Formal Opinion 66: Imposition of Interest or Finance Charges on Client Accounts, 1216 COBJ, Vol. 45, No. 12 Pg. 18
Adopted October 20, 1984; Revised October 5, 2016
CBA Ethics Committee
The CBA Ethics Committee provides advice to Colorado lawyers through published formal opinions, private letter opinions, and a telephone hotline. Visit www.cobar.org for more information.
Introduction
Lawyers often struggle to ensure clients pay their legal fees, and may wonder whether they may charge interest on unpaid fees. Lawyers may want to collect interest as an impetus for clients to pay fees on time, to recoup administrative costs associated with the efforts to collect unpaid fees over time, or to offset the economic loss suffered when a client defaults on paying fees due. In this opinion, the Colorado Bar Association Ethics Committee (Committee) considers whether lawyers may charge interest on unpaid fees and, if so, whether the lawyer must first specify in writing his or her intent to collect interest on any unpaid fees.
Syllabus
A lawyer may contract to charge reasonable interest on unpaid fees. However, a lawyer may not unilaterally impose interest on delinquent fee accounts or charge a finance fee unless there is a prior agreement between the lawyer and the client specifying that interest will be charged on unpaid fees and expenses, and the applicable interest rate. Consistent with the Colorado Rules of Professional Conduct (Colo. RPC or Rules), this should be reflected in the written basis and rate of the fee.
The Committee notes that this opinion applies only to interest charged on fees not paid when due, and does not address circumstances where fees are paid over time, for instance, as the result of an agreed-upon payment plan.
Analysis
Nothing inherent in the lawyer–client relationship prohibits the charging of interest. Lawyers whose clients carry a balance of unpaid fees or expenses may contract to charge interest on the unpaid balance like any creditor to whom money is owed. However, lawyers have different duties to their c lients that may exceed those of other creditors.
The Rules do not directly address the issue of lawyers charging interest on unpaid fees and expenses. However, Colo. RPC 1.4 and 1.5 provide guidance. Rule 1.4 addresses communications between a lawyer and client. Rule 1.4(a) requires a lawyer to provide necessary...
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