Can a Maine lawyer finance the payment of legal fees through a third-party finance company by assigning the client's account receivable?

Plain-English summary

The Commission was asked whether a fee-financing device marketed as "Lawcard" could be used without violating the Bar Rules. Despite the name, the plan does not issue a credit card. Instead the finance company takes an assignment of the lawyer's account receivable, rates the client's creditworthiness, and either advances the lawyer 90% or 80% of the bill (for "A" and "B" clients) or, for lower-rated "C" clients, advances nothing but provides collection services, remitting 80% of what it collects plus interest of up to 18%.

The Commission concluded the arrangement is permissible under Bar Rule 3.3(b), which provides that "A lawyer may accept payment by credit card for legal services," but only if certain restraints are observed. The client must remain able to assert against the financing agency any defenses based on the attorney's failure to perform, and the client's right to submit a fee dispute to binding arbitration under Bar Rule 9 must not be impaired. The attorney may not be required to disclose client confidences as part of the financing agreement and could agree to disclose information about the services performed only with client consent.

The Commission added that charging interest on overdue fees is not per se unethical, but such interest is unenforceable without client consent supported by consideration, and Rule 3.4(f)(2)'s requirement that an arrangement in which the attorney acquires a pecuniary interest adverse to the client be "fair and reasonable to the client" might preclude an interest rate as onerous as the 18% maximum. Citing concerns raised in other jurisdictions, the Commission also concluded that reserving to the attorney a buy-back right (the ability to repurchase the obligation before suit) would be a significant safeguard against oppressive collection threats, and that, in light of Rule 3.10's encouragement of reduced-fee or no-fee service to persons of limited means, it would be the better practice for the attorney to retain the ultimate decision whether to sue a client to collect a fee.

Currency note

This opinion was issued in 1994, before Maine's replacement of the former Maine Bar Rules with the Maine Rules of Professional Conduct (effective August 1, 2009). 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, deadline, or requirement mentioned here.

Common questions

Q: Could a lawyer use a third-party company to finance a client's legal fees?

A: The opinion concluded yes. It held the Lawcard arrangement permissible under Bar Rule 3.3(b), which allows accepting payment by credit card for legal services, subject to specific safeguards.

Q: What protections did the opinion require for the client?

A: The opinion required that the client be able to assert defenses (including the attorney's failure to perform) against the financing agency, that the client's right to binding fee arbitration under Rule 9 not be impaired, and that the attorney not be required to disclose client confidences without consent.

Q: Could the financing agency charge the client interest on the fee?

A: The opinion stated that charging interest is not per se unethical but is unenforceable without client consent supported by consideration, and that Rule 3.4(f)(2)'s "fair and reasonable" requirement might preclude an interest rate as high as the plan's 18% maximum.

Q: Did the opinion address whether the attorney should keep control of collection suits?

A: The opinion concluded that reserving a buy-back right and retaining the ultimate decision whether to sue would be the better practice, given Rule 3.10's encouragement of reduced-fee or no-fee service to persons of limited means.

Background and rules framework

The opinion interprets Maine Bar Rule 3.3(b) (a lawyer may accept payment by credit card for legal services), Rule 3.4(f)(2) (a transaction in which the lawyer acquires a pecuniary interest adverse to the client must be fair and reasonable to the client), Rule 9 (binding arbitration of fee disputes), and Rule 3.10 (encouraging public-interest legal service at no or reduced fee). These correspond to ABA Model Rule 1.5 (fees), Model Rule 1.6 (confidentiality), and Model Rule 1.8(a) (business transactions adverse to a client).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.5 (fees); Model Rule 1.6 (confidentiality); Model Rule 1.8(a) (adverse pecuniary interest)
• Maine Bar Rule 3.3(b), 3.4(f)(2), 3.10, 9

Cases:

• Cloutier, Barrett, Cloutier and Conley v. Wax, 604 A.2d 42 (Me. 1992), interest on overdue fees requires consent supported by consideration

Other opinions cited:

• ABA Informal Op. 1176 (1971); ABA Formal Op. 338 (1974); ABA Informal Op. 1120: credit-card financing of fees
• Maine Bar Association Op. 49 (1977) and Op. 20: financing of legal fees
• Mich. Op. R1-168 (1993): client confidences in financing; N.Y. State Op. 362 (1974): control of collection suit

See also

• Maine Ethics Op. 173: Retainer Fees, Credit Cards, and IOLTA
• Maine Ethics Op. 152: Firm Granting Bank Security Interest in Receivables
• Maine Ethics Op. 144: Security Interest in Unrelated Client Property

Source

• Landing page: https://mebaroverseers.org/attorney_services/opinion.html?id=89821

Original opinion text

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

Issued by the Professional Ethics Commission

Date Issued: March 25, 1994

Facts

The Commission has been asked whether a proposed arrangement to finance the payment of legal fees may be undertaken without violating the Bar Rules. The name given to this device is Lawcard. That name is to some extent a misnomer, however, since the plan does not, in fact, contemplate the issuance of a credit card to be used to pay legal fees. Instead the finance company would take an assignment from the attorney of the account receivable which it would classify in categories depending on the creditworthiness of the client.

