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

Passing on Credit Card Surcharges to Clients

The Back Story

In 2013, the U.S. District Court for the Eastern District of New York approved a Class Settlement among merchants, Visa, MasterCard, and other defendants.  Allegedly, the defendants conspired to collect excessive “surcharges,” also called merchant fees, transaction fees, or convenience fees.

The class action litigation was drawn out over 8 years and involved 400 depositions, 80 million pages of documents, 17 expert reports, and 32 days of expert deposition testimony.

On September 28, 2015, the Second Circuit Court of Appeals held a hearing regarding an appeal of the settlement. The matter has now been submitted to the Court for decision. It is not known when the Second Circuit will issue its decision.

Why should Oregon lawyers care about the Payment Card Interchange Fee Settlement?

Because it’s all about the money.  Or more precisely, the cost of getting paid.

Can Law Firms Pass On Credit Card Surcharges?

Some lawyers are taking the position that the Payment Card Interchange Fee Settlement permits them to pass on credit card surcharges to clients.

Depending on the situation, these fees can add up to real money:

  • Jane Client owes her law firm $7,000.  A fan of frequent flyer miles and other perks, she charges her legal bill to her Visa card.  Surcharge to the firm: $210.* Net amount collected by the firm: $6,790.
    If the firm has five “Jane’s” in a month, it ends up losing over $1,000 in billed fees.
  • Corporate client Oregon, Inc. informs its law firm that henceforth it will pay only by credit card.  A typical monthly invoice for Oregon, Inc. is $10,000.  Over a 12 month span, the law firm will eat $3,600 or more in legal fees – the cost of absorbing surcharges each time Oregon, Inc. pays its bill by credit card.*  Bottom line: taking credit cards isn’t cheap.

You Might Say a $10,000 Client Payment is a Good Problem to Have

Agreed.  It may not be easy to sympathize with or relate to either of these scenarios. But most lawyers do take credit cards, and by year-end the surcharge fees add up.

What to do?

If you’ve read my blog before, you know I’m an advocate of building the cost of taking credit cards into your fee – what you charge for services.  This continues to be a valid approach for the following reasons:

  • 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.
  • Passing on surcharges is unpopular.  Clients don’t like to be “nickel and dimed” to death.
  • 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.
  • Legally, there are more than a few barriers.

Legal Implications of Passing on Surcharges

A bit of research reveals that passing on surcharges may be acceptable under the Payment Card Interchange Fee Settlementprovided you:

  1. Inform Visa and MasterCard before you begin surcharging.
  2. Show the surcharge as a separate item on all transaction receipts.
  3. Display prominent signage at checkout advertising surcharge fees.
  4. Apply surcharges only to credit card purchases – you cannot legally add a surcharge to a pre-paid card or debit card (even if you run it as a credit card transaction).
  5. Limit surcharges to transactions in the domestic United States and US territories.
  6. Verify surcharges are not prohibited by state law.
  7. Assess no surcharges to clients using American Express or Discover, as they are not part of the Payment Card Interchange Fee Settlement.

How Do These Requirements Translate to the Legal Profession?

Good question!  Assuming the Payment Card Interchange Fee Settlement gives you the right to begin surcharging:

  • Step two might require you to change your credit card processing practices. When a card is swiped, a receipt is generated.  Assuming it shows the surcharge as a separate item, and you provide the receipt to the client, you have complied with this step.  But what about “card not present” transactions where the card is not available to swipe?  These are far more common in a law firm. Do you currently email a contemporaneous receipt?  Maybe you should.  Will you list surcharges as a separate line item on billing statements?  Maybe you should do that too.
  • Step three may mean displaying a sign in your office, drawing prominent attention to the fees in your written fee agreement, including information on your intake form, discussing surcharges during the initial client interview, etc.
  • Step six would require vigilance when working with out-of-state clients. Surcharges are illegal in California and nine other states. Some predict this number will grow.

Can I Do it or Not?

I can’t give you the unequivocal green light.

While some law firms are surcharging now, please remember the settlement is under appeal.

Additionally, consider this comment in OSB Legal Ethics Opinion No. 2005-172:

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).

While the language is “may implicate Regulation Z,” the safe harbor has always been to assume the Truth in Lending Act applies to these transactions.  [The Ethics Committee added this substantive law caveat to alert practitioners to the possibility.]

I’ve read the Orders and other documents posted at the Payment Card Interchange Fee Settlement in an effort to wrap my head around this.  I’ve never seen any source that fully reconciles the issues in the class action with the requirements set out in Regulation Z – not that I’m an expert.

