Can a lawyer add a monthly finance charge or interest to overdue client fee accounts and print notice of it on billing statements?

Plain-English summary

A lawyer and his partner, trying to increase collections on accounts receivable, proposed to add a finance charge of 1½% per month (an 18% annual rate) and to print on their statements: "Terms: Net cash / Finance charge of 1½% per month, which is an annual rate of 18%." They asked the Committee whether the proposed action was proper. The Committee stated that it does not give legal opinions and expressed no opinion on the legal aspects, limiting itself to the ethical propriety of charging interest or a finance charge on delinquent fee accounts.

The Committee concluded the proposed practice was improper. It relied on EC 2-16 (reasonable fees, with access to legal services for persons unable to pay) and on ABA authority interpreting Canon 12 of the former Canons of Professional Ethics: ABA Formal Opinion 151 (February 15, 1936), which condemned a standard uniform discount or interest charge as unsuited to the legal profession, and ABA Informal Opinion C-741 (March 31, 1964), which treated a printed notice of 6% interest on accounts unpaid within 30 days as improper. The Committee stated that adherence to a standard financial charge violates the spirit, if not the letter, of DR 2-106. It also cited New York State Bar Opinions 87 (1958) and 193 (1971), which likewise ruled it improper to affix interest charges on delinquent fee accounts, whether designated a discount, finance charge, or service charge.

The Committee concluded it would be improper to impose interest or finance charges on delinquent fee accounts and to print notice of those charges on statements or billheads. It added that nothing in the opinion should be construed to prohibit, in a proper case, commencing appropriate litigation to collect a fee, to which interest and costs may be added, quoting EC 2-23 that a lawyer should not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client.

Currency note

The West Virginia State Bar's scanned copy of this opinion is annotated "Rescinded by LEI 93-02"; the Committee's later opinion LEI 93-02 superseded this conclusion. The opinion was issued in 1978, before West Virginia replaced its Code of Professional Responsibility with the Rules of Professional Conduct, effective January 1, 1989, and before later rule revisions, including the comprehensive 2015 amendments. Treat this page as historical context, not current guidance. Do not rely on any rule, prohibition, or characterization mentioned here without verifying current rules.

Common questions

Q: Could a lawyer add a finance charge or interest to overdue fee accounts?

A: No. The opinion concluded it was improper to impose interest or finance charges on delinquent fee accounts and to print notice of those charges on statements or billheads. This conclusion was later rescinded by LEI 93-02.

Q: Did the opinion address whether the finance charge was legal, as opposed to ethical?

A: No. The Committee stated it does not give legal opinions and expressed no opinion on the legal aspects, limiting itself to the ethical propriety of charging interest or a finance charge on delinquent fee accounts.

Q: Could the lawyer still sue to collect an unpaid fee?

A: Yes. The opinion said nothing in it should be construed to prohibit, in a proper case, commencing appropriate litigation to collect a fee, to which interest and costs may be added, quoting EC 2-23 that a lawyer should not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client.

Q: Were credit cards treated the same as finance charges?

A: No. The opinion noted that the Committee had approved the use of credit cards for paying legal fees under certain circumstances in LEI 76-4 (June 18, 1976); the impropriety addressed here was charging interest or finance charges on delinquent accounts.

Background and rules framework

The opinion applied the West Virginia Code of Professional Responsibility then in force together with the former ABA Canons. EC 2-16 addressed reasonable fees and access to legal services for persons unable to pay. The Committee said that adherence to a standard financial charge violates the spirit, if not the letter, of DR 2-106, which governed fees. EC 2-23 provided that a lawyer should not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client. The Committee drew on ABA authority interpreting Canon 12 of the former Canons of Professional Ethics, which it read to condemn standard discounts or interest charges in fixing fees.

Citations and references

Rules of Professional Conduct (Code of Professional Responsibility and former Canons, as cited):

• DR 2-106 (fees)
• EC 2-16 (reasonable fees; access to legal services)
• EC 2-23 (suing a client for a fee)
• Canon 12 of the former Canons of Professional Ethics (elements in fixing a fee)

Other opinions cited:

• ABA Formal Opinion 151 (February 15, 1936) (standard uniform discount or interest charge condemned under Canon 12)
• ABA Informal Opinion C-741 (March 31, 1964) (printed notice of interest on overdue accounts improper)
• ABA Opinion 320; ABA Informal Opinions 1120 and 1176 (use of credit cards for legal fees)
• New York State Bar Opinion 87 (July 16, 1958); New York State Bar Opinion 193 (September 30, 1971) (interest on delinquent fee accounts improper)
• WVSB Legal Ethics Inquiry 76-4 (June 18, 1976) (use of credit cards approved)

See also

• WVSB Ethics Op. 78-16: Credit cards for legal fees and solicitation
• WVSB Ethics Op. 76-4: Credit cards for legal fees
• WVSB Ethics Op. 78-6: Trust funds held for missing clients

Source

• Landing page: https://wvodc.org/Legal-Ethics-Opinion
• Original PDF: https://storage.googleapis.com/msgsndr/Rgd68xOkcVdteTsBkf6O/media/66a7ea7e519e28ff7c8fd1bc.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain; the linked PDF is authoritative.

