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Opinion says lawyers can use online payment apps to receive funds

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Proposed ethics opinion is open for lawyer comments

Lawyers can accept fees and payments into trust accounts via online payments apps like PayPal, Venmo, ApplePay, LawPay, and LexCharge but must ensure that app privacy settings are set to protect client confidentiality and take reasonable steps to guarantee the transaction is secure.

The Professional Ethics Committee on March 23 approved Proposed Advisory Opinion 21-2 to advise lawyers on using payments apps to accept money from clients.

Committee member Skip Smith, who chaired the subcommittee that drafted the opinion, said the advent of online banking has largely replaced writing checks for many people and now the development of a wide variety on online payment apps is transforming money transactions again. That includes the way lawyers get paid and receive funds to be held in their trust accounts.

He said the Bar’s Ethics Hotline has received several inquiries about whether it’s permissible for lawyers to use the apps. Smith said, like many current issues “it’s reasonably complicated mostly because of the challenge of apply traditional rules and their underlying policies to the variety of applications and technologies that are in play here.”

For lawyers, using the apps boils down to being able to protect client confidentiality and safeguarding funds, he said.

Under the proposed advisory opinion, “A lawyer may accept such payments including payments that would qualify as trust funds, so long as certain requirements are met,” Smith said.

On confidentiality, lawyers must ensure the transaction is not shared. He noted that Venmo functions as both a payment app and a social media platform which allows users to share their transactions with other friends using the service. Lawyers would have to set the privacy setting on the apps to guarantee that no other information about the transaction could be shared.

“It would be the lawyers obligation when using these services to select the most secure setting, the most private setting and take reasonable steps to avoid disclosure by the lawyer and by the clients, including advising clients on any steps they should take to avoid unwarranted disclosure of information,” Smith said.

Receiving funds designated to go to trust accounts through the apps is trickier. Smith said Bar rules prevent lawyers from commingling their own funds, such as from earned fees, with funds designated for trust accounts. That can be addressed by setting up separate accounts for each type of fund transfer and informing the sender where to deliver the funds.

In some cases, Smith said banks will not accept transfers via payment apps into IOTA trust fund accounts. In those cases, to use the app the lawyer must establish a “suspense” account which will receive the funds and automatically sweep them into the trust account.

The lawyer must also ensure than any fees charged for transferring funds into trust accounts are paid by the lawyer and not taken from the transferred funds.

Another factor is Bar Rule 5-1.1, which governs trust accounts and requires that they be in federal or state-chartered financial institutions and be FDIC or otherwise insured. Some online payment apps used federally chartered and guaranteed banks to make transfers, but many do not.

That rule applies only after the lawyer has actually received the funds, Smith said, and not to the app company that is handling the transfer. However, he said attorneys still must take “reasonable” steps to verify the company will protect the funds.

“Lawyers are not the ultimate guarantors of these things,” he said. “Their obligations are to take reasonable measures to prevent disclosure or loss of funds.”

Stephanie Lisiecki, a member of the drafting subcommittee, said the rule didn’t try to differentiate between the features offered by different payment apps.

“The applications are changing daily and there will be new ones that come into the field,” she said. “The issues are the same at the end of the day. Do we take reasonable efforts and steps necessary to help ensure that the client’s information is not disclosed? I think we accomplish that by requiring setting our accounts to the most private setting possible and advising our clients to do the same. Also, a large concern would be the possession issue … you’re not in possession of those funds until those funds are made available to your account.”

While payment apps may hold transferred funds for a day or so before they are deposited, those are not yet in the lawyer’s control, Lisiecki said, and is no different than a lawyer receiving a check for a trust account and waiting a day or so to deposit it.

“As long as its promptly and reasonably being moved over to your trust account, then it’s in compliance with the rule,” she said.

The PEC approved Proposed Advisory Opinion 21-2 by a 27-5 vote. It will be published for comments in the Bar News and the committee will consider those comments at its June meeting.

The proposed opinion is also on the Bar’s website.

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