Assuming the appeal doesn’t upset the apple cart, my suggestions on how the Payment Card Interchange Fee Settlement would translate to lawyers are only best guesses. There is no authoritative source to guide us on applying point-of-sale retail transaction requirements to a law firm setting.  For example, how does a law firm “display prominent signage at checkout?”

Proceed at Your Own Risk

If you want to assess surcharges, do your own substantive legal research and proceed at your own risk.  Before taking the plunge, consider these words of wisdom from LawPay, a popular credit card processor serving the legal profession:

Many law firms simply build the additional cost [of accepting credit cards] into their fees as a standard business expense. This is generally recommended as the proper and more professional way to handle the business expense of processing payments.

[All Rights Reserved 2016 Beverly Michaelis]

*Based on a surcharge of 3% per transaction – transaction rates vary.

Avoiding eCourt – Waivers and eFiling “Lawyer Buddies”

Oregon eCourt is nothing less than revolutionary.  It is transforming how we file pleadings, meet deadlines, pay filing fees, and access court documents.  For those who were hoping to retire or transition to another career before eCourt became mandatory, the change is especially rough.

Initially, eCourt requires an investment – buying a scanner and purchasing software.  It also demands that lawyers learn new technology and adapt to changing court rules and practices.

If you are on the cusp of making a transition away from the private practice of law, but fall within the boundaries of mandatory eCourt, you may want to delegate this task – or find an eFiling lawyer buddy.  Before you do, consider the following:

Is it ethically permissible to delegate eFiling?

Short answer: Yes, qualified.  (Read the remainder of this post.)

Whether you use an eFiling lawyer buddy (contract lawyer who tends to the eFiling responsibilities of the case) or a non-lawyer staff person, you have the right to give others access to your eFiling account.

On November 19, 2014, I co-presented the OSB-PLF CLE, Oregon eCourt Update, with Daniel Parr from the Oregon Judicial Department (OJD).  At that CLE, the following questions were posed:

Q: Should an assistant be the Administrator and then the Attorney be under that same registration? Or should a legal assistant have a separate account?

A: In general this decision is up to you. Your group should register as a firm or as a unit on the system, even if you are a solo practitioner. You can choose who to assign as a firm administrator, and this can be multiple individuals. Some firms have chosen to have staff log into attorney accounts, and other firms have chosen to have the staff set up accounts directly.

Q: Are there any ethical issues with having non-attorney staff handle filings?

A: Staff are permitted to assist with this process, and non-attorney staff are already eFiling on behalf of attorneys. Obviously it is up to the attorney to review and supervise any work done by non-attorneys, and the attorney is responsible for the result.

While we did not explicitly receive a question about using a contract lawyer to handle eFilings, the result is the same – contract lawyers (eFiling lawyer buddies) are permitted to eFile on behalf of the attorney of record.  As attorney of record, it is up to you to supervise your eFiling lawyer buddy, and you are responsible for the result.  There are some other considerations, discussed below.

Is it possible to avoid eFiling entirely?

Short answer:  Yes, upon “good cause” shown, with the court’s permission.  Any lawyer can apply for a waiver of the eFiling requirement.  The waiver may apply to an existing (singular) case (UTCR 21.140(3)(a)(ii)) or all cases in a given judicial district for a specific period of time. (UTCR 21.140(3)(a)(i)).  Lawyers seek a waiver for an existing case by filing a motion; for all cases in a specific judicial district by filing a petition.

If the court grants a petition waiving the eFiling requirement in a specific judicial district, “the person obtaining the waiver must file a copy of the court’s order in each case subject to the waiver; and include the words “Exempt from eFiling per Waiver Granted [DATE]” in the caption of all documents conventionally filed during the duration of the waiver.” (UTCR 21.140(3)(d) and (e)).

