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Popularity of Venmo, Other Apps Prompt Questions for Lawyer Use

May 14, 2021, 8:45 AM

PayPal Holdings Inc.’s Venmo and other payment apps are becoming a feature of business for small firm and solo practice lawyers, raising ethical questions around confidentiality obligations and secure records management.

So far, only South Carolina has issued any advice on payment app adoption but there’s a proposed bar opinion in Florida open for comments until June 1 that could prove to be an important source of legal guidance.

The popularity of payment apps is the latest example of pandemic-driven changes in consumer behavior that could alter how the change-averse legal industry operates.

“People are increasingly using these apps, and the opinion shows the increased need for firms to be nimble,” said Viviane Scott, an attorney with Frankfurt Kurnit Klein & Selz in New York.

The mobile wallet space is dominated by players like PayPal, Apple Inc.'s Apple Pay, and Square Inc., but the field also includes specialty apps like LawPay.

With apps expanding to business, a straight-forward payment process can be an attractive option for settling invoices, especially for more routine matters. While Big Law relies on billing operations, smaller firms and solo practitioners using apps can save money and time.

“The legal profession should fall in line with technology that makes people’s lives easier,” Brian L. Tannebaum, who practices law in Miami, represents lawyers in ethics matters, and uses Venmo. Tannebaum said 10% of his clients have shown an interest in paying via apps.

Confidentiality, Property Management

Unlike other businesses, attorneys face unique ethical considerations relating to client confidentiality and the security of financial transactions.

The Florida Bar, which has over 109,000 attorneys as members, notes that app payment is an increasingly frequent question on its ethics hotline. And its proposed opinion raises scenarios requiring a new level of attorney awareness and action when managing them.

“The use of payment-processing services creates privacy risk,” the Florida Bar proposal says. “This arises from the potential publication of transactions and user-related information, whether to a network of subscribers or to a population of users interacting with an application.”

Experts agree on the importance of ensuring confidentiality. “There’s more to be vigilant and careful about given that the typical confidentiality protections for traditional banking/payment mechanisms are absent,” Scott said.

The Florida draft opinion notes some apps move funds between banks, while other transactions may involve a credit card, and some hold funds for a period of time before completing payment. “Some offer more security and privacy than others,” it says.

It’s possible to see how people spend their money, an important consideration for attorneys setting up their account preferences.

The proposed opinion notes that Venmo has a default rule that honors the more restrictive privacy setting between parties to a transaction. Even if clients choose the public option, transactions will default to private if attorneys select that option, the opinion says.

It falls to lawyers to take “reasonable steps” to avoid disclosures, which includes advising clients what to do to prevent unwanted disclosure of information, the draft opinion says.

It “makes sense for that onus to fall on the lawyer because it’s their job to inform clients about how things like confidentiality and attorney-client privilege work, so it should also be on them to explain how it would work in the context of app- or web-based payments,” said Liam Dunn, a professor of legal ethics at Case Western Reserve University School of Law in Cleveland.

The proposal also addresses client property issues implicated in using web-based apps to accept payments.

It can be trickier when lawyers accept advances because those funds aren’t yet earned and must be deposited into a trust account. The money should also be transferred into a separate account with whatever app lawyers use to prevent commingling with earned funds, the proposed opinion says.

But the apps can’t function as a trust account, so attorneys must ensure they transfer money to an eligible account as soon as possible, the opinion says. And any transaction fee can’t be withdrawn from the trust money.

Business Use

Venmo began allowing businesses to use the app for transactions last summer, and more than 150,000 signed up for a business profile as of the end of February, according to the company. Attorneys and firms using the service to accept payments were invited to create business profiles.

There was a “huge uptick” in the app’s usage during the pandemic by small businesses, said Molly Day, Vice President of Public Affairs for the National Small Business Association.

Solo practitioners or small law firms, as well as practices handling small matters like traffic fines or simple divorces are more likely to use apps, experts say. And lawyers are likely using payment apps in many states.

In the 2018 opinion, the South Carolina bar said attorneys may accept payments via PayPal so long as they don’t commingle client funds with their own and timely transfer advances to an interest-bearing trust account.

The American Bar Association notes payment app popularity, but it hasn’t issued guidance. It does caution attorneys about outside vendors and compliance with Model Rule 1.15 on record-keeping and safekeeping of property.

Overall, there’s no blanket prohibition and experts point out that lawyers need to keep up with the times.

“If there’s an easy way to transfer money, lawyers should be doing it,” Tannebaum said.

To contact the reporter on this story: Melissa Heelan in Washington at mstanzione@bloomberglaw.com

To contact the editors responsible for this story: Seth Stern at sstern@bloomberglaw.com; John Crawley at jcrawley@bloomberglaw.com

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