1975, November, Pg. 2087. The Attorney as Creditor.

• Author: by W. Michael Clowdus

4 Colo.Law. 2087

Colorado Lawyer

1975.

1975, November, Pg. 2087.

The Attorney as Creditor

2087Vol. 4, No. 11, Pg. 2087The Attorney as Creditorby W. Michael Clowdus[Please see hardcopy for image]The best service of the professional man is often rendered for no equivalent, or for a trifling equivalent and it is his pride to do what he does in a way worthy of his profession, even if done with no expectation of award.(fn1)

Even though we may agree with Dean Pound's sentiment, questions of fees and billing all too often occupy an inordinate amount of a lawyer's time.(fn2) This is especially true during periods of economic slowdown when the collection of outstanding accounts requires additional time and effort.

The informal opinion of the Ethics Committee of the Colorado Bar Association dated January 25, 1975,(fn3) adds a new and somewhat complex dimension to the subject of fees and billing. In allowing the use of credit cards for the payment of legal services and in further providing that individual attorneys may charge interest on delinquent accounts (pursuant to prior agreement with the client) the Association has undoubtedly taken steps that will relieve, to some degree, the financial sting of numerous past due accounts. However, in so doing, the Ethics Committee may have transformed the lawyer into a creditor, a possibility that has potentially far-ranging consequences.(fn4)

There are numerous legal and ethical(fn5) issues involved in the use of credit cards to pay for legal fees, and the Ethics Committee has taken upon itself the responsibility of negotiating the form of a suitable contract between the credit card companies and individual attorneys which will ultimately bear the notation "approved by the Colorado Bar Association."(fn6) This article examines only the problems inherent in the charging of interest on delinquent accounts by the individual lawyer as part of his regular billing procedure. The central issue is whether such an arrangement transforms the lawyer into an extender of credit who will be subject to the various rate limitations and disclosure requirements of the Colorado Uniform Consumer Credit Code (UCCC) and the panoply of other consumer credit protection acts.(fn7)

This article contends that an attorney who charges interest on delinquent accounts pursuant to a prior agreement with a client becomes a creditor within the meaning of the UCCC, and that the rate limitations and disclosure requirements of the act will apply to the arrangement, necessitating, in most instances, some modification of billing procedures.

APPLICABILITY OF THE UCCC

Fees and Billing in an Ethical Context

Fees and billing are covered by Canon 2 of the Code of Professional Responsibility,(fn8) which provides that "a lawyer should assist the legal profession in fulfilling its

2088duty to make legal counsel available." The disciplinary rules and ethical considerations which supplement this canon provide, however, little real guidance to the practitioner. Disciplinary Rule 2-106,(fn9) which deals with fees for legal services, prohibits a lawyer from entering into an agreement for, or charging, an illegal or clearly excessive fee. While this would certainly include excessive interest on a fee, it is, in and of itself, of little help. Likewise, the ethical considerations simply exhort the attorney to reach a clear agreement with his client as to the basis of the fee charges to be made and to "be mindful that many persons who desire to employ him may have had little or no experience with fee charges of lawyers and that for this reason he should explain fully to such persons the reasons for the particular fee arrangement he proposes."(fn10) The Lawyer's Handbook, a publication of the American Bar Association, provides slightly more help by noting that "in reducing the highly abstract concept of 'reasonable value' to a concrete dollar measure, the attorney acts subject to his fiduciary obligations."(fn11)

The problem is not that there is a shortage of general source material on fees and billing,(fn12) but rather that the possibility of charging interest on delinquent accounts in the ordinary course of business is entirely new to attorneys. However, pursuant to his fiduciary responsibility and in the context of the surrounding disciplinary rules and ethical considerations, the issue clearly seems to be not whether the attorney should disclose that an interest charge may be made, but rather whether the disclosure he will make must conform to the UCCC.

For purposes of discussion, assume the following fee arrangement. Its essential terms are simply: (1) that the fee will be computed periodically as the services are rendered; (2) that payment of a retainer to be held until completion of the service is required; (3) that billing will be done monthly for services rendered during that period; (4) that failure to pay within 30 days of the receipt of the bill will result in the account being in default; and (5) that there will be a 1 1/2 percent per month interest charge on the outstanding balance of any account in default, computed without consideration of the retainer. The issue is simply whether such an arrangement falls within the coverage of the UCCC.

Argument for Exclusion

The applicability of the UCCC to a transaction depends on whether the transaction constitutes a "consumer credit sale."(fn13) Generally, the definition includes credit, not in excess of $25,000, extended to a natural person in connection with the sale of goods and services for personal, family, household or agricultural uses. The act also extends to certain business purchases made by an individual under the heading "consumer related sales."(fn14) The coverage of the act extends only to sales to individuals and not to sales to organizations. This distinction is the great dividing line between those billing situations where the attorney must concern himself with the application of the UCCC and those where he need not.

A consumer credit sale requires either that the debt be payable in installments or that a credit service charge be made.(fn15) Since our hypothetical agreement does not specify a right to pay in installments, the issue is whether the so called "late charge" of 1 1/2 percent per month equals a credit service charge. The definition of "credit service charge"(fn16) excludes from that term "charges as a result of default." Since the fee arrangement posited imposes the interest charge only upon a default (i.e., the failure to pay within 30 days), it is arguably without the UCCC.

The terms of the working hypothetical and...