Using an eFiling lawyer buddy (contract lawyer)

If you decide to use a contract lawyer to eFile your cases, follow these guidelines:

  • Put it in writing.  As with all contract lawyering arrangements, document in writing the scope of the agreement, method of compensation, and other details.  For assistance with establishing contract lawyering relationships, see the checklist and documents available from the Professional Liability Fund (PLF).  On the PLF website, select Practice Management > Forms > Contract Lawyering.
  • Assess PLF coverage implications.  If the eFiling lawyer buddy is claiming an exemption from PLF coverage, he or she cannot operate independently and “take over” eFiling responsibility.  Contract lawyers who are exempt from coverage must function under PLF guidelines.  (For details, visit the PLF website.  Select Assessments & Exemptions > Exemptions, then “Law Clerk/Supervised Attorney Not Engaged in the Private Practice of Law.”)
    Your eFiling lawyer buddy is likely to be safe if she restricts her role to that of an assistant or secretary: uploading documents at the attorney of record’s direction, following the attorney of record’s instructions in selecting a filing code, etc.  The more independent your eFiling lawyer buddy becomes, the more likely she could be viewed as acting beyond the scope of the PLF contract lawyering exemption (if in effect).  The simple workaround: your eFiling lawyer buddy (aka contract lawyer) can obtain PLF coverage for more freedom in executing her duties.
  • Understand the acceptance/rejection process. As you define the scope of the eFiling lawyer buddy’s responsibilities, consider who will be responsible for processing and responding to acceptance and rejection notices issued by Tylerhost.net.  (Oregon’s eCourt vendor.)  For example, if the attorney of record eFiles a complaint on the day the statute runs and her filing is rejected, who will refile and seek relation-back?
    It stands to reason that each time an eFiling lawyer buddy files a document for the attorney of record, she needs to be engaged and available to assist with the filing until an acceptance or rejection notice is issued. This can take up to a week.  Specific terms should be added to the written contract lawyering agreement that address the eFiling lawyer buddy’s responsibility in rejection situations.  (Note: the attorney of record can instruct her eFiling lawyer buddy to add himself as a contact in order to receive acceptance/rejection notices generated by Tylerhost.net.)
  • Understand the court notice process.  Some lawyers who are tempted to hire an eFiling lawyer buddy might be operating under the misapprehension that they can completely avoid all associated technology.  However, court notices from the Oregon Judicial Department are sent only to the “filer,” in this case, the attorney of record.  The attorney of record is responsible for reviewing and acting upon court email on a timely basis.
  • Limit account access.  By necessity, an eFiling lawyer buddy will need access to the attorney of record’s eFiling account (Odyssey) operated by Tylerhost/Tyler Technologies. But this access can (and should be) limited in writing.  The eFiling lawyer buddy should only use the attorney of record’s eFiling account as needed, and at the express direction of the attorney of record.
  • Limit credit card access.  Ideally, the attorney of record will create the eFiling (Odyssey) account and enter the credit card information needed for payment of filing fees.  If the attorney of record needs assistance, she can call the Tyler Technologies support number and/or use the “GoToAssist” feature, allowing Tyler Technologies to take control of her computer to establish the account. This limits the eFiling lawyer buddy’s access to the attorney of record’s credit card account information.  Once the credit card information is entered, the eFiling lawyer buddy simply selects the payment account to pay filing fees.  If the eFiling account is configured properly, the eFiling lawyer buddy will not be able to see the credit card information.  The attorney of record should be the “administrator.”  The eFiling lawyer buddy should be a “user.”  Support staff at Tyler Technologies can help attorneys of record set up accounts using these distinctions.
    To further protect herself, the attorney of record should dedicate a specific credit card to use in paying eFiling fees.  By establishing a credit card solely for this purpose, it will be very easy to spot whether there is any inappropriate activity on the account.  The only charges that should ever appear on attorney of record’s billing statement are filing fees payable to OJD.
  • Provide proper supervision.  Regardless of how duties are divided, the real responsibility here still falls on the attorney of record.  This scenario presumes that the eFiling lawyer buddy’s role is to act only as a technical specialist.  The attorney of record must be sure at all times that eFiling lawyer buddy is doing his job.  The eFiling lawyer buddy is not responsible for the content or accuracy of documents filed; nor is it eFiling lawyer buddy’s responsibility to monitor filing deadlines.
  • Be aware of ethics traps in determining compensation. The attorney of record can cover the cost of using the eFiling lawyer buddy out of his own pocket as a cost of doing business.  If the attorney of record intends to bill clients for eFiling lawyer buddy’s services, the clients must consent.  The attorney of record should update his client fee agreements accordingly.  (Beware the limitations of modifying a fee agreement midstream – see OSB Formal Opinion 2005-97.)
    Alternatively, the attorney of record could also barter services in exchange, but should check in with OSB General Counsel about the ethics of such an arrangement.
    If the attorney of record plans to split her fees with the eFiling lawyer buddy, she must comply with the Oregon RPCs requiring disclosure and consent of the fee split to the client.

[All Rights Reserved – 2015 – Beverly Michaelis]