An application for credit would be filled out by the client and faxed to the financing agency which assures that it will reach an opinion on creditworthiness within approximately one hour. The agency would then send the attorney a check in the amount of 90% of the bill if the client received an "A" rating or 80% if the client is classified as a "B". If the client receives a "C" listing, the financing agency will advance no money, but will provide collection services. In that event, the agency will remit 80% of the amount collected to the attorney including interest of up to 18%.

Opinion

Bar Rule 3.3(b) states that "A lawyer may accept payment by credit card for legal services."[1] The Commission believes that the proposed Lawcard arrangement is permissible under the Rule provided certain restraints are observed.

The American Bar Association has blown hot and cold regarding the financing of legal fees. Compare A.B.A. Informal Opinion No. 1176 (1971) with A.B.A. Formal Opinion 338 (1974) (allowing credit card financing with certain limitations). In Informal Opinion No. 1120, the A.B.A. disapproved of any arrangement which allowed recourse against the attorney on the grounds that his future relationship with the client might be adversely affected. An opposite result was reached by the Maine Bar Association Professional Ethics Committee in Opinion No. 49 (1977). In that opinion, the Committee concluded that the agreement between the attorney, the client, and the financing agency must permit recourse against the attorney.

The Commission agrees that the client should not be disadvantaged in asserting defenses against the financing agency. Any such financing arrangement must allow the client to assert any defenses based on the attorney's failure to perform in resisting the financing agency's demand for payment. In addition, there can be no impairment of the client's right to submit a fee dispute with the attorney to binding arbitration pursuant to Bar Rule 9.

It is also essential that the attorney not be required to communicate client confidences as part of the financing agreement. See Mich. Opinion No. R1-168 (1993). The attorney could only agree to disclosure of information regarding the nature of the services performed with client consent.

In Maine Bar Association Opinion No. 20, one member of the Committee who concurred in the decision that credit card financing of legal fees is unethical commented that this practice could lead an attorney to subject a client to an onerous interest-bearing loan in a matter which he should have been willing to undertake at no charge or for a fee payable in installments without interest. Subsequently Bar Rule 3.10 was adopted encouraging each attorney to render unpaid public interest legal service which may consist of professional services at no fee or a reduced fee. This rule stands as a reminder that a lawyer may have an obligation to provide legal services to at least some clients without charging a fee regardless of the availability of financing arrangements such as Lawcard.

Under the Lawcard arrangement, the financing agency would act as a collection agent with respect to category "C" clients not deemed sufficiently creditworthy to receive loans to pay their legal fees. In those cases, the financing agency will charge interest of up to 18% on the amount being collected, a portion of which will be remitted to the attorney. Although it is not per se unethical to charge interest on overdue legal fees, such an arrangement would not be enforceable without client consent supported by consideration. Cloutier, Barrett, Cloutier and Conley v. Wax, 604 A.2d 42, 45 (Me. 1992). Moreover, the requirement of Rule 3.4(f)(2) that any arrangement in which an attorney acquires a pecuniary interest adverse to the client must be "fair and reasonable to the client" might under some circumstances preclude imposing an interest rate as onerous as the 18% maximum prescribed in the case of Lawcard class C clients.

Concern has also been expressed in ethics opinions in other jurisdictions about permitting an attorney to relinquish to a financing agency the decision about whether or not to bring suit to enforce collection of the debt. See, e.g., N.Y. State Opinion No. 362 (1974). Thus it has sometimes been required that the arrangement with the financing agency reserve to the attorney the right to buy back the client's financial obligation before suit is instituted. See, e.g., N.H. Ethics Opinion, 1975 (Maru, 8792). Although it may be doubted that such buy-back rights would frequently be exercised, the Commission believes that the reservation of such rights would nevertheless constitute a significant safeguard against potentially oppressive threats of litigation as a collection device on the part of employees of the financing agency. Although no Bar Rule expressly requires it, the admonition of Rule 3-10 that an attorney should provide professional services "at no fee or a reduced fee to persons of limited means" suggests that it would be the better practice for an attorney to reserve to himself the ultimate decision as to whether it would be appropriate to bring suit to collect a fee in light of the client's ability to pay at the time that litigation is contemplated.

Footnote

[1] The Commission does not accept the holding of Maine Bar Association Opinion No. 49 that fees for "legal services" cannot be read to include out-of-pocket expenses.