Law Firms

If you’ve already added credit card capability to your firm, or you are thinking about it — there are several points to keep in mind. Lawyers march to a different beat. The law is a profession, but the practice of law must be run like a business in today’s world. The challenges to the firm come not only from the need to meet all the usual federal, state and county regulations that apply to a business, but also from the necessity of complying with the Rules Regulating The State Bar. Therefore, a law firm’s business decision are influenced, and sometimes modified, by the Bar’s regulations. Credit card usage is a prime example.
Bar Rules establish the requirements for trust accounts and forbids commingling of attorney and client funds and property.
If the client gave a check to the firm for future costs, those funds must be held in the trust account. To comply, the firm deposits the check to the trust.
However, what if you have opened a credit card merchant service account (MSA) to accept client payments? When you create the MSA, you must link the MSA to a specific firm bank account. Suppose you linked the card to your operating account?

This time, a client asks to pay you for future costs, using his credit card, and you agree. The money, which must be deposited in trust, is credited to the operating account, generally within 48 hours. In a couple of days, you write an operating account check to deposit the funds to the trust account. For however long that process took, you were in violation of the bar rule and the funds are commingled.
The same scenario applies if you linked the credit card MSA to your trust account number. Routine credit card payments of invoices, retainers, flat fees, etc., would result in recurring instances of commingling—a violation of the rules.
The Bar auditors might understand about a situation that rarely occurs, such as a check accidentally deposited in the wrong account. However, with credit card payments, it is more likely to become a common occurrence, and would be unacceptable. When asked about misapplied deposits, Jim Wells, a Bar auditor, said, “We wouldn’t report a rule violation for that, as long as they quickly catch the mistake. Everybody makes mistakes.” However, when asked about credit card payments routinely flowing into one account and then being moved internally, Wells commented, “We’d have to report that they were commingling client trust funds with law firm funds.”
When a charge is applied to the credit card, credit limit and validity of the card are verified. When approved, the credit limit is adjusted to deduct the amount paid to the firm, and the merchant service provider (MSP) transfers the money to the appropriate bank account typically within 48 hours, via a wire transfer, minus the discount rate charged for the service.

On a monthly basis, the statement from the MSP will arrive and there will be additional service charges made against the account. In the case of the trust, operating funds must be deposited to the trust at the time the statement is reconcile, to cover these OR fees can be deducted directly from the operating account.
Click here to learn more about how SkyBank Financial can assist your law firm in maintaining compliance with the various rules and regulations associated with your state bar.