May a county bar association sponsor a plan letting clients pay legal fees with a bank credit card?

Plain-English summary

A county bar association asked whether it could sponsor a fee financing program using a widely known bank credit card. No detailed agreements had been drafted; the bar and bank intended to tailor them to the committee's guidelines. The committee was told the plan would be officially sponsored by the county bar, open only to its members, and would let clients pay for legal services with a bank-issued card; the attorney would set fees independently, be credited 94 percent of the financed amount (a six percent discount, with one percent paid to the sponsoring bar), and the bank would have no recourse against the attorney for the client's non-payment, with no public advertising of the plan.

Because no specific proposal was submitted, the committee said it could neither approve nor disapprove the plan as it might finally evolve, and the limited elements described did not themselves indicate a probable violation. It declined to clear any plan without reviewing the four governing agreements (bar-bank, attorney-bank, client-bank, and the local bar's participation rules). To give guidelines, it adopted in principle ABA Formal Opinion 320 (1968), found nothing in the Code of Professional Responsibility that materially changed its holding, and agreed with ABA Informal Opinions 1120 and 1176 disapproving plans that required lawyers to repurchase disputed drafts, indemnify the bank, display promotional materials, open their records, or operate without bar-association control of publicity.

The committee then listed twelve essential minimum standards, including: official sponsorship by a bona fide bar association; no general publicizing of the plan to the public where participation is limited to a voluntary bar's members; the client's exclusive right to select counsel with no bank voice in handling the matter; full disclosure of the financing to the client; strict confidentiality under Canon 4 except as the client knowingly waives to obtain financing; no attorney as co-signer or guarantor and no bank recourse against the attorney; an option (not an obligation) for the attorney to buy the client's obligation before suit; no attorney representation of the bank in collecting the client's obligation; no bank voice in the fee (subject to DR 2-106 and DR 2-107 limits on illegal or excessive fees, and no financing of contingent fees); no required or permitted advertising of the lawyer's availability under the plan; the bar's retained authority to end its sponsorship; and delivery of the fee obligation to the financing agency only when the fee is due. The committee held that, so long as the fee and the finance charge are clearly and separately stated with a penalty-free prepayment right, there is no prohibited division of fees, the bank acting merely as a collection agency paid out of the lawyer's fee by discount, as ABA Formal Opinion 320 explained.

Currency note

This opinion was issued in 1972, under the Code of Professional Responsibility, before Oklahoma adopted the Oklahoma Rules of Professional Conduct (1988) and the later Ethics 2000 revisions. The advertising premises underlying parts of this opinion no longer reflect current law: the United States Supreme Court held in Bates v. State Bar of Arizona, 433 U.S. 350 (1977), that categorical bans on truthful lawyer advertising violate the First Amendment, and credit-card payment of legal fees is now common. 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: Is paying legal fees by credit card itself unethical?

A: No. The committee held a bar-sponsored plan is not improper merely because fees are paid through a recognized credit card, provided the plan meets the conditions it specified.

Q: Does financing fees through a bank split the lawyer's fee with a layman?

A: No. The committee held that, where the fee and the finance charge are clearly and separately stated with a penalty-free prepayment right, the bank acts merely as a collection agency paid by discount, so there is no prohibited division of fees, following ABA Formal Opinion 320.

Q: Could the lawyer be on the hook if the client did not pay?

A: No. Among the twelve standards, the committee required that the attorney not act as co-signer, endorser, or guarantor and that the agreement expressly bar any bank recourse against the attorney for the client's default.

Q: Could contingent fees be financed under the plan?

A: No. The committee said contingent fees may not be financed, because the amount of fees to be financed must be fixed in advance.

Background and rules framework

The opinion applied Canon 4 of the Code of Professional Responsibility (confidentiality) and Disciplinary Rules 2-106 and 2-107 (illegal or excessive fees and division of fees), and adopted in principle ABA Formal Opinion 320 (1968) along with ABA Informal Opinions 1120 and 1176. It also discussed Canon 34 of the former Canons of Professional Ethics and ABA Opinion 311 in rejecting the "division of fees" objection. The opinion predates the Model Rules and made no Model Rule citation.

Citations and references

Rules of Professional Conduct:

• Canon 4 (Code of Professional Responsibility): preservation of client confidences and secrets.
• DR 2-106 (Code of Professional Responsibility): a lawyer shall not charge an illegal or clearly excessive fee.
• DR 2-107 (Code of Professional Responsibility): division of fees among lawyers.

