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Opinion #226. Formal Opinion on Payment Systems
Issued by the Professional Ethics Commission
Date Issued: February 1, 2024
Primary Questions
May Maine attorneys accept payments through online payment apps, such as Venmo, PayPal, Zelle, LawPay, LawCharge, or Headnote, and what are the ethical issues surrounding the acceptance of payment through these apps?
Short Answers
Maine lawyers can accept payments (typically for legal fees, retainers, or expenses) through such third-party payment apps as long as the payment app and processes used by the lawyer or the lawyer's firm do not comingle client funds with their own, and unearned fees are placed only into client trust accounts. Some apps have safeguards for ethics rules built-in, and some do not. Lawyers are strongly encouraged to select only apps that are specially designed for the legal industry and for ethical rules compliance. Lawyers are responsible for compliance with the Rules and cannot delegate their responsibility. The apps should be secure, app updates should be downloaded, and lawyers are strongly encouraged to stay updated on how the apps work.
Applicable Rules
Rule 1.1 Competence Rule 1.3 Diligence Rule 1.4 Communication Rule 1.6 Confidentiality Rule 1.15 Safekeeping property, client trust accounts, interest on trust accounts Rule 5.3 Responsibilities regarding nonlawyer assistants
Discussion
Technological advances in payment methods constantly change. Practitioners want to "meet their clients where they are at" in payments, as well as communication, document sharing and a list of other considerations in modern practice. To help mitigate risks to client property and avoid ethical rule violations, this opinion offers guidance to lawyers for using online payment apps.
Web-based electronic payment platform application systems, or apps, offer attractive advantages: speed, simplicity, payment from any physical location or payment source, reduced cost, smaller carbon footprints, easier administration, and convenience. Disadvantages include technical glitches, cyber security breaches, risk of fraud, risk of disputed transactions, service fees, and dependence on connectivity.
Payment apps are increasingly popular among clients and lawyers. Many clients strongly prefer them over traditional or legacy payment systems. Some payment apps are specifically designed for lawyers, like: Clio Payments; Headnote, LawPay, and LexCharge; others are not, such as: PayPal, Venmo, and Zelle. Each payment app creates risk regarding an attorneys duty to protect client funds and protect confidential client information.
Prohibition on Commingling of Funds and Requirement of Safekeeping Client Property
Rule 1.15(a) prohibits commingling of a lawyers property with property of a client or a third party. M.R. Prof. Conduct 1.15(a). Rule 1.15(b) generally requires lawyers to deposit into a client trust account advance payments (typically fees, retainers and expenses) that have been paid in advance, to be withdrawn only as the fees are earned or the expenses incurred. M.R. Prof. Conduct 1.15(b). Rule 1.15(b) allows lawyers to accept advances or retainers via methods that place the funds temporarily in a non-trust account, to accommodate payment by the clients chosen method, such as a credit card, as long as the funds are promptly transferred, and no later than two business days following receipt, into a client trust account. M.R. Prof. Conduct 1.15(b). Venmo and PayPal hold funds in a digital wallet until they are transferred to a bank account. Because they are not bank accounts, these apps, alone, do not qualify as the type of accounts contemplated by Rule 1.15(a).
To prevent commingling, there must be separate accounts: one for the lawyers operating account and a separate one for the lawyers trust account, and, therefore, lawyers should avoid payment apps that comingle funds. If a payment app does not allow a lawyer to accept electronic payments into two separate accounts, receipt of funds in this manner may not comply with Rule 1.15, especially if the funds are not transferred into the lawyers client trust account within two business days after receipt. M.R. Prof. Conduct 1.15 (b).
A lawyer should understand that payment apps operate in different ways. Some, like Venmo and PayPal, hold funds in a digital wallet until they are transferred to a bank account. Because they are not bank accounts, they do not seem to qualify as the type of account contemplated by the trust accounting rules set forth in M.R. Prof. Conduct 1.15.
