Credit card merchant fees (“check out” fees) are back in the news with the recent preliminary class action settlement between retailers and credit card giants Visa and MasterCard. Lawyers who accept credit cards often ask whether they can pass these fees on to their clients.  It is unlikely the settlement will change the landscape for lawyers, but I’d like to set that discussion aside for a moment and focus on something more fundamental: how should lawyers treat costs not related to a specific client matter?

I have long believed that most overhead costs, including postage, photocopies, faxing, and even merchant fees should be built into the lawyer’s fee structure.  Bundling the cost of doing business into your hourly rate or flat fee just makes sense.

For the lawyer, cost accounting becomes significantly easier.  Say goodbye to:

• Inputting client codes or making a log entry every time postage is used or a document is scanned
• Totaling charges for each billing cycle and incorporating them into the client’s bill
• Allocating client payments to costs and fees – in your books, the client’s account receivable, and on the client’s billing statement

Avoiding this time suck can make a world of difference in a solo’s life – especially if he or she has no staff.  Time spent tracking, totaling, billing, and allocating these costs can be used more profitably working on a client matter.

From the client’s perspective, receiving a statement with every stamp, copy, and fax itemized and billed can be very unpleasant.  Clients often feel these costs should be included in your fee, regardless of your billing practices. Ask yourself: would you rather pay one flat rate to fly from Portland, Oregon to Chicago, Illinois, or incur separate charges for airfare, fees, taxes, booking, baggage, and food?  If you are aggravated by the latter, it becomes easier to understand why clients don’t like it when lawyers pass on every penny of overhead costs in an itemized bill.

Getting back to the original subject – merchant or “check out” fees – consider the real-world effect of the preliminary Visa/MasterCard settlement:

“We have discussed the settlement with many, many merchants, and not a single merchant we have spoken to plans to surcharge,” Craig Shearman, spokesman for the National Retail Federation (NRF), said in a statement….

NBC News contacted some of the country’s largest retailers. Wal-Mart, Target, Sears and Home Depot said they have no plans to add a credit card surcharge.

“The bottom line is that … the vast majority don’t want to surcharge even if they could,” the NRF’s Shearman said.

Ed Mierzwinski, Director of Consumer Programs at U.S. PIRG agrees.

“In the brick-and-mortar world, no one who does any sort of volume business is going to want to surcharge because it will drive their customer crazy and slow down transactions,” Mierzwinski said.

Is there a lesson here for those who provide professional services?

Lawyers can charge “check out” fees to clients who pay by credit card, but it requires jumping through hurdles no one bothers with (a signed fee agreement with the client consenting to the charge accompanied by compliance with Regulation Z of the Truth-in-Lending Act.)  If it should become easier to charge clients “check out” fees in the future – as a result of this settlement (when finalized) or for other reasons – I would continue to advocate lawyers build this cost of doing business into their charge for services.  In the words of Susan Cartier Liebel, “Don’t Nickel and Dime Your Clients. Just Don’t.”

For an excellent discussion of the philosophy and practices involved in billing costs, see Billing Costs, “Fee Agreement Compendium” (Oregon State Bar 2007) available online in BarBooks.

Copyright 2013

Beverly Michaelis