Credit Card Surcharges Revisited

Remember the Payment Card Interchange Fee Settlement?

Processing credit card payments is a fact of life for today’s law firm. So are costly surcharges – the fee assessed by your bank or credit card processor for the privilege of accepting this form of payment.

In 2015 – 2016, some Oregon law firms took the position that the Payment Card Interchange Fee Settlement (PCIFS) permitted them to pass on credit card surcharges to clients.  As a reminder, the PCIFS was a class action settlement among merchants, Visa, MasterCard, and other defendants. American Express and Discover were not part of the litigation.  Applying the conditions of the settlement to a service-based industry like the legal profession was always tenuous at best.

Regardless, using the PCIFS as a justification for passing on credit card surcharges became moot in mid-2016 when the Second Circuit Court of Appeals reversed and remanded approval of the settlement.

The Post-PCIFS Era

If you’ve read my blog before, you know I’m an ardent advocate of absorbing credit card surcharges as a cost of doing business. This doesn’t mean watching money fly out the door without recourse.  It does mean you shouldn’t pass on surcharges as a separate cost item to the client.  Consider:

  • Assessing surcharges (or crediting clients for the net amount less fees) involves extra administrative and bookkeeping steps.  If you get the math wrong and the transaction involves trust account funds, you could face disciplinary action.
  • Firms who want to charge for credit cards often bill clients for postage, faxing, scanning, and photocopying.  These items already rate high on the client annoyance scale.  Pass on surcharges and that scale may tip.
  • Ethically, clients are not obliged to pay any cost to which they did not agree.  If you did not include the right to assess surcharges in your fee agreement, you cannot unilaterally pass on the cost after the fact.  Granted, you can fix this by modifying your fee agreement – but it isn’t necessarily advisable and may not be successful.  See OSB Formal Opinion 2005-97.
  • Fees can be adjusted to reflect this, and other, costs of doing business.
  • Surcharges are outright illegal in some states and capped in others.
  • Passing on surcharges may trigger compliance with Regulation Z of the Truth in Lending Act:

Passing the merchant fee on to the client or crediting the client for the net amount of the transaction only … may implicate Regulation Z of the Truth in Lending Act, 12 CFR §226.  As a result, you may be compelled to offer cash discounts to all clients and make specified disclosures to your clients who pay by credit card.  See CONSUMER LAW IN OREGON ch 14 (Oregon CLE 1996 & Supp 2000).  OSB Legal Ethics Opinion No. 2005-172.

As Before: Proceed at Your Own Risk

If you want to assess surcharges, do your own research and proceed at your own risk.

I leave you with these words of wisdom from LawPay, a popular credit card processor serving the legal profession:

While your state may allow you to pass on transaction fees to clients, think carefully before doing so. Potential clients will not expect a higher fee simply because they use a different form of payment. In today’s market the best practice may be to simply absorb these fees yourself as the cost of doing business.

All Rights Reserved 2018 Beverly Michaelis

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