Can a lawyer use a credit card account that splits client payments into trust and operating accounts at deposit?

Plain-English summary

Rule 1.15-2 ordinarily requires that mixed funds, unearned fees, and money advanced for costs go into the trust account, while earned fees and expense reimbursements go into the operating account. Because a single credit card payment may not distinguish earned from unearned amounts, prior opinions (CPR 129, RPC 247) required all credit card payments to be deposited first into the trust account and the earned portion then withdrawn. The inquiry asked about a bank product designed for law firms that splits each payment at the point of deposit, routing unearned fees and anticipated expenses to the trust account and earned fees and costs advanced to the operating account.

The opinion concludes a lawyer may establish such an account. It satisfies the duty to avoid commingling and does not violate Rule 1.15-2(g), which requires mixed funds to be deposited into the trust account intact and the lawyer's portion then withdrawn, because this account separates the funds before deposit, so the funds are not mixed when received by the lawyer.

The opinion conditions approval on compliance with 97 FEO 9, which addresses credit card agreements letting the processing bank "charge back" (debit) an account when a charge is disputed. That opinion sets out alternatives to protect trust funds: negotiating for the bank to debit a non-trust account, maintaining a separate demand-deposit account sufficient to cover chargebacks, arranging an inter-account transfer so the operating account is debited on a trust-account chargeback, or establishing a dedicated trust account for advance credit card payments that transfers immediately to the primary trust account. As 97 FEO 9 states, a lawyer is ethically compelled, under all circumstances, to fund the trust account to cover a chargeback that jeopardizes other clients' funds. So long as the lawyer can comply with 97 FEO 9, the split-deposit account is permissible.

In practice

Under the North Carolina rules as they stood at the time, the opinion holds that the conduct it addressed (using a bank product that separates earned and unearned client payments at deposit) is permitted because separation before receipt avoids the commingling Rule 1.15-2(g) targets, and that the lawyer must still implement one of the 97 FEO 9 chargeback safeguards so a disputed charge does not deplete other clients' trust funds.

Common questions

Q: Can a lawyer accept credit card payments that split into trust and operating accounts automatically?

A: Per the opinion, yes. Because the account separates earned from unearned funds before deposit, the funds are not commingled and Rule 1.15-2(g) is not violated.

Q: What about credit card chargebacks against the trust account?

A: The opinion requires compliance with 97 FEO 9, which lists safeguards such as having the bank debit a non-trust account or keeping a separate account to cover chargebacks; the lawyer must always be able to replenish the trust account.

Q: Did this replace the old rule that all credit card payments go to the trust account first?

A: For a split-deposit product, yes. The opinion explains that the prior CPR 129 / RPC 247 approach addressed payments that could not be distinguished at deposit; this account distinguishes them before deposit.

Background and rules framework

The opinion interprets North Carolina Rule of Professional Conduct 1.15-2 (handling of client funds; trust versus operating account) and specifically Rule 1.15-2(g) on mixed funds, which corresponds to ABA Model Rule 1.15. It applies prior NC opinions CPR 129 and RPC 247 (initial trust-account deposit of undifferentiated credit card payments) and 97 FEO 9 (credit card chargeback safeguards).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.15 / NC Rule 1.15-2; Rule 1.15-2(g) (safekeeping property; mixed funds)

Other opinions cited:

• CPR 129; RPC 247 (initial trust-account deposit of undifferentiated credit card payments)
• 97 FEO 9 (safeguarding trust funds against credit card chargebacks)

See also

• ABA Formal Op. 00-419: Credit Card Payment of Legal Fees
• ABA Formal Op. 505: Fees Paid in Advance

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2009-formal-ethics-opinion-4/

Original opinion text

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

Inquiry:

To avoid the commingling of client funds with a lawyer's own funds, Rule 1.15-2 of the Rules of Professional Conduct requires payments of mixed funds, unearned fees, and money advanced for costs to be deposited into a lawyer's trust account, and payments for earned fees and reimbursements for expenses advanced by a lawyer to be deposited into a lawyer's operating account. Although a lawyer may accept payment of legal fees by credit card, if there is no way to distinguish a credit card payment for earned fees or costs advanced from a payment for unearned fees or anticipated expenses, all credit card payments must be initially deposited into the lawyer's trust account. Earned fees and expense reimbursements are then withdrawn promptly from the trust account for deposit into the operating account or payment to the lawyer. CPR 129 and RPC 247.

A bank1 has developed a credit card account specifically for law firms that separates and deposits payments of unearned and earned client funds into trust and operating accounts as appropriate. Payments for unearned fees (and for anticipated expenses) are deposited directly into the participating law firm's trust account and payments for earned fees (and costs advanced) are deposited directly into the firm's operating account. May a lawyer establish such an account?

Opinion:

Yes, the account satisfies a lawyer's professional responsibility to avoid the commingling of funds. Utilization of such an account does not violate Rule 1.15-2(g) which requires mixed funds (funds belonging to the lawyer received in combination with funds belonging to a client) to be deposited into the lawyer's trust account intact and, after deposit, the funds belonging to the lawyer to be withdrawn. The law firm credit card account described in the inquiry separates the funds prior to their deposit and, therefore, the funds are not mixed when received by the lawyer.

A lawyer may set up such an account only if the lawyer is also able to comply with 97 FEO 9 which addresses credit card agreements that give the processing bank the authority to debit or "charge back" an account in the event a credit charge is disputed. The opinion sets forth the following alternative ways to safeguard client funds in a trust account when the credit card agreement gives the bank the authority to debit the lawyer's trust account for a chargeback by a client without prior notice to the lawyer:

attempt to negotiate an agreement with the bank that requires the bank to debit an account other than the trust account in the event of a chargeback; maintain a separate demand deposit account in an amount sufficient to cover any chargeback; request that the bank arrange an inter-account transfer such that the lawyer's operating account will be immediately debited in the event of a chargeback against the trust account; or establish a trust account for the sole purpose of receiving advance payments by credit card which will be transferred immediately to the lawyer's primary trust account.

As noted in 97 FEO 9, "[u]nder all circumstances, a lawyer is ethically compelled to arrange for a payment (from his or her own funds or from some other source) to the trust account sufficient to cover the chargeback in the event that a chargeback jeopardizes the funds of other clients on deposit in the account." Therefore, provided the lawyer can comply with the requirements set forth in 97 FEO 9, the lawyer may establish a credit card account that deposits funds into separate accounts.

End Notes

• 1. One such account is the Law Firm Merchant Account99 which is offered by Affiniscape Merchant Solutions in association with Bank of America, NA.