Can a lawyer steer a client to a finance company for a loan to pay the lawyer's fee, and discount the fee in return?

Plain-English summary

A lawyer asked whether attorneys may associate with a finance company to obtain loans for clients to pay fees. The attorney paid an initial $500 for the right to submit client loan applications; once a loan was approved, the client alone was responsible for repayment, and the attorney would receive the loan proceeds less a 10% fee. The inquiry asked whether this violated Rule 1.8(d) (financial assistance in litigation) and whether the 10% discount was fee-splitting under Rule 5.4(a).

The opinion concluded that Rule 1.8(d) was not violated, because the rule bars a lawyer from advancing or guaranteeing financial assistance to a client (other than litigation expenses), while here the lawyer merely helped arrange financing between the client and a third party without making or guaranteeing the loan. Relying on Opinion No. 295, it concluded that attorney-suggested financing plans are permissible when certain requirements are met: the lawyer must comply with Rule 1.6 by fully disclosing (preferably in writing) that the loan-application information will be forwarded to the lender, and, as a fiduciary, must disclose the lawyer's complete involvement and ensure the transaction and terms are fair and reasonable and communicated in writing the client can understand (Rule 1.4(b)).

The opinion concluded that the lawyer must disclose the complete loan details and his association with the finance company, including the $500 payment and the 10% fee discount, and must tell the client that representation is not contingent on using that company and that the client is free to obtain alternative financing. It concluded the 10% discount is distinguishable from sharing fees with a nonlawyer: it is a business agreement in which the lawyer accepts the financed portion of the fee minus a service charge, helping the lender by sharing the cost of the loan. It added that the risk of an early withdrawal is addressed by Rule 1.16(e), which requires refunding any unearned fee.

Currency note

This opinion was issued in 1993, before Illinois adopted the 2010 Illinois Rules of Professional Conduct. The ISBA Board of Governors affirmed the opinion in May 2010 as generally consistent with the 2010 Rules (referring to Rules 1.4(b), 1.6(a), 1.8(e), 1.16(e) with its Comment [10], and 5.4(a)), while noting the specific standards referenced may differ from the 2010 Rules. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule or requirement mentioned here.

Common questions

Q: Can a lawyer help a client get a loan to pay the lawyer's fee?

A: The opinion concluded a lawyer may, because the loan is between the client and a third-party lender and is not financial assistance advanced or guaranteed by the lawyer under Rule 1.8(d).

Q: Is the lawyer's fee discount to the finance company a prohibited fee split?

A: No. The opinion concluded the 10% discount is a business arrangement in which the lawyer accepts the financed portion of the fee minus a service charge, distinguishable from sharing fees with a nonlawyer under Rule 5.4(a).

Q: What must the lawyer disclose to the client?

A: The opinion concluded the lawyer must disclose the full loan terms and the lawyer's involvement (including the $500 payment and the 10% discount), confirm the loan-application information will go to the lender under Rule 1.6, and tell the client the representation is not contingent on using that lender.

Background and rules framework

The opinion interpreted Rule 1.8(d) (financial assistance to clients in litigation), Rule 5.4(a) (fee-splitting with nonlawyers), Rule 1.6(a) (confidentiality), Rule 1.4(b) (fiduciary disclosure and explanation), and Rule 1.16(e) (refund of unearned fees on withdrawal) (Model Rules 1.8, 5.4, 1.6, 1.4, 1.16).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8 (financial assistance to clients) / Illinois Rule 1.8(d)
• Model Rule 5.4 (fee-splitting with nonlawyers) / Illinois Rule 5.4(a)
• Model Rule 1.6 / Illinois Rule 1.6(a); Model Rule 1.4 / Illinois Rule 1.4(b); Model Rule 1.16 / Illinois Rule 1.16(e)

Other opinions cited:

• ISBA Opinion No. 295 (1968): attorney-suggested bank-financing plans permissible with safeguards

See also

• ISBA Ethics Op. 94-06: Interest on Advanced Litigation Expenses
• ISBA Ethics Op. 94-10: Disclosing Confidences to Defend or Collect a Fee

Source

• Landing page: https://www.isba.org/ethics/opinions/9209