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Credit Card Facilities what you need to know

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Law Firms who are thinking of accepting payments for credit cards into their client accounts should be aware of the risks and use the ILFM's pointers to navigate potential pitfalls.

When it comes to deciding if the law firm accounts department will start taking credit card payments from clients, there are some points we’d like to go through to ensure you and your team are fully aware of possible risks, but also to give you confidence to know where boundaries should sit with payments and what your firm should put in place. ILFM guide for law firms accepting credit card payments

Regulated law firms in England and Wales have various rules and codes that their compliance officers and legal cashiers will adhere to.

When it comes to transactions and payments to a law firm’s finance department, and if a practice wants new clients and to make life easier for the client to pay, then credit cards are often the way forward. How many of us use Apple Pay for example, when buying products online? Consumers, and we are all consumers, want products and services to buy at our fingertips. It’s great marketing because for retailers, many of us are impulse buyers so we scroll and buy – offering easy ways to pay brings in the money.

Instructing a lawyer and paying fees or client monies on account, is no different in converting potential clients into paying clients, and by offering credit card payments, you will have opened your firm to a wider audience.

The software provider, Clio, ran a 2019 report which showed that firms that accepted card payments not only get paid faster but the research showed that by not offering simple online payment methods, prospective clients would choose not to use that firm.

With that being said, it really does depend on the area of law you are advising that client on of course and being mindful to do your own market research before deciding to take the leap to receiving credit card payments.

So, what are the risks involved if your legal practice decides to take credit card payments, especially payments into a client account? First of all, you’d want to ascertain different reasons a client might pay by credit card into their client account.

Here are some examples of when your clients might want to pay by credit card:

  • litigation funding
  • instruction monies on account
  • settlement fees
  • disbursements (e.g. counsel fees)
  • on behalf of a trust
  • liquidator, trustee in bankruptcy or Court of Protection deputy
  • Payment of firm invoices

Let’s not forget the importance of understanding the difference between a law firm’s dual system of bookkeeping and accounting, a niche set of skills to have! Law firms have a client account and an office account, if your legal cashier (or now and then bookkeeper) mixes up the balancing of those two accounts or if you potentially use the client account as a banking facility then the regulator will be down on you like a ton of bricks.

Get trained up and continue to do that as Rules can update and change.  SRA Accounts Rules Training Courses

What are the risks associated with receiving credit card payments

Any great law firm, big or small, should be on high alert for any risks that could bring them down (whether that’s being struck off, heading to a SDT or being shamed in the legal press and therefore having their reputation damaged).

This guide highlights the risks that you and your firm need to be aware of if you are thinking about receiving credit card payments that drop into your client account ledgers. Knowledge is key when protecting your firm against fraud, breaches and so on.

Here is the ILFM’s list of what a law firm’s finance and compliance department need to know when it comes to offering credit card payments to their clients:

Credit Card Recall: If your client has a dispute with your services and they paid by credit card, they could go to their bank and ask for a refund, resulting in a pending debit on that client’s account. There’s more in this blog further down about chargeback or clawback. Come what may, if this happens, and not spotted quickly, it can be super risky for smaller firms or sole practitioners.

Just remember, there are many instances that a credit card recall isn’t even realised by the law firm until their legal cashier spots those funds being withdrawn from their client’s account.

Consumer Rights: Credit card payments adhere to Section 75 of the Consumer Credit Act 1974. We all know that if we have faulty goods etc, but it applies to services too. Your client (who in this case is also a consumer of your services) can claim misrepresentation, or that your services were not supplied. The credit card company or lender is jointly liable for breaches and/or misrepresentations by your firm.

Improper Use of Client Account: The Solicitors Regulation Authority (SRA) has been given higher fining powers if it finds that a law firm has breached its Rules. If it finds that a law firm has been “offering” its client the use of their own client account as a banking facility then that’s basic improper use and consequences will follow.

Rule 3.3 of the SRA Accounts Rules is more than clear as well. It’s all in our training courses with examples to guide.

