Everyone is familiar with layaway plans. Most common in the context of retail (think Toys R Us or Walmart, to name just a few), layaway plans give customers the option of depositing a fraction of the cost of the item they want to buy, and paying the balance over time. Meanwhile, the seller sets the item aside and releases it to the customer when payment is made in full. Layaway plans have pros and cons. On the plus side, they help consumers who don’t have the cash to pay for an item outright but lack access to credit. Moreover, layaway plans are interest free and therefore may be preferable to using a credit card. On the downside, if customers miss payments and default, they will often pay a cancellation fee and of course, will forfeit the item.
Yet while layaway is a common practice in retail, I’d never heard of it applied as a way to pay a lawyer – until now.
Recently, via the Lawyer Forward website, I learned about an operation called Unbundled Attorney which generates leads for lawyers who provide unbundled services. From time to time, Unbundled hosts a podcast with an attorney successfully using its service, and intrigued by an episode about a recent law grad who received 65 new paying clients in three months, I decided to have a listen. In the podcast, Cincinnati, Ohio family law attorney Andrew Burgess talks about his system for dealing with clients who wanted (and needed) to hire him, but lacked the cash to pay the fee in advance. In these situations, Burgess asks clients to pay a portion of the expected cost, which he deposits into his trust account. Thereafter, clients continue to make weekly or monthly payments until the full fee is paid – at which point, Burgess will start work on the matter. What distinguishes Burgess’ system from a tradition payment plan is that instead of doing the work up front, and hoping to recover payments after the fact, Burgess does not begin work until his fee is paid.
Although many of Burgess’ cases start off as unbundled matters where he performs a discrete task for a flat fee, he uses this system in full service cases as well. At the outset of the case, he’ll provide clients with a road map of what tasks need to be done, and by what date. For example, if a family law case involves a complaint, depositions and a hearing, Burgess will let the client know what each phase costs and the date by which they need to pay. Thus, clients know how much they’ll have to pay at a given time but they can make the payments incrementally, to relieve strain on their budget.
Essentially, Burgess is operating a layaway plan for clients. And while initially, I was skeptical that this system could comply with ethics rules, after further consideration, I don’t see any issues from an ethics perspective, so long as the process is fully disclosed and agreed to by the client. Burgess appears to be doing just that. He deposits the payments into a trust account, which in most jurisdictions is a non-negotiable requirement for advance payments (note: some jurisdictions deem flat fees earned as earned on receipt so they can go directly into an operating account). Second, Burgess explains his layaway system to clients (and I presume, also memorializes it in the representation agreement so that they don’t expect him to start work immediately, but instead, after the payments are complete. Third, I assume that Burgess sets the deadline by which a client must pay in full so as to give himself adequate time to complete the task. Fourth, Burgess should have a mechanism in place to fully refund payments to clients if they are unable to pay the full amount, or if they choose to hire another attorney who is willing to start the matter right away. Retaining any of these advance payments without providing services would result in an unreasonable fee (i.e., money for nothing) in violation of most jurisdictions’ ethics rules.
With these precautions, Burgess’ layaway plan adequately protects clients, while expanding their options for representation. At the same time, a layaway plan is not without risk for lawyers. For example, in some jurisdictions, once attorneys enter an appearance, they may have a tough time withdrawing. This is so even if a client fails to pay – since some judges blame the lawyer for failing to collect an adequate retainer up front. In his interview, Burgess explains that in his jurisdiction, judges are generally accommodating and will allow lawyers to make a one-time appearance without being forever locked into the case. In addition, as I alluded to earlier, if a matter is time sensitive, and a lawyer doesn’t leave enough time between the client’s deadline for full payment, and a filing deadline, the lawyer risks malpractice if he misses the deadline or submits a shoddy work product due to time pressure. Finally, there must be an administrative hassle in keeping track of tiny, ongoing deposits from multiple clients. Certainly, there are ways to automate recurring payment plans (most recently, Rocket Matter launched a system for doing so) that would send an alert when payment is made in full so that the lawyer can get started on the matter. But many clients who can’t pay $500 or $1500 in full most likely, don’t have the ability to make electronic payments and juggling, tracking and depositing all of those checks could be nightmarish – though if that’s the price of affording access to justice, I suppose it’s worth the effort.
So what do you think of layaway plans for legal services? Have you, or any of your colleagues ever offered clients a layaway plan? Would you? Comments are open.