May a lawyer take collection suits referred by a credit bureau that deals directly with the lawyer, advances costs, and is paid from any recovery, while the creditor has no direct contact with the lawyer?

Plain-English summary

The committee was asked about the propriety of a lawyer representing a credit bureau and filing suits on delinquent accounts, where the bureau (not the creditor) deals directly with the lawyer, asks for suits to be filed, advances all costs, the lawyer is paid only out of any recovery, and the lawyer has no direct contact with the creditor. It analyzed the arrangement under Canon 34 (division of fees), Canon 35 (intermediaries), and Canon 47 (aiding the unauthorized practice of law).

Assuming the credit bureau handled collections on a contingent-fee basis, the committee treated its earlier Advisory Opinion 72 as controlling: where a collection agency has a claim on a contingent fee, it is unprofessional for a lawyer to accept agency employment to sue on the claim with his fee paid by the agency. It then set out minimum conditions for compliance. Under Canon 34, there must be no division, under any guise, of the amount charged to the creditor for the lawyer's legal services, though the agency may charge separately for its non-legal services. Under Canon 35, once a claim is forwarded, a direct attorney-client relationship must exist between the lawyer and the creditor, and the agency must not interpose itself as an intermediary controlling the lawyer's activities.

Under Canon 47, the committee reasoned that if the employment and compensation run from the agency in its own behalf rather than on the creditor's behalf, and the agency owes the lawyer his fees whether or not it is reimbursed by the creditor, then the lawyer's client is in fact the agency and not the creditor, and the lawyer is letting his services be used to aid the agency's unauthorized practice of law. It added that if the agency is compensated by the creditor on a fixed or percentage basis regardless of what it pays the lawyer, the lawyer is effectively an employee of an agency that contracted to supply all services, including legal services, which would be unauthorized practice by the agency and a clear violation of Canon 47.

Currency note

This opinion was issued in 1967, during the era of the Canons of Professional Ethics, before Oklahoma adopted the Oklahoma Rules of Professional Conduct (1988) and the later Ethics 2000 revisions. The principles the opinion applied survive in modern form, including the lawyer's professional independence from a lay intermediary (now Rule 5.4) and the bar on aiding the unauthorized practice of law (now Rule 5.5). 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 take collection cases referred by a credit bureau?

A: Only under strict conditions. The committee held the lawyer must form a direct attorney-client relationship with the creditor, must not let the agency act as an intermediary controlling the matter, and must not divide his legal fee with the agency.

Q: Could the credit bureau pay the lawyer and keep part of the legal fee?

A: No. The committee held that, under Canon 34, there must be no division of the amount charged to the creditor for legal services, though the agency may charge separately for its own non-legal collection services.

Q: When does this arrangement become aiding the unauthorized practice of law?

A: When the agency is in substance the lawyer's client (employing and paying him in its own behalf, or contracting with the creditor to supply all services including legal ones), the committee said the lawyer aids the agency's unauthorized practice in violation of Canon 47.

Background and rules framework

The opinion applied Canon 34 (division of fees only with another lawyer), Canon 35 (a lawyer's services should not be controlled by a lay intermediary), and Canon 47 (aiding the unauthorized practice of law), all of the Canons of Professional Ethics adopted in Oklahoma, and treated its own Advisory Opinion 72 as controlling for contingent-fee collection agencies. The independence and intermediary principles correspond to today's Model Rule 5.4, and the bar on aiding unauthorized practice to Model Rule 5.5. The opinion predates the Model Rules and made no Model Rule citation.

Citations and references

Rules of Professional Conduct:

• Canon 34 (ABA Canons of Professional Ethics, adopted by the Oklahoma Bar): no division of fees except with another lawyer based on service or responsibility.
• Canon 35: a lawyer's services should not be controlled or exploited by a lay intermediary.
• Canon 47: aiding the unauthorized practice of law.

Other opinions cited:

• Oklahoma Bar Association Advisory Opinion No. 72.

See also

• Okla. Bar Ethics Op. 244: Attorney trust officer of a bank
• Okla. Bar Ethics Op. 249: Lawyer also engaged in a real estate business
• Okla. Bar Ethics Op. 250: Investigator's business card showing the lawyer's name

Source

• Landing page: https://www.okbar.org/ethics/ethics-opinion-no-251/

Original opinion text

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

Adopted September 14, 1967

INQUIRY

This Committee has been requested to render an opinion as to the propriety of an attorney representing a credit bureau and filing suits on delinquent accounts where the credit bureau, and not the creditor, deals directly with the attorney, the credit bureau asks for suits to be filed by the attorney and advances all costs and where suit is filed, neither the creditor nor the credit bureau pays the attorney, but the attorney is paid out of the recovery, if any, and where the attorney has no direct contact with the creditor.

1. DIVISION OF FEES–Canon 34 provides as follows: "No division of fees for legal services is proper, except with another lawyer, based upon a division of service or responsibility."

2. INTERMEDIARIES–Canon 35 provides in part as follows: "The professional services of a lawyer should not be controlled or exploited by any lay agency, personal or corporate, which intervenes between client and lawyer. A lawyer's responsibilities and qualifications are individual. He should avoid all relations which direct the performance of his duties by or in the interest of such intermediary. A lawyer's relation to his client should be personal, and the responsibility should be direct to the client."

3. AIDING THE UNAUTHORIZED PRACTICE OF LAW–Canon 47 provides as follows: "No lawyer shall permit his professional services, or his name, to be used in aid of, or to make possible, the unauthorized practice of law by any lay agency, personal or corporate."

It must be assumed, for the purposes of this opinion, that inasmuch as the credit bureau involved handles collection of accounts for various retail merchants, that the credit bureau does so on a contingent fee basis. To that extent, the following statement found in Oklahoma Bar Association Ethics Committee Advisory Opinion No. 72, would be controlling:

"Where a collection agency has a claim on a contingent fee, it constitutes unprofessional conduct for a member of the bar to accept employment from the agency to bring a suit on the claim, his fee to be paid by the agency."

It is the opinion of this committee that when a relationship is created between a lawyer, a collection agency and a creditor, that certain minimal conditions must be met as a requisite to complying with Canons 34, 35 and 47 as follows: Pursuant to Canon 34, there must not, under any guise, be any division by the attorney and the lay agency of any of the amount charged to the creditor for legal services performed by the attorney, the agency being permitted to charge separately for whatever non-legal services it has performed. Pursuant to Canon 35, when a claim is forwarded to the attorney by the lay agency, there must, thereafter, exist the direct relationship of attorney and client between the attorney and the creditor and the lay agency must not be permitted to interpose itself as intermediary to control the activities of the attorney. Pursuant to Canon 47, if the employment and compensation are by the agency, in its own behalf, rather than on behalf of the creditors, and the agency is indebted to the attorney for his legal fees, whether or not it receives full reimbursement from the creditor, in that event, it would appear that the attorney's client is, in fact, the agency and not the creditor, and that the attorney would be permitting his professional services to be used in the aid of the unauthorized practice of law by an agency which is employed and compensated by the creditor to furnish legal services, as well as legitimate collection agency services.

It should also be pointed out that if the agency is compensated by the creditor on a fixed basis, either on a percentage of collection arrangement or in another amount agreed upon by the agency and the creditor, regardless of the amount paid by the agency to the attorney for his legal services, it would appear that the attorney is actually an employee of an agency which has contracted with the creditor to supply all services necessary to collect claims, including legal services which would constitute unauthorized practice of law by the agency and a clear violation of Canon 47 by the attorney.