Law Firm Card Payments: Trust Accounts and ABA Rule 1.15

What Model Rule 1.15 says

Paragraph (a) of ABA Model Rule 1.15 says a lawyer must hold property of clients or third persons, held in connection with a representation, separate from the lawyer's own property, and that complete records of the account funds and other property must be kept and preserved for five years after the representation ends. Paragraph (b) lets a lawyer deposit the lawyer's own funds in a client trust account only to pay bank service charges on that account, and only in the amount needed. Paragraph (c) says legal fees and expenses paid in advance must go into a client trust account and be withdrawn only as fees are earned or expenses incurred. The ABA's comment notes that commingling is normally impermissible and that paragraph (b) is the exception for bank service charges. State versions differ, and IOLTA programs are run under state rules, so read your own state's text.

Where card processing collides with trust

Three things can move money out of a deposit. First, some processing agreements deduct fees from each day's deposit before it reaches the bank, so a trust deposit arrives short of what the client paid. Second, a refund can be funded from the next deposit into the same account. Third, a chargeback reverses a payment and has to be funded from whichever account your agreement names. If any of those hit the trust account, client money can end up paying a firm expense or covering another client's matter. Whether your processor nets fees or bills them separately, and which account it debits for refunds and chargebacks, is set by your agreement, so ask for both in writing.

Separate earned and unearned payments

Because Rule 1.15(c) sends advance fees and expenses to trust, many firms take card payments into two destinations: unearned retainers into the trust account, and payments for invoices already earned into the operating account. That usually means two merchant accounts or two settlement setups, clearly labelled on the payment page so a client paying an invoice does not land in trust by mistake. Ask your provider to debit all processing fees, and if your state guidance requires it, chargebacks and refunds, from the operating account.

Retainers kept on file

A card kept on file to top up an evergreen retainer is a stored credential under Visa's rules. Before storing it, Visa requires the cardholder's express informed consent to an agreement that includes, among other things, the description of the services, the cancellation and refund policies, how the stored credential will be used, how the amount will be determined, the transaction currency and, for unscheduled charges, the event that will prompt a charge. Visa's own example of such an event is a balance falling below a certain amount. Visa also requires terms specific to the transaction type to be clearly displayed when the cardholder gives consent, separately from the general purchase terms. Build them into the engagement letter or a separate authorization.

Refunding unearned funds

When a matter ends with unearned money in trust, Visa requires a card refund to go back to the same card used for the purchase where possible. Plan how that refund is funded so it comes from that client's trust balance and is recorded on that client's ledger, not from another client's deposit or a netted batch.

Surcharges and fees to clients

Whether a firm may add a card surcharge or pass on processing costs depends on state law, card network rules and legal ethics guidance in your state. Our state surcharge guide covers the general law and network rules, but check your state bar's guidance before charging a lawyer's client any fee for paying by card.

A worked example

Illustrative example only, with made-up round numbers. A client pays a $5,000 retainer by card into the firm's trust account. If the processor nets a $150 fee from the deposit, trust receives $4,850 while the client ledger shows $5,000, and the $150 shortfall has come from client funds. If the processor instead settles the full $5,000 and bills the $150 to the operating account, the trust ledger balances and the fee is a firm expense.