Helping Clients Get a Loan to Pay Your Fee
If a prospective client can’t pay your fee, you don’t have to send them away and tell them to return when they have the money.
You can help them get a loan – and you can do it right there while they’re in your office.
Under 2018 Formal Ethics Opinion 4, the State Bar gave the green light to in-office access to legal fee financing.
“A lawyer may offer clients on-site access to a financial brokerage company as a payment option for legal fees so long as the lawyer is satisfied that the financial arrangements offered by the company are legal, the lawyer receives no consideration from the company, and the lawyer does not recommend one payment option over another,” the opinion says.
2018 Formal Ethics Opinion 4
Here’s the factual scenario for the ruling. A lawyer wants to use a financial brokerage company to help clients obtain legal fee financing. The company is not a lending institution. It acts as a broker to find lenders willing to finance the client’s legal fees.
The company charges the law firm an initial setup fee of $1,500 and a monthly fee of $99 for administrative costs and to maintain a payment webpage. The firm also pays a merchant fee of 4.99 percent on the amount of the financed fee. The loan brokerage service is explained to clients as one of several payment options, along with credit cards, check, cash, etc.
Clients who want to use the service are given a loan application. If approved for a loan, they receive offers from competing banks. They can choose any offer they like or decline them all. If an offer is accepted, the loan amount is paid by a third-party lender directly to the client. In turn, the client pays the fees to the lawyer in accordance with the fee agreement.
The company says its service promotes access to justice by helping clients obtain legal representation. It also says its program helps lawyers get paid.
Client’s Interests Must Come First
The State Bar said the arrangement passes ethical muster, so long as the lawyer’s financial interests don’t interfere with the duty to act in the best interests of the client.
“A lawyer does not put his own financial interests ahead of those of his client by providing payment options to a client who requires financial assistance in paying the lawyer’s legal fees,” according to the opinion. “However, given the lawyer’s self-interest in being paid in full for his services, the lawyer may not recommend one payment option over another.”
The State Bar noted that many law firms accept credit card payments for legal fees or offer in-house payment plans. And it cited two prior ethics opinions:
- 2000 FEO 4. A lawyer may refer a client in need of money for living expenses to a finance company if the lawyer is satisfied that the company's financing arrangement is legal, the lawyer receives no consideration from the financing company for making the referral, and, in the lawyer's opinion, the referral is in the best interest of the client.
- 2006 FEO 2. A lawyer may not refer a client to a company that pays a cash lump sum to a client in exchange for the client’s interest in a structured settlement merely as a means of paying the lawyer for his legal services.
“Lawyer may offer clients on-site access to Company as a payment option for Lawyer’s legal fees—along with any other potential payment options—so long as Lawyer is satisfied that the financial arrangements offered by Company are legal, Lawyer receives no consideration from Company, and Lawyer does not recommend one payment option over another.”
Have you used a financial brokerage company for legal fees? What has been your experience?