“You must not use a client account to provide banking facilities to clients or third parties. Payments into, and transfers or withdrawals from a client account must be in respect of the delivery by you of regulated services.”

The three points above are just some of the risks the ILFM would urge law firm owners and their finance department to scrub up on their knowledge. What the risks highlight is the importance of putting strong financial controls in place before offering receipt of credit card payments. Prevention is always better than cure when it comes to law firm regulations and compliance.

What is Credit Card Chargeback or Clawback?

Chargeback (also known as “clawback”) is a procedure that allows your client to challenge their credit card payment made to your firm. Caveat of course, is that they can only do this under certain circumstances. Their bank will need to see documented evidence before starting any chargeback process, and each lender will have their own chargeback rules.

It goes without saying that if you’re the legal firm providing services where a client has complained and wants their money back (for example, owing to professional negligence) there needs to be sufficient communication with that client to try and resolve the problem.

As a legal service provider, you and your colleagues should be aware of what and when the Legal Services Ombudsman (LeO) might get involved with any complaint. LeO needs to determine if there is for example, professional negligence, within the complaint. The ombudsman comes into play under section 137(5) of the Legal Services Act 2007 which states that:

“The power of the ombudsman [to direct a remedy] is not confined to cases where the complainant may have a cause of action against the respondent for negligence.”

Any complaints coming through the LeO scheme have to be dealt with “quickly and with minimal formality” under S.113(1) of the Legal Services Act 2007. Settlement and a calm resolution are always the best course of action.

Please note that a credit card refund is different to a credit card chargeback.

ILFM advice to manage risk when offering credit card payments to legal clients

It’s not all doom and gloom for law firms thinking of accepting client money via credit cards. As mentioned above, opening up different payment alternatives makes your firm’s services more appealing to those that like to pay in that regard. That’s a lot of us!

There are effective steps that you and your colleagues in your law firm can (should!) take when it comes to pre-empting any potential disasters. Here’s the ILFM’s guide to follow when commencing credit card payments into client accounts:

Link Credit/Debit Card Facility to Client Bank Account: In accordance with 2.3 of the SRA Accounts Rules client money must be paid promptly into a client bank account and Rule 4.1 confirms that client money must be kept separate from money belonging to a firm. That should be a given, but then it’s important to ensure the process of these payments has been set up by ensuring you have the card facility linked to the client account beforehand (rather than your office/business account, which tends to be the default). Put simple processes in place to navigate accidental breaches.

Understand the SRA Accounts Rules: We say it’s not just the legal cashier that needs to know the SRA Accounts Rules, but firmwide training as a whole. Legal secretaries and paralegals are often involved in billing so give them confidence by investing in their training too. For credit card payments we should all be aware of the SRA’s Rule 2.3, “Client money must be paid promptly into a client account unless any of the exceptions under rule 2.3 apply.” The SRA’s use of the word “promptly” is the same as the dictionary’s meaning “done without any delay”.

Limit Credit Card Payments: A practical tip we would urge you to think about is to create a policy that limits any payments that you decide to accept via credit card, for reasons of clawback risks as discussed above but also the transaction costs of processing credit cards. The whole firm needs to know this policy.

Comply with Anti-Money Laundering (AML) Regulations: You will have been under a rock if you weren’t aware of how much a law firm is the perfect target for financial crime gains. Extraordinary swathes of money can rapidly move through client accounts, making them red flags for money laundering risks. Law firms that are in the scope of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 ('the money laundering regulations') must have a written firm-wide risk assessment in place, come what may.

Professional Training and CPD: Investing in yourself, your colleagues or employees is not only important for their own professional development and sense of value, but vital for firmwide compliance and risk management. When it comes to handling credit card payments and managing client accounts, why would you not get all the guidance in place through experts to set your firm up in good stead?

The ILFM, as the go to legal finance professional body, is the best place to start, of course!

Click HERE to view the ILFM’s training and webinar full calendar schedule.