Last week I posted about the Florida Bar’s proposed advisory opinion that would authorize lawyers to accept payment for legal fees via mobile apps as long as they protect client confidences and safeguard clients funds. My post focused on the “client confidences” aspect of the proposed opinion. Today, I’ll address the “safeguard client funds” aspect. In particular, I’m a fan of two observations made at the very end of the opinion.
But first, a quick summary of Vermont’s rules.
V.R.Pr.C. 1.15 is entitled “Safekeeping Property.” Paragraph (a) requires a lawyer to hold property of clients and third person separate from the lawyer’s own. Regular readers will recognize this one of the 7 C’s of legal ethics, the anti-commingling rule. Unearned funds held in connection with a representation must be held in a trust account that is maintained at an approved financial institution. Finally, a lawyer must comply with the record-keeping requirements in V.R.Pr.C. 1.15A(a).
So, when it comes to safeguarding client funds, what are the issues with mobile payment apps? The proposed Florida opinion identifies several. I’ll use Venmo as an example for each.
First, it’s important to remember that a Venmo account is not a trust account, or even a bank account at all. For instance, someone sent me money via Venmo last weekend. That’s money that Venmo took from that person and made available for me to send wherever, including to the checking account I’ve linked to the app. I’ve not transferred my money anywhere. Instead, I’ll “leave” it there, available to use whenever I next need to use Venmo to pay someone.
Of course, doing so with client funds as a lawyer wouldn’t cut it. So, the Florida opinion advises:
- “A payee does not acquire possession—access to and control over—funds transmitted via a payment-processing service until the service makes those funds available in the payee’s account. If the funds are the property of the lawyer, the lawyer may leave those funds in that account or transfer them to another account or payee at the lawyer’s discretion. The lawyer, however, must transfer entrusted funds from the service account into an account at a qualifying banking or credit institution promptly upon their becoming available to the lawyer.”
In other words, it’s okay to set up a Venmo account for your firm to accept payment, but, when payment is received, you must promptly transfer funds that belong to clients or third persons to a trust account at an approved financial institution. Per the Florida opinion,
- “By transferring entrusted funds from the service account into a qualified trust account promptly upon acquiring access to and control over those funds, the lawyer complies with the requirement that those funds be kept in a qualified account.”
And therein lies the next issue.
I’ve linked my bank account to my Venmo account. So, if I want to, I can transfer money available to me in Venmo to my account. Alas, when it comes to client funds and prompt transfer to a trust account, it might not be so easy.
As the Florida opinion points out, many banks will not allow a lawyer to link a Venmo or other mobile payment service to a trust account. Indeed, while not exactly on point factually, in 2009, a Vermont lawyer was reprimanded for allowing a third-party electronic access to his trust account. So, if you can’t link your trust account to your mobile payment app, how do you satisfy the requirement of promptly transferring funds to your trust account? Florida advises:
- “the lawyer should establish with the banking institution some type of suspense account to which the account established with the payment-processing service can be linked and into which the payments are transferred, then promptly swept into the lawyer’s IOTA account.”
The last issues highlighted by the proposed Florida opinion involve transaction fees and chargebacks. The opinion cautions lawyers against passing transaction fees on to clients and reminds lawyers to ensure that chargebacks are not assessed against funds held in trust. In my opinion, the latter is especially critical if the chargeback were to invade funds that belong to clients other than the client involved with the chargeback.
Finally, I want to highlight the paragraphs that count me among their fans. Each appears at the end of the proposed Florida opinion.
I’m certain that there are lawyers out there nitpicking over the fact that even if a lawyer transfers payment from Venmo to the suspense account to the trust account on the same day, technically there will be a brief period when the funds are not, as they say, “in trust.” To me, the final paragraph of the Florida opinion is for nitpickers:
- “The Rules of Professional Conduct are ‘rules of reason’ and ‘should be interpreted with reference to the purposes of legal representation and of the law itself. When reasonable to do so, the rules should be interpreted to permit lawyers and clients to conduct business in a manner that society has deemed commercially reasonable while still protecting clients’ interests. Permitting lawyers to accept payments via payment-processing services under the conditions expressed in this opinion satisfies those objectives.” (citations omitted).
Indeed. If the Rules of Professional Conduct prohibit digital financial transactions between lawyers and clients, then the answer isn’t to ban such transactions. The answer is to change the rules.
The other paragraph that I like is the “note” that follows the final paragraph. In it, the committee reminds lawyers that we aren’t going to answer questions like “is Venmo ethical?” Rather, we are going to stress that technology is always evolving and that no matter the technology, the duty remains the same: act competently to safeguard client funds. As the committee phrased it:
- “The discussion about specific applications in this opinion is based on the technology as it exists when this opinion is authored and does not purport to address all such available technology. Web-based applications and technology are constantly changing and evolving. A lawyer must make reasonable efforts to become familiar with and stay abreast of the characteristics unique to any application or service that the lawyer is using.”
In other words, competence includes tech competence.