The ins and outs of accepting credit card payments and processing ACH transactions for law firms

1. Published in:
Legal Management News
Spring 2013
FAQ About Credit Cards and ACH Payments
By Beverly Michaelis
Alternative payment methods – similar to the trend with alternative fee arrangements –
are becoming increasingly attractive to law firms. Motivated to improve cash flow,
accommodate client desires, or “go green,” firms are closely scrutinizing their options.
The main contenders for attention: accepting credit cards and sending/receiving ACH
payments through the Automated Cleaning House (ACH) Network.
Credit Cards
Oregon lawyers have been expressly permitted to accept credit cards from clients for a
number of years, yet processing of credit card payments (and the associated fees)
continues to raise ethical questions.
Must the Merchant Account Be a Trust Account?
If the law firm is using a bank to process credit cards and the bank insists on a single
merchant account for all credit card transactions, then the merchant account must be a
trust account if the firm accepts credit cards for earned and unearned fees. See OSB
Formal Opinion No. 2005-172 (http://www.osbar.org/_docs/ethics/2005-172.pdf).
Isn’t it Commingling to Deposit Earned Fees into Trust?
“It is not a violation of Oregon RPC 1.15-1 to deposit all credit card transactions into a
trust account, if the portion representing earned fees is promptly transferred to the
lawyer’s business account.” OSB Formal Opinion No. 2005-172
(http://www.osbar.org/_docs/ethics/2005-172.pdf).
Can We Designate the General Operating Account as the Merchant Account if We
Accept Credit Card Payments for Earned Fees Only?
Yes. This is a good approach if you want to simplify the accounting process.
What Happens if a Client Disputes a Fee Paid by Credit Card?
One risk of taking credit cards is the possibility of a chargeback. An Oregon ethics
opinion explains as follows: “Credit card issuers generally allow the customer to dispute
a credit card payment for some period of time after it appears on the billing statement.
On being notified of the dispute, the credit card company ‘charges back’ the payment
against the account to which it was originally credited. This practice can put the funds of
other clients at risk if the credit card payment has already been earned and withdrawn

2. before the lawyer learns of the chargeback. One solution is to have the bank deduct all
chargebacks from the lawyer’s business account. If the bank is unwilling or unable to
debit a separate account, the lawyer should try to arrange for an interaccount transfer
process by which funds from the lawyer’s business account will be transferred
immediately to cover any chargeback to the trust account. However it is ultimately
handled, the lawyer is ethically bound to ensure that any chargebacks that jeopardize
other client funds in trust are promptly covered with the lawyer’s own funds.”
OSB Formal Opinion No. 2005-172 (http://www.osbar.org/_docs/ethics/2005-172.pdf).
Can We Charge Clients for Merchant Fees?
Yes – but only if two conditions are met. First, the client must agree. Second, the firm
must comply with the disclosures required by Regulation Z of the Truth in Lending Act,
12 CFR §226, and offer cash discounts to all clients. See CONSUMER LAW IN
OREGON ch 14 (Oregon CLE 1996 & Supp 2000).
If these conditions are not met, then merchant fees are a cost of doing business. The
client must receive full credit for the payment made, and the firm must deposit or
transfer sufficient funds into trust to cover the merchant fees.
Is It Permissible to Use a Private Credit Card Processor?
Absolutely! Giving your credit card business to a private processor is often far better than
using a bank. Private credit card processors offer more flexibility in terms and generally
charge less. Look for processors who offer custom credit card acceptance for lawyers, like
LawPay, https://www.lawpay.com. LawPay merchant services are offered as a member
benefit by over 60 bar associations, including the Multnomah Bar Association
(http://www.mbabar.org/Membership/LawPayCreditCardProcessingforAttorneys.html).
However, membership in one of the listed bar associations is not required to use LawPay.
How does LawPay work?
 Fees are deducted exclusively from the general operating account (i.e., no client
money is ever taken).
 Funds are never commingled between the general operating and trust accounts.
 The lawyer or law firm remains in control at all times. Are you accepting a retainer
via credit card? Instruct LawPay to deposit the funds in the law firm trust account.
Is the client using a credit card to pay fees that are already earned? Tell LawPay to
deposit the proceeds into the general operating account. You “direct traffic” to
ensure that funds are always deposited into the proper account.
 Transactions can be processed traditionally, using a Web-based terminal, or on-the-
go with LawPay’s ePayment mobile app.
There are many private credit card processing companies. Firms should conduct their
own research when selecting a private credit card processor, especially those limited to
mobile services only (i.e., credit card swiping using Smartphones or tablets). While

