Can a lawyer charge a contingent-fee client interest on litigation expenses the lawyer advanced and financed by a bank loan?

Plain-English summary

A lawyer representing personal-injury plaintiffs on contingency advanced litigation expenses (court costs, expert fees, and other disbursements) and borrowed from a bank to finance them. The question was whether the lawyer could charge clients interest on those advances at the bank's rate.

The Committee began with the general restriction on lawyer-to-client loans (DR 5-104(A)) and the near-total bar on litigation loans, but noted the exception in DR 5-103(B)(1) permitting a lawyer to advance or guarantee the expenses of litigation. Although the exception does not address interest, the Committee, agreeing with a uniform line of opinions from other states, concluded that a lawyer may charge interest on such advances, subject to limitations.

The Committee identified three limits: the interest charged may not exceed the interest the lawyer actually incurs; the arrangement must be explained clearly to the client in advance and agreed to; and the method for determining the rate must be stated in a writing provided to the client (DR 2-106(D)). The Committee also flagged, without deciding, that the Appellate Divisions' Rules of Court on contingent-fee personal-injury retainers (22 NYCRR 691.20) may further restrict charging interest on disbursements, and said the lawyer should consider whether the practice is permitted under those rules. Subject to those limits and any applicable legal restrictions, the question was answered in the affirmative.

Currency note

This opinion was issued in 1997, before New York replaced the Code of Professional Responsibility (the Disciplinary Rules and Ethical Considerations cited here) with the New York Rules of Professional Conduct, effective April 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 Treat this page as historical context, not current guidance.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: Can a lawyer charge a client interest on advanced litigation costs?

A: The opinion concluded a lawyer may charge interest on litigation expenses advanced under DR 5-103(B)(1), to recover the lawyer's own borrowing cost, subject to limitations.

Q: How high can the interest rate be?

A: The Committee concluded the interest charged may not exceed the interest the lawyer actually incurs on the funds borrowed to pay the expenses.

Q: What must the client be told?

A: The opinion concluded the arrangement must be explained clearly to the client in advance and agreed to, and the method for determining the rate must be stated in a writing provided to the client (DR 2-106(D)).

Background and rules framework

The opinion was decided under New York's then-governing Code of Professional Responsibility: DR 5-104(A) (business/loan dealings with a client), DR 5-103(B)(1) (advancing the expenses of litigation), and DR 2-106(D) (the contingent-fee writing). The Model Rules analogues are Rule 1.8 (including 1.8(e) on advancing litigation expenses) and Rule 1.5 (fees and the contingent-fee writing). The opinion noted possible further limits under 22 NYCRR 691.20.

Citations and references

Rules of Professional Conduct:

• New York Code DR 2-106(D), DR 5-103(B)(1), DR 5-104(A) (Model Rules 1.5, 1.8 analogues)

Court rules:

• 22 NYCRR 691.20 (Appellate Division contingent-fee retainer rules), noted as possibly restricting the practice

Other opinions cited:

• N.Y. City Bar Opinion 1993-2 (1993); and opinions from Alabama, Florida, Georgia, Hawaii, Illinois, Iowa, Maryland, New Jersey, and Virginia

See also

• NYC Bar Ethics Op. 2000-2: Charging Interest on Unpaid Legal Fees
• NYC Bar Ethics Op. 1996-5: Nonrefundable Retainers and Fee Advertising

Source

• Landing page: https://www.nycbar.org/reports/formal-opinion-1997-1-interest-charges-on-unreimbursed-expenses/