Can a Florida lawyer refer clients to a finance company that loans them money to pay legal fees?

Currency note

This 2016 opinion notes that Rule 4-1.5(h) was amended in 2019 to permit a lawyer to charge a client the actual charge a credit plan imposes on the lawyer for the client's transaction (In re Amendments to the Rules Regulating The Florida Bar, Case No. SC18-1683, Fla. Jan. 4, 2019). The rule text the opinion quotes predates that amendment. Verify the current text of Rule 4-1.5(h) before relying on the credit-plan analysis here.

Plain-English summary

A criminal-defense lawyer asked whether a finance company's retention of a 5% to 15% financing fee on loans it makes to the lawyer's clients amounts to improper fee splitting with a nonlawyer. The lawyer would have no ownership interest in the company, would offer clients other payment options, and would be paid in full at the outset, continuing the representation regardless of whether the client repaid the loan.

The opinion concludes the arrangement is not an impermissible division of fees. It applies Rule 4-1.5(h) on credit plans, reasoning that credit plans (including credit cards) routinely deduct a percentage from the amount paid to the vendor and charge interest to the debtor, and that the rule permits participation in them. The risks behind the no-fee-sharing rule are absent so long as the finance company does not direct or influence the lawyer's independent judgment or harm the lawyer-client relationship, and the lawyer discloses no confidential information to the company in violation of Rule 4-1.6.

The opinion adds conditions tied to other rules: the lawyer should refer clients only where it is in the client's best interest (Rule 4-1.7(a)(2)), should explain the lawyer's role and may recommend independent advice, and, if charging a flat nonrefundable fee, must deposit the funds in the operating account rather than trust because such fees are earned on receipt (Rule 5-1.1(a)(1) and Florida Opinion 93-2). Whether the loan terms comply with applicable lending law is outside the scope of an ethics opinion.

In practice

Under the Florida rules as they stood at the time of this 2016 opinion (and subject to the 2019 amendment to Rule 4-1.5(h) noted above), telling clients about a third-party fee-financing company is permitted when the listed conditions are met. The opinion makes the controlling factors whether the lawyer holds any interest in or benefit from the company, whether the lawyer's independent judgment and the lawyer-client relationship stay intact, whether confidential information is protected, and whether earned flat fees are kept out of the trust account.

Common questions

Q: Is a finance company's cut of the loan an improper fee split with a nonlawyer?

A: No, under this opinion. It analogizes the financing fee to a credit-card processing charge permitted under Rule 4-1.5(h) and concludes the arrangement is not an impermissible division of fees, provided the company does not influence the lawyer's judgment.

Q: Must the lawyer keep representing a client who defaults on the loan?

A: In the described arrangement, yes. The opinion's conditions include that the lawyer continues the representation regardless of whether the client repays the finance company, because the lawyer's fee was paid in full at the outset.

Q: Where do the loan proceeds go if the lawyer charges a flat fee?

A: Into the operating account. The opinion concludes that if the lawyer charges a flat nonrefundable fee and the proceeds are not advances on fees or costs, the funds are earned on receipt and must not be deposited in or commingled with the trust account.

Background and rules framework

The opinion interprets Rule 4-1.5(h) (credit plans, related to Model Rule 1.5), Rule 4-1.6 (confidentiality, Model Rule 1.6), Rule 4-1.7(a)(2) (conflicts from the lawyer's own interests, Model Rule 1.7), and Rule 5-1.1(a)(1) (trust accounts, Model Rule 1.15) of the Rules Regulating The Florida Bar, against the backdrop of Rule 4-5.4's bar on fee sharing with nonlawyers.

Citations and references

Rules of Professional Conduct:

• Fla. Rule 4-1.5(h) (credit plans), related to Model Rule 1.5
• Model Rule 1.6 / Fla. Rule 4-1.6 (confidentiality)
• Model Rule 1.7 / Fla. Rule 4-1.7(a)(2) (personal-interest conflicts)
• Model Rule 1.15 / Fla. Rule 5-1.1(a)(1) (trust accounts; no commingling)

Other opinions cited:

• Fla. Ethics Op. 93-2 (flat fees earned on receipt)

See also

• CA COPRAC Op. 2007-172: Credit Card Payments for Fees and Costs
• Florida Bar Op. 18-2: Interest on Advanced Contingent Costs
• Florida Bar Op. 21-2: Web Payment Services and Trust Funds

Source

• Landing page: https://www.floridabar.org/etopinions/opinion-16-2/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-16-2-2.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

