Interest on Unpaid Legal Fees
By Gina Hendryx, OBA Ethics Counsel
My client owes me a lot of money for legal services and advanced expenses. May I charge the client interest on the unpaid balance?
This is a common question asked by frustrated lawyers who are attempting to collect on their past due accounts. Almost all jurisdictions allow lawyers to charge interest on unpaid legal fees and advanced expenses provided a specified amount of time has elapsed and the client has agreed to such an arrangement. The Oklahoma Bar Association’s Legal Ethics Committee adopted this majority approach in 1975 in Ethics Opinion No. 286.
In its opinion, the committee stated:
Therefore, the Legal Ethics Committee of the Oklahoma Bar Association finds that it is ethical and proper for an attorney to charge interest on overdue accounts for professional services rendered or expenses advanced as long as there has been an agreement made with the client concerning these charges.
The opinion further notes that attention should be paid to applicable state and federal law.
In light of the Committee’s opinion it merits mention that there are specific requirements under the Oklahoma Uniform Consumer Credit Code providing for the disclosure of interest under various situations. It is suggested that the attorney review the statutes before proceeding with the charging of interest so that he fully complies with the requirements applicable to his situation.
In Oklahoma, as in most jurisdictions, the client must have agreed in advance to pay interest on an unpaid balance. However, jurisdictions differ on whether the agreement must be in writing. Ethics Opinion No. 286 does not require the agreement to be memorialized nor does Oklahoma require all fee agreements to be in writing. Oklahoma Rules of Professional Conduct (ORPC) 1.5 requires only contingency fees be in writing while encouraging other fee agreements to be communicated to the client in writing. However, if an Oklahoma attorney intends to attach finance charges to an unpaid legal fee, the client’s agreement to same should be reduced to writing. The following guidelines are suggested:
- Communicate the basis or rate of the fee along with the intent to charge interest on any unpaid balance to the client both orally and in writing.
- Communicate to the client how the interest will be computed both orally and in writing.
- Affirm the client’s agreement to the fee and interest by having the client sign the fee agreement.
- Keep the original of the fee agreement and give the client a copy.
- The interest rate must be reasonable, within legal limits, and not usurious.
- The total amount sought from the client (fees plus interest) must be reasonable.
By reducing the agreement to writing and obtaining the client’s signature to same, the attorney protects himself from later claims that he failed to disclose the subsequent interest charges. In Florida Bar v. Fields, 482 So. 2d 1354 (Fla. 1986) an attorney was found to have violated the ethics rules by imposing interest charges to an unpaid balance without proper disclosure to and authorization of the client.
Proper explanation and documentation will aid the attorney in the quest to collect past due fees and the applicable interest charges.
Have an ethics question? It’s a member benefit, and all inquiries are confidential. Contact Ms. Hendryx at email@example.com or (405) 416-7083; (800) 522-8065.
Originally published in the Oklahoma Bar Journal -- Apr.14, 2007 -- Vol. 78; No.12