Credit card payments are a standard payment method for many merchants and service providers. But as the legal industry joins in, and with many law firms now accepting credit payments from their clients, one important consideration remains: fees for credit card processing.
Credit card processing fees can eat into the profits of a business more than the owners realize. These fees typically range from 1.5% to 3.5% of each purchase amount. While there are obvious benefits to accepting credit cards, business owners and law firms should understand these fees before deciding to do so themselves.
This post will explore what credit card processing fees are, including the different types of fees and where they go. We will also discuss how to best minimize these fees. With these pointers in mind, a law firm or other business can select the best technology for making credit card payments a reality.
What are credit card processing fees?
Credit card processing fees are fees a business pays to authorize and complete card transactions. These fees are paid to the financial institutions and financial service providers involved in the transaction. Typically, the entities charging credit card processing fees are the card issuer, the card network, and the payment processor.
Other fees can arise beyond processing fees. For example, many credit card processors will charge a PCI compliance fee, which is a fee for complying with security standards imposed by the payment card industry, often imposed on a monthly or annual basis. Processors may also assert chargeback fees for credit card payments reversed by the cardholder’s bank after the cardholder disputes a charge.
What is the average fee for credit card processing?
Typical credit card processing fees range from 1.5%-3.5% of the total transaction. The exact amount will vary, depending on the:
- Payment network
- Type of credit card
- Company’s merchant category code (MCC)
Credit card processing fees will also depend on the fee structure. We cover what that looks like for law firms, specifically, below.
Can you pass credit card processing fees on to legal clients?
Many law firms will want to know whether they can pass credit card processing fees on to their clients. The general answer? Sometimes yes, sometimes no—but it is not recommended.
Some states expressly forbid surcharges for credit card processing fees, instead requiring law firms to accept these charges as overhead costs or costs of doing business. Other states explicitly permit these surcharges for processing fees, although law firms should disclose these surcharges in the written fee agreement.
Other jurisdictions adopt more of a grey area on the issue, especially if they adopted the language of the American Bar Association’s (ABA) 1974 legal ethics opinion.
The 1974 opinion provides that attorneys who accept credit card payments must not:
(1) increase legal fees for services paid for by credit card; or
(2) charge by credit card for anything besides legal services rendered or cash paid on behalf of the client.
Passing credit processing fees to clients could be considered an increased fee or a fee for something besides services rendered or expenses paid, thus making the practice unethical under the 1974 opinion. Even in jurisdictions where these surcharges are allowed, many ethics opinions advise against imposing them on clients.
The best practice for law firms continues to be absorbing the processing fees as an overhead cost.
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