Can a North Carolina lawyer offer clients on-site access to a financial brokerage company that finances legal fees?

Plain-English summary

The opinion addresses a lawyer who wants to associate with a financial brokerage company that helps clients obtain financing for legal fees. The company is not a lender; it brokers offers from competing banks, the loan is paid directly from a third-party lender to the client, and the client then pays the lawyer under the fee agreement. The company charges the lawyer a setup fee, a monthly fee, and a merchant fee on the financed amount, and the service would be presented to clients as a "payment option" alongside credit card, check, and cash.

The opinion concludes the lawyer may participate under certain circumstances. It treats the arrangement as analogous to accepting credit cards or offering in-house payment plans, and draws on 2000 FEO 4, which permitted referring a client who needs money to a finance company if the lawyer is satisfied the arrangement is legal, the lawyer receives no consideration for the referral, and the referral is in the client's best interest. The controlling concern is Rule 1.7(a): a concurrent conflict exists if the representation is materially limited by the lawyer's personal interest, and a lawyer may not let his financial interest in being paid interfere with his duty to act in the client's best interest. The opinion contrasts 2006 FEO 2, where a lawyer could not refer a client to a structured-settlement buyout company merely as a way to get paid.

The opinion concludes that providing payment options to a client who needs help paying fees does not, by itself, put the lawyer's interests ahead of the client's. Because of the lawyer's self-interest in full payment, however, the lawyer may not recommend one payment option over another. The lawyer may offer on-site access to the company as a payment option, along with other options, so long as the lawyer is satisfied the company's arrangements are legal, the lawyer receives no consideration from the company, and the lawyer does not recommend one payment option over another.

In practice

Under the North Carolina rules as they stood at the time of the opinion, conduct that matches this fact pattern is permitted on three conditions stated by the committee: the lawyer is satisfied that the financing arrangement is legal; the lawyer receives no consideration from the brokerage company; and the lawyer does not recommend one payment option over another. The opinion frames the brokered financing as one option presented alongside credit card, check, and cash.

The opinion grounds the limits in Rule 1.7(a), treating the lawyer's interest in being paid in full as a personal interest that could materially limit the representation. Per the opinion, offering payment options to a client who needs help paying fees does not by itself subordinate the client's interests, but steering the client toward a particular option would.

Common questions

Q: Can a North Carolina lawyer let clients use an on-site fee-financing broker to pay legal fees?

A: Yes, under certain circumstances. The opinion permits offering on-site access to the company as a payment option if the arrangement is legal, the lawyer takes no consideration from the company, and the lawyer does not recommend one payment option over another.

Q: Can the lawyer steer clients toward the financing option?

A: No. The opinion states that, given the lawyer's self-interest in being paid in full, "the lawyer may not recommend one payment option over another."

Q: What rule is the concern here?

A: Rule 1.7(a). The opinion explains a concurrent conflict exists if the representation will be materially limited by the lawyer's personal interest, so the lawyer may not let his interest in payment interfere with acting in the client's best interest.

Q: Can the lawyer accept a referral fee or other payment from the financing company?

A: No. The opinion conditions participation on the lawyer receiving "no consideration from Company," consistent with 2000 FEO 4.

Background and rules framework

The opinion interprets Rule 1.7 (Model Rule 1.7, conflicts of interest with current clients), specifically Rule 1.7(a), under which a concurrent conflict exists where the representation will be materially limited by a personal interest of the lawyer. The committee applies that standard to a lawyer's financial interest in collecting fees, concluding the interest does not bar offering payment options but does bar recommending one option over another.

The opinion builds on two prior North Carolina opinions: 2000 FEO 4 (a lawyer may refer a client needing funds to a finance company if the arrangement is legal, the lawyer receives no consideration, and the referral serves the client's best interest) and 2006 FEO 2 (a lawyer may not refer a client to a structured-settlement buyout company merely as a means of getting paid).

Citations and references

Rules of Professional Conduct:

• Model Rule 1.7 / NC Rule 1.7(a) (concurrent conflict where representation is materially limited by the lawyer's personal interest)

Other opinions cited:

• 2000 FEO 4: referral to a finance company for client living expenses.
• 2006 FEO 2: no referral to a structured-settlement buyout company merely to be paid.

See also

• ABA Formal Op. 484: Client Fee Financing Companies
• ABA Formal Op. 00-419: Credit Card Payment of Legal Fees

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2018-formal-ethics-opinion-4/

Original opinion text

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

Inquiry:

Lawyer would like to associate with a financial brokerage company (Company) that would assist clients in obtaining legal fee financing. Company is not a lending institution. Company would act as a broker to find lenders willing to finance the client’s legal fees. Company charges Lawyer an initial setup fee of $1,500 and a monthly fee of $99 for maintaining the payment webpage and administration. Lawyer also pays a merchant fee of 4.99 % on the amount of the financed legal fee. The loan brokerage service would be explained to clients as a "payment option" along with any other options such as credit card, check, cash, etc.

Company provides a loan application for clients who wish to pursue a loan for legal fees. Approved clients receive offers from competing banks, and are free to pick the offer that works best for them, or to decline all offers. If the client accepts an offer, the loan amount is paid from a third-party lender directly to the client. The client pays the fees to Lawyer in accordance with the fee agreement.

The company maintains that the program helps lawyers get paid and also removes the cost barrier for clients who are seeking legal representation.

May Lawyer associate with Company under the proposed arrangement?

Opinion:

Yes, under certain circumstances. Many law firms currently accept credit card payments for legal fees or offer in-house payment plans. In 2000 FEO 4, the Ethics Committee concluded that 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. The lawyer may not allow his own financial interests to interfere with his duty to act in the best interests of his client. Rule 1.7(a) (concurrent conflict exists if representation of client is materially limited by personal interest of lawyer). For example, in 2006 FEO 2, the Ethics Committee concluded that 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.

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. 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. Therefore, 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.