Plan would expand lawyers' credit card use

A proposal by the State Bar of Arizona would let lawyers accept credit-card payments for advance fees and retainers. Ed Novak, the association president, said the change, if approved, would benefit clients as well as lawyers.

Attorneys can now take credit cards only for payment for services actually rendered. Anything else is considered a violation of rules and can result in the lawyer being disciplined.

Novak said that unless the rules are changed, the only options for those who are required to put down money in advance are cash and checks. That, he said, makes no sense.

"Many prospective clients do not have sufficient reserve funds — especially during these tough economic times — to retain legal counsel when unanticipated needs arise," Novak wrote in his petition to the Arizona Supreme Court. "A continuing prohibition against accepting credit card payments for advance fees and costs will deny many more prospective clients access to legal services."

The Supreme Court has agreed to allow the charges on a temporary and emergency basis. But the justices want to study the issue further and have given anyone interested until May 20 to comment.

The issue arises not so much because of the credit cards themselves but due to the way the companies that process the payments do business.

Companies are allowed to "charge back" any payments when the cardholder disputes the charges, essentially letting the credit-card company take back money it already paid into the merchant's account.

The problem for lawyers is they are required to maintain two separate accounts. One is for operating expenses and consists of fees already "earned" for services rendered.

But any money taken in advance must be put into a special trust account. So credit-card payments for advance fees would have to go into that account.

That causes problems if a client disputes a charge and the credit-card processing company takes the money back out of the trust account because the attorney may already have moved those funds into the operating account.

That means the credit card company is, in effect, taking money from a trust account that actually belongs to other clients.

Novak's proposal seeks to deal with that by saying lawyers who want to take credit-card payments for advance fees must put their own cash into the trust account within three days. He said that limits the risk that someone else's cash will end up being taken.