When the lawyer contracts with the client at engagement that the client is responsible
to pay for the associated merchant fees when using a credit card for payment those fees would be
deducted from the total amount of client funds received by credit card from the lawyer’s escrow
account.

Committee Opinion
April 14, 2009

The Committee is also of the opinion that it is advisable for a lawyer or law firm to establish a
standard of practice regarding merchant fee costs associated with credit card use that is disclosed
and agreed to by all affected clients. With a standard practice established the lawyer or law firm
can then put appropriate recordkeeping and disbursement procedures in place for associated
merchant fees to be debited from either the escrow account or operating account. This
Committee opines that best practices may be that all associated costs and fees be deducted from
the lawyer’s operating account so as not to allow the financial institution potential access to
funds not belonging to the lawyer.
As to the third question, a lawyer is ethically bound to ensure that any chargebacks that
potentially jeopardize other clients’ funds are promptly if not immediately covered with the
lawyer’s own funds. There are several ways to address this type of potential risk or rule
violation that occurs without previous notice to the lawyer and puts other client funds at risk.
Advisably all chargebacks should be from the lawyer’s operating account or an interaccount
transfer process by which funds from the operating account are transferred to the escrow
account. Otherwise, the lawyer must monitor and personally replace any escrow funds that are
subjected to a chargeback. 4
CONCLUSION
This Committee has previously opined on the use of credit cards by lawyers and law firms.
After seeking a legal opinion from the Office of the Attorney General, the Committee opines that
a lawyer may pass along merchant fees associated with credit card use to the client with
disclosure and consent. These fees may be deducted from the lawyer’s escrow account;
however, the Committee continues to caution regarding the risks inherent in permitting a
financial institution to debit the lawyer’s escrow account. When possible, a lawyer should
contract with the financial institution that all debits of fees and costs associated with credit card
use, including “chargebacks,” be made from the lawyer’s operating account.
This opinion is advisory only and not binding on any court or tribunal. To the extent that this
opinion is inconsistent with Legal Ethics Opinion 186-A that opinion is overruled.

4

See, Oregon Bar Op. No. 2005-172.