LEGAL ETHICS INQUIRY 78-7
(July 21, 1978)
FINANCE CHARGES ON DELINQUENT FEE ACCOUNTS

Reference is made to your letter in which you state that in an attempt to increase collections on accounts receivable, you and your partner are contemplating a finance charge of 1½% per month and are considering placing the following language at the bottom of your statements:

Terms: Net cash

Finance charge of 1½% per month, which is an annual rate of 18%

You asked for this Committee's opinion as to the propriety of your proposed action.

This Committee does not give legal opinions and we, therefore, express no opinion as to the legal aspects of your proposal. This opinion is limited to the propriety from an ethical standpoint of your proposal to charge interest or a finance charge on delinquent fee accounts.

The language which you propose to place at the bottom of your statements or billheads is unclear. It is not clear from the phrase "net cash" when interest will accrue on unpaid accounts. How long a period of time will the client have to pay the statement before incurring interest or finance charges at the rates stated?

Ethical Consideration 2-16 provides:

The legal profession cannot remain a viable force in fulfilling its role in our society unless its members receive adequate compensation for services rendered, and reasonable fees should be charged in appropriate cases to clients able to pay them. Nevertheless, persons unable to pay all or a portion of a reasonable fee should be able to obtain necessary legal services, and lawyers should support and participate in ethical activities designed to achieve that objective.

Admittedly, every lawyer has clients whose abilities to pay for legal services vary. The use of credit cards in connection with the payment of legal fees under certain circumstances has been approved by this Committee in response to Legal Ethics Inquiry 76-4 (June 18, 1976). The use of credit cards is also discussed in ABA Opinion 320 and ABA Informal Opinions 1120 and 1176.

In interpreting Canon 12 of the former Canons of Professional Ethics, the Committee on Professional Ethics of the American Bar Association reasoned:

. . . It is improper for an attorney, in billing his clients, regularly to offer a uniform discount if the bill is paid within a stipulated period of time. This problem is governed by Canon 12, which outlines the general elements to be considered in fixing the fee and concludes with the sentence: "In fixing fees it should never be forgotten that the profession is a branch of the administration of justice and not a mere money-getting trade." Although the giving of discounts may be an entirely sound and proper practice in business, we do not think it is suited to the legal profession. Business transactions are frankly impersonal and commercial in character. On the other hand, the professional relationship between an attorney and his client is highly personal, involving an intimate appreciation of each individual client's particular problems. Practices which overlook the personal element in the attorney relationship with his client and which tend toward an undue commercial emphasis are to be condemned.

ABA Formal Opinion 151 (February 15, 1936). The Committee further pointed out that Canon 12 states that the amount of the fee must in each case depend, to at least some extent, on the client's ability to pay, and the canon even goes so far as to say that the client's poverty may require a charge that is actually less than the value of the services rendered, or even none at all. The adherence to a standard uniform discount or interest charge, the Committee added, would violate Canon 12. Certainly, the adherence to a standard financial charge violates the spirit, if not the letter, of Disciplinary Rule 2-106 of the present Code of Professional Responsibility.

ABA Informal Opinion C-741 (March 31, 1964) appears to be a precise answer to your inquiry. An attorney inquired as to the propriety of indicating on his billing statement in small print that interest at the rate of 6% per annum would be charged on all accounts not paid within 30 days. The Committee referred to its Formal Opinion 151 and stated that such a practice would be improper, saying:

Whether or not the amounts of the fees have been agreed upon, the effect would appear to be an inducement (the saving of interest) to pay promptly. The effect is not dissimilar to offering a discount for prompt payment of attorney fees, and this practice was specifically disapproved by this Committee in Opinion 151 (February 15, 1936) in which the Committee quoted from Canon 12 as follows: "In fixing fees it should never be forgotten that the profession is a branch of the administration of justice and not a mere money-getting trade; . . ." and condemned the discount practice as unsuited to the legal profession, although sound, proper and customary practice in business.

The Committee further stated:

However, in a special case where it is clear that the client has agreed as to the amount of fee and is able to pay it, but desires that payment be deferred for his convenience, it would not per se be unethical for his attorney to accept from the client, or even suggest, a promissory note in the amount of the agreed fee, with interest to accrue from a specified date and the note to mature at an agreed date, with the client having a right of prepayment without penalty. Such cases would not be common in a lawyer's practice, and in each the interest rate and maturity date of the note would have to be a matter of special agreement between the attorney and his client.

The Committee on Professional Ethics of the New York State Bar Association in Opinion 87 (July 16, 1958) and Opinion 193 (September 30, 1971) likewise ruled that it was improper for a lawyer to affix interest charges on delinquent fee accounts. This is so whether the interest charge be designated as a discount, finance charge or service charge. We conclude from the foregoing that it would be improper for you to impose interest or finance charges upon delinquent fee accounts and to print notice of those charges on your statements or billheads.

Nothing in this opinion should be construed to prohibit, in a proper case, commencement of appropriate litigation to collect a fee to which may be added interest and costs. A lawyer "should not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client." Ethical Consideration 2-23.