FLORIDA BAR ETHICS OPINION
OPINION 16-2
October 21, 2016
Advisory ethics opinions are not binding.
A lawyer may provide clients with information about a financing company in which the
lawyer has no ownership or other interest, which will loan the lawyer’s clients’ money to pay the
lawyer’s fees for criminal defense representation in which the financing amounts, charge and
interest vary, in which the financing charge is a varying percentage of the loan, if the lawyer
offers clients all available fee options including payment plans and credit cards, does not charge
participating clients any higher fee, does not recoup the finance charge from the client, will
continue the representation regardless of whether the client repays the loan to the financing
company, and receives no benefit from the financing company for any client’s participation other
than the lawyer’s fees for representation for which the client will repay the finance company.
Note: Rule Regulating The Florida Bar 4-1.5(h) was amended in 2019 to permit a lawyer
to charge a client the actual charge a credit plan imposes on the lawyer for the client’s
transaction. In re: Amendments to the Rules Regulating The Florida Bar - Biennial Petition,
(Fla. Jan. 4, 2019), Case No. SC18-1683.
RPC: 4-1.5(h), 4-1.6, 4-1.7(a)(2), 5-1.1(a)(1)
Opinions: 93-2
A member of The Florida Bar has requested an advisory ethics opinion. The operative
facts as presented in the inquiring lawyer’s letter and subsequent response to the committee’s
questions are as follows.
The inquirer has been approached by a finance company that offers to provide loans to
the inquirer’s clients to pay for legal fees for representation in criminal defense cases. The
inquirer has no ownership interest in the finance company and no existing relationship with the
finance company. The inquirer would offer criminal defense clients all available options to pay
for representation in addition to the finance company, including payment plans and credit cards.
If the client opts to pay the inquirer’s fees through the finance company, the client would apply
on-line through the finance company. Loan amounts range from $1,000 to $10,000, repayment
of the loan ranges up to 5 years, and the financing company charges a financing fee and interest
rate that vary depending on the client’s credit score. The finance company alone determines the
loan amount, financing fee, repayment plan, and interest rate. The financing fee is between 5%
and 15% of the loan amount. If the loan is approved, the inquirer’s account is credited with the
full amount of the loan, less the financing fee. On approval, the inquirer’s client has 6 months to
repay the full amount of the loan with no interest or penalty. After 6 months, the client must
make monthly payments and repay the full amount of the loan and interest directly to the finance
company. The finance company assesses no penalty for early repayment. The inquirer receives
nothing from the finance company for any client’s participation in the finance company. The
inquirer’s fee agreement with individual clients would explain the inquirer’s fees, the financing
fees, and the loan process. The inquirer states that the inquirer will continue representation of

the client regardless of whether the client defaults on the loan, as the inquirer’s fees will have
been paid in full at the outset of representation.
The inquirer asks whether the company’s retention of a percentage of the loan amount as
a financing fee constitutes improper division of fees with a nonlawyer, or whether any other
aspect of the arrangement is improper.
The committee is of the opinion that the loan arrangement is not an impermissible
division of fees and that the inquirer may provide clients with information about the finance
company under the circumstances described above, and with the caveats below.
Rule 4-1.5(h) is applicable and provides as follows:
(h) Credit Plans. A lawyer or law firm may accept payment under a
credit plan. No higher fee shall be charged and no additional charge shall be
imposed by reason of a lawyer’s or law firm’s participation in a credit plan.
Credit plans, including major credit cards, typically charge a percentage of a charge to the
vendor in addition to interest to the debtor. Rule 4-1.5(h) specifically permits credit plans,
including credit cards, despite the fact that most deduct a percentage of the charge from the
amount paid to the vendor, in addition to charging interest to credit card holders. Additionally,
the risks associated with sharing legal fees with a nonlawyer are not present in this situation as
long as the finance company does not direct or influence the lawyer’s independent legal
judgment in the representation or adversely impact the lawyer-client relationship, and the
inquirer does not disclose confidential information to the finance company in violation of Rule 4-
1.6. The inquirer should only refer clients to the finance company where the referral is in the
best interests of those clients. See Rule 4-1.7(a)(2). Additionally, the inquirer should explain the
inquirer’s role in the financing transaction and may recommend that the client obtain
independent legal advice in the financing transaction or obtain information directly from the
financing company.
If the inquirer charges a flat nonrefundable fee and no portion of the funds deposited with
the lawyer from the financing company constitute advances on either fees or costs, then the funds
must be deposited into the inquirer’s operating account, as the funds are considered earned on
receipt and therefore the property of the inquirer, which must not be commingled with client
property. See, Florida Ethics Opinion 93-2 and Rule 5-1.1(a)(1).
In summary, the committee’s opinion is that the inquirer may provide clients with
information about the financing company under the circumstances set forth above if the inquirer
does not charge participating clients any higher fee, does not recoup the finance charge from the
client, and receives no benefit from the financing company for any client’s participation other
than the inquirer’s fees for representation for which the client will repay the finance company.
Finally, in order for the inquirer to provide clients with information about the financing
company, the terms of the loan must comply with applicable law, which is outside the scope of
an ethics opinion.