Can a North Carolina lawyer charge interest or finance charges on a client's overdue bill without the client having agreed to it in advance?

Plain-English summary

A firm wanted to charge finance charges on delinquent client accounts under N.C. Gen. Stat. section 24-11, which permits interest of up to one and one-half percent per month on the unpaid balance of an open-end credit account when no service charge applies if the account is paid within 25 days. The earlier opinion 98 FEO 3 had said a lawyer who wants to charge such interest must comply with section 24-11 and other consumer-credit laws and have an agreement to that effect with the client. The question here was whether the advance agreement is actually required.

The opinion concludes it is not. It points to North Carolina case law interpreting section 24-11 to allow a service provider to impose a monthly finance charge on an overdue open-credit account without an advance agreement, as long as the provider gives advance notice of the intention to impose the charges, and the charges reach only amounts that become due after that notice. The cited cases (including Hedgecock Builders Supply Co. v. White and Harrell Oil Co. v. Case) treat notice as sufficient if given when credit is first extended or at any point before the amounts on which the charges apply become due, and section 24-11(d) requires that the bill be mailed at least 14 days before the date by which payment must be made to avoid a finance charge.

The Ethics Committee concludes the notice the law requires is enough to protect clients with delinquent accounts, so a lawyer may charge interest on unpaid balances to the extent and in the manner the law permits. Because the case law on notice is not entirely clear, the opinion requires that any such notice be in writing, citing Rule 1.5's preference for written fee agreements. It overrules 98 FEO 3 to the extent that opinion conflicts.

In practice

Under the North Carolina rule as it stood at the time of the opinion, conduct in which a lawyer charges statutory finance charges on a client's overdue account is permitted without an advance agreement, provided the lawyer gives written notice of the intent to charge them before the affected amounts come due. Per the opinion, the charges may be collected only on amounts that become due after the notice, and the lawyer must otherwise conform to section 24-11 and any applicable consumer-credit laws.

The opinion overrules 98 FEO 3 to the extent of any conflict, so the prior requirement of an advance agreement no longer controls; written notice is what the opinion requires.

Common questions

Q: Can a lawyer add interest to an overdue bill the client never agreed to pay interest on?

A: Yes, if the lawyer gives written notice first. The opinion concludes a lawyer may impose finance charges under N.C. Gen. Stat. section 24-11 without an advance agreement, so long as written notice of the intent to charge them precedes the amounts on which they are imposed.

Q: When must the notice be given?

A: Per the opinion and the cited case law, notice is sufficient if given when credit is first extended or at any point before the amounts on which the charges apply become due, and the bill must be mailed at least 14 days before the payment date that avoids a finance charge under section 24-11(d).

Q: Does the notice have to be in writing?

A: Yes. The opinion requires that the notice be in writing because the case law on notice is unclear, citing Rule 1.5's recommendation of written fee agreements.

Q: What happened to the older opinion that required an advance agreement?

A: The opinion overrules 98 FEO 3 to the extent it conflicts; an advance agreement is no longer required so long as the written-notice conditions are met.

Background and rules framework

The opinion is grounded primarily in North Carolina statute and case law rather than a single Rule of Professional Conduct. It interprets N.C. Gen. Stat. section 24-11, the open-end credit interest statute, and the appellate decisions construing it. The only Rule cited is Rule 1.5 (fees, the analogue of Model Rule 1.5), invoked for its recommendation of written fee agreements as the basis for requiring that the lawyer's notice be in writing.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / NC Rule 1.5 (fees; recommendation of written fee agreements)

Statutes:

• N.C. Gen. Stat. section 24-11, including section 24-11(a) and (d) (finance charges on open-end credit accounts; billing-notice timing)

Cases:

• Hydes Ins. Agency Inc. v. Nolan, 30 N.C. App. 503, 227 S.E.2d 169 (1976).
• Inco v. Planters Oil Mill, 63 N.C. App. 374, 304 S.E.2d 782 (1983).
• Hedgecock Builders Supply Co. v. White, 92 N.C. App. 535, 375 S.E.2d 164 (1989).
• Harrell Oil Co. v. Case, 543 S.E.2d 522 (2001).

Other opinions cited:

• NC 98 FEO 3: prior opinion requiring an advance agreement, overruled here to the extent of any conflict.

See also

• CA Op. 1980-53: Charging Interest on Past-Due Bills
• NY State Bar Op. 399: Interest on Overdue Legal Bills
• FL Bar Ethics Op. 71-26: Interest on Overdue Legal Fees

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2012-formal-ethics-opinion-3/

Original opinion text

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

Inquiry:

A law firm would like to impose finance charges on delinquent client accounts pursuant to N.C. Gen. Stat. § 24-11. N.C. Gen. Stat. § 24-11(a) provides in part:

On the extension of credit under an open-end credit or similar plan...under which no service charge shall be imposed upon the consumer or debtor if the account is paid within 25 days from the billing date, there may be charged and collected interest, finance charges, or other fees at a rate in the aggregate not to exceed one and one-half percent (1 1/2%) per month on the unpaid balance of the previous month...

May the law firm impose finance charges pursuant to N.C. Gen. Stat. § 24-11 although a client has not agreed to such finance charges in advance?

Opinion:

Yes. 98 FEO 3 provides that if a lawyer wants to charge up to one and one-half percent per month interest on the unpaid portion of a client’s balance from the previous month, the lawyer must comply with N.C. Gen. Stat. §24-11, conform his conduct as a creditor to the requirements of any other applicable consumer credit laws, and have an agreement to this effect with the client.

In contrast to 98 FEO 3, case law has interpreted N.C. Gen. Stat. § 24-11 to allow a service provider to impose a monthly finance charge upon an overdue open-credit account without an advance agreement so long as the service provider gives advance notice of the intention to impose the finance charges. See, e.g., Hydes Ins. Agency Inc. v. Nolan, 30 N.C. App. 503 (1976), 227 S.E.2d 169; Inco v. Planters Oil Mill, 63 N.C. App. 374, 304 S.E.2d 782 (1983); Hedgecock Builders Supply Co. v. White, 92 N.C. App. 535, 375 S.E.2d 164 (1989). The finance charges may only be collected on amounts that become due after initial notice by the creditor that it is going to collect the charges.

Case law further provides that such notification is sufficient if it occurs at the time the credit is initially extended, or if it occurs at any point prior to the time when the amounts on which the finance charges are applied become due. Hedgecock Builders Supply Co. v. White, 92 N.C. App. 535, 375 S.E.2d 164 (1989); Harrell Oil Co. v. Case, 543 S.E.2d 522 (2001). N.C. Gen. Stat. §24-11 requires that a bill for the balance due on an account must be mailed to the customer at least 14 days prior to the date specified in the statement as being the date by which payment of the new balance must be made to avoid the imposition of any finance charge. N.C. Gen. Stat. §24-11(d).

The Ethics Committee has concluded that the notice required by law is sufficient to protect the interests of clients with delinquent accounts. Therefore, a lawyer may charge interest on unpaid balances for legal services to the extent and in the manner permitted by law. To the extent that the case law on the issue of notice is unclear, the Ethics Committee requires that any such notice must be in writing. See Rule 1.5 (recommending written fee agreements).

98 FEO 3 is overruled to the extent that it conflicts with this opinion.