Digest: 1. It is not improper for a lawyer to include in a retainer agreement a provision charging interest on unpaid legal fees when the lawyer (1) fully informs the client of the circumstances where interest may be charged, (2) those circumstances, the fee, and the interest rate are reasonable, and (3) the client consent.
2. It is also not improper to charge interest on unpaid legal fees, although the retainer agreement is silent, when the lawyer (1) notifies the client that the lawyer intends to charge a reasonable interest rate on unpaid legal fees, and (2) provides the client with a reasonable opportunity to pay the outstanding unpaid balance before any interest accrues.
Code: DR 2-101(C)(3); 2-106; EC 2-17; 2-18; 2-19; 2-23
A lawyer inquires whether she may ethically charge a client interest on unpaid legal fees where (a) the retainer agreement expressly provides that interest will be charged and, alternatively (b) the retainer agreement is silent. Assuming arguendo that charging interest is ethical in either of these cases, the lawyer further asks what interest rates ethically may be charged.
A. May a written retainer agreement provide for interest to be charged on unpaid legal fees?
In N.Y. City 1982-6, this Committee previously considered whether a written retainer agreement may ethically provide for an interest charge on unpaid legal fees. In that case, the specific question under consideration was whether an annual interest charge of eighteen percent could be imposed on legal fees not paid within one month of billing. This Committee concluded that it is not improper to assess a reasonable interest charge on unpaid legal bills if (1) the arrangement is clearly and fully explained to the client in advance and the client understands and consents to the proposed arrangement and (2) the arrangement does not result in the charging of an excessive fee. N.Y. City 82-6.