On the other hand, payment apps that are specifically designed for lawyers, like LawPay, LexCharge and Headnote, allow attorneys to accept online payments into both an operating and trust account, and in this way comply with M.R. Prof. Conduct 1.15(b). These apps provide an easy-to-use format to facilitate efficient credit card processing and ensure compliance with industry security standards.1 App technology will undoubtedly evolve and lawyers using this technology are required to ensure that new products allow for compliance with the Rules of Professional Conduct.
Additionally, a lawyer must be aware of how apps handle disputes regarding payments made through the app. Some apps will, upon the filing of a dispute, automatically withdraw the entire payment and place it on hold while the dispute is pending. This withdrawal could adversely impact other client funds in the trust account, if the payment is made directly to that account, or cause an overdraft, especially if a portion of the disputed payment has already been withdrawn as earned fees. A lawyer should use caution in accepting payment of legal fees through an app that is not designed specifically for compliance with the professional rules. Fees and chargebacks should be paid by the lawyer unless the lawyer and client agree otherwise.
Competent and Diligent Representation, and pertinent Substantive Law
A lawyer must provide competent representation, which requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation. M.R. Prof. Conduct 1.1. Lawyers are also required to act with reasonable diligence and promptness in representing a client. M.R. Prof. Conduct 1.3. Lawyers using payment apps should inquire about cybersecurity protocols, such as two-factor authentication2 of transactions in order to secure client funds, and consider working with a cyber security consultant. To the extent relevant to the representation, lawyers should also be aware of substantive law applicable to the use of payment apps.
Confidentiality and Communication
A lawyer is generally required to keep confidential confidences and secrets of a client. M.R. Prof. Conduct 1.6. Privacy risks come with payment apps. A lawyer must take reasonable measures to protect client financial information. For example, transactions published in a notification feed of each user would breach client confidentiality. To comply with ethics rules, privacy settings should be set to restrict who may see particular transactions. Lawyers are also required to inform clients regarding matters that require their informed consent, to reasonably consult with clients about the means by which the clients objectives are to be accomplished, promptly comply with reasonable requests for information and explain matters to the extent reasonably necessary to permit the client to make informed decisions regarding the representation. M.R. Prof. Conduct 1.4. A lawyers use of a payment app, along with its risks and benefits, should be explained to the client so that the client can agree to undertake these risks. Similarly, clients should be advised to choose settings to prevent unintended disclosure. Payment apps specifically designed for lawyers should make clear how the lawyer can maintain confidentiality and comply with the confidentiality rules.
Record retention
A lawyer is generally required to retain and safeguard client information and data in the lawyers possession for a minimum of eight (8) years. M.R. Prof. Conduct 1.15(f).4 A lawyer may enter into a voluntary written agreement with a client for a different period. Id. Use of a payment app should allow the lawyer to maintain enough data to satisfy Rule 1.15(f). App data may be retrievable, exported and stored in a cloud-based format, digitally on a device, or copied. Since the duty to safeguard client records remains with the lawyer, the lawyer must be able to retrieve all stored records.
Responsibilities Regarding Nonlawyer Assistants
Lawyers are generally required to make reasonable efforts to ensure that the conduct of a nonlawyer assistant employed or retained by the lawyer is compatible with the professional obligations of the lawyer. M.R. Prof. Conduct. 5.3. If a lawyer uses a payment app the lawyer should comply with these responsibilities regarding the employees of the payment app and the lawyer or the lawyers firm.
Conclusion
Payment apps can be used as long as client funds are not commingled with lawyers funds, and as long as unearned fees are promptly transferred into client trust accounts. Lawyers are encouraged to download payment app updates regularly, and are strongly advised to stay updated on how the apps work. Lawyers are also advised to select only apps that are secure and specially designed for ethical rules compliance. Lawyers retain the obligation to comply with the ethical rules and cannot delegate ultimate responsibility for ethical rules compliance.