3. mobile apps can seem impressive, the devil is in the details. Read the terms of service
carefully. In most cases, mobile-only credit card processors enforce limitations that just
won’t work for the average lawyer or law firm, including:
 No partial refunds at any time.
 Full refunds available only for a limited time following the transaction.
 No payments offline.
 No payments through the Web on a desktop computer.
 Mobile app links to one bank account only.
 Limited or nonexistent “card-not-present” processing. (In the case of one mobile
app, if you process more than $1,000 in card-not-present payments during any
trailing seven day period, the app may hold the excess over $1,000 for 30 days
before remitting payment.)
ACH Payments
ACH payments are electronic payments made from one account to another through the
Automated Clearing House (ACH) Network. The Electronic Payments Network (EPN) is
the only private sector ACH operator in the United States. The remainder of
commercial interbank ACH transactions are processed by the Federal Reserve Banks.
(For more information on the ACH Network, refer to the Wikipedia entry
http://en.wikipedia.org/wiki/Automated_Clearing_House).
Law firms use ACH payments for outbound and inbound transactions: paying vendors
or suppliers and receiving funds from clients. Why are electronic payments so
appealing? First, ACH payments are received more quickly and reliably. Consider the
typical paper transaction: law firm generates a bill and mails it to client. Client receives
the bill, writes a check, and places it in the mail to the firm. When the paper check
arrives in the mail, staff must open, process, and deposit the payment, then wait for
funds to be collected. With electronic payments, many (or all) of these steps are
eliminated.
Second, ACH payments support law firm sustainability efforts since fewer resources are
consumed in electronic processing versus traditional checks (paper, ink, fuel for
transportation, etc.) Additionally, clients like the convenience and cost savings – no
more printing paper checks and getting them into the mail on time.
Do ACH Payments Pose Ethical Concerns?
ACH payments are simply a means to an end (i.e., a different vehicle for the funds) and,
as such, are ethically neutral. The biggest trap lies in forgetting that all the usual trust
accounting rules still apply. For example:
 A large institutional client sends funds to its law firm via ACH payments. Law firm
accounting staff may or may not know the funds are coming. The institutional client
has multiple open matters with the firm. It can be difficult to discern to which matter

4. the payment should be applied, as the client frequently “rounds up.” Whether the
funds are fully earned or not, the client habitually directs the ACH payments to the
law firm’s general operating account.
This scenario raises a number of issues – some practical, some ethical:
1. Law firm staff may not know the funds are coming. Based on complaints I’ve heard,
this is a real phenomenon. The best cure is enforcement of existing accounting
procedures and leadership by example from law firm management. Lawyers must
communicate promptly and in writing to the accounting department regarding
expected delivery and disposition of client funds. The most persuasive argument
may be that the individual lawyer, not the firm or accounting department, is ethically
accountable for proper handling of the client’s money. If the ACH payment is not
processed correctly, bar discipline will look to the responsible lawyer for answers. If
law firm management treats this responsibility seriously, individual lawyers are more
likely to comply.
2. The client with multiple open matters is often challenging, no matter how payment is
received. Ideally, the client would clearly indicate how to apply its payment. But if
not, the responsible lawyer should confer with the client immediately and confirm the
client’s directions in writing.
3. What happens when the client “rounds up” or overpays? Go back to trust
accounting fundamentals. If the client overpays its bill, the portion representing the
overpayment belongs to the client, not to the firm. When funds belong in whole or
part to a client, they must be deposited into the lawyer trust account. If the client
remits an ACH payment in the amount of $10,100 toward a billing with an
outstanding balance of $10,024, the payment should be received in the lawyer trust
account. The firm can then pay itself $10,024 – the amount owed – and seek
direction from the client about how to refund or apply the overpayment of $76
presently being held in trust.
Keep in mind that no amount of money is too small to be deposited in the lawyer
trust account if it belongs to the client. And when funds belong in part to the firm and
in part to the client – always the case in an overpayment scenario – they must be
handled in the same manner as settlement proceeds. Deposit or receive the funds
into trust, wait for them to clear (if applicable), pay the firm, then obtain client
consent to process the overpayment. This is true even if there is work-in-progress
(WIP) and the overpayment would be earned in the next billing cycle. Fees are not
earned until the work is done and the client is billed. Keeping client money on the
premise that the work is “done” even though the client has not been invoiced is
unethical and deprives the client of its right to dispute the firm’s fee.
4. The client habitually directs ACH payments to the firm’s general operating account,
whether the funds are earned or not. The key here is the word “habitually.” In the
case of a one-time event, it is understandable that a firm may need to transfer funds

5. out of the general operating account and into trust to correct a client’s mistaken
payment. However, if a client is repeatedly transferring trust account funds into the
law firm’s general operating account, the lawyer and firm are responsible for
redirecting the client and working out a better payment scheme. If a client persists
despite the firm’s best efforts, it may be easier to change the fee arrangement or
billing procedure so payments received are always earned. [Author’s note: earned
upon receipt billing arrangements and/or modification of existing fee arrangements
raise additional ethical issues and should be approached cautiously.]
Next, consider this scenario involving a vendor:
 A law firm remits litigation costs to a court reporting firm via ACH payment on a
client’s behalf. The ACH payment is sent from the law firm general operating
account into the account designated by the court reporting firm. As the result of an
accounting adjustment by the court reporting firm, a portion of the law firm’s payment
is later refunded to the firm.
To whom does the refund belong? Return again to trust accounting fundamentals and
focus on the details surrounding the firm’s payment and billing to the client. Two
outcomes are possible: If the firm advanced the court reporter’s fee from the general
operating account as a litigation cost and the client had not yet reimbursed the firm
when the refund was received, the refund belongs to the firm. Deposit the refund in the
law firm general operating account and adjust the client’s billing statement accordingly.
However, if the firm billed the client and was reimbursed for the original amount charged
by the court reporter, the refund belongs to the client. Deposit the refund in the lawyer
trust account and process it in the same manner as an overpayment from the client.
Avoid problems by talking to your vendors now to ensure that refunds or other
accounting adjustments are handled properly. Ask vendors to contact you before
issuing a check or initiating an ACH payment – especially those with whom you incur
client costs. If the vendor coordinates with accounting staff before the refund is
processed, the law firm can ensure that the client is credited (if necessary) and funds
are received into the proper account.
Beverly Michaelis 2013
The author is a Practice Management Advisor with the Professional Liability Fund,
www.osbplf.org. She blogs at http://oregonlawpracticemanagement.com/ and can be reached
at beverlym@osbplf.org or by phone, 503-639-6911 or 800-452-1639 (Toll-Free within Oregon).