Other opinions cited:

• ABA Standing Committee on Ethics and Professional Responsibility, Formal Opinion 320 (February 19, 1968).
• ABA Informal Opinions 1120 (October 3, 1969) and 1176 (February 4, 1971).
• ABA Opinion 311.

See also

• Okla. Bar Ethics Op. 269: Representing collection agencies
• Okla. Bar Ethics Op. 107: Sharing collection fees with a nonlawyer forwarder
• Okla. Bar Ethics Op. 230: Bar association lawyer referral service and advertising

Source

• Landing page: https://www.okbar.org/ethics/ethics-opinion-no-268/

Original opinion text

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

Adopted December 14, 1972

INQUIRY

A county bar association has requested an opinion as to the ethical propriety of a proposed fee financing program to be sponsored by it, which would involve the use of a widely known credit card issued by or through a certain local national bank. The Committee is advised that no detailed proposal has been prepared either between the bank and the county bar association, or between the bank and attorneys desiring to participate, it being the intention of the bar association and the bank to tailor the agreements to conform to guidelines and requirements set forth by this Committee and approved by the Board of Governors of the Oklahoma Bar Association.

The Committee is further informed, however, that the following elements of the proposed plan have been agreed to between the county bar association and the bank: (1) The program, if approved, would be officially sponsored by the county bar association; (2) Participation in the plan would be open to all members of the county bar association, but only members of the county bar association would be eligible to participate; (3) The proposed plan essentially involves the payment for legal services through use of a credit card issued by or through a certain bank, the card being issued by the bank to those persons who have completed an application therefor and whom the bank has approved as creditworthy; (4) A participating attorney would not be required to display any type of advertising in or about his office pertaining to the credit card or to the plan; (5) A participating lawyer would not be required to keep application forms in his office for use by persons desiring to apply for credit cards, nor would he be required to recruit customers or prospects for the bank or credit card issuer; (6) A participating attorney would set his fee with his client independently of the bank. If the amount of the fee does not exceed the client's line of credit available through the credit card, the attorney is immediately credited by the bank with ninety-four (94) percent of such amount, there being a six (6) percent discount. Five (5) percent is reserved to the bank for the handling and processing of the account and for collection expense and bad debts. One (1) percent is paid by the bank to the credit of the sponsoring county bar association; (7) There would be no recourse by the bank against the attorney for non-payment by the client-cardholder because the plan would be based on the concept that the client, by virtue of being a cardholder, has an outstanding line of credit with the bank to the extent of any amounts agreed to be financed under the plan; (8) Participating attorneys would not be required to maintain any amount with the bank except the account to which the bank would credit the attorney with the ninety-four (94) percent figure referred to above; (9) There will be no general publicity as to participation of attorneys in the program, i. e., "no newspaper or television advertising or announcements that legal services are available through" the credit card program; and (10) The county bar association would "approve the standard contract" between the attorney and the bank.

OPINION

The Committee recognizes that certain plans involving financing of legal fees through bank credit, as a part of an organized bar association's program, have been approved when carefully drawn and implemented. Such plans have the undoubted merit of increasing the availability of legal services.

We also recognize that other fee financing plans (particularly those without bar association sponsorship) have been condemned because of the presence or absence of certain provisions in the specific plan.

Since no specific proposal was submitted to us with the inquiry, the Committee can neither approve nor disapprove it as it may finally evolve. The limited elements of the proposal which have been submitted do not themselves indicate a probable violation of the Code of Professional Responsibility.

We decline to hold, however, that this or any plan would not violate the Code until we have an opportunity to review its detailed provisions with respect to: (1) The agreement between the county bar association and the participating bank; (2) The agreement between participating attorneys and the bank; (3) The agreement between the client-card-holder and the participating bank; and (4) The rules or policy promulgated by the local bar association as to participation in the plan by attorneys.

To be responsive, however, to the request of the inquiring county bar association for "guidelines" the Committee makes the following observations. The American Bar Association Standing Committee on Ethics and Professional Responsibility's Formal Opinion 320 (February 19, 1968) exhaustively examined the general subject and discussed the criteria by which certain plans were held to be proper and others improper. Although the ABA Opinion was written in terms of the old Canons of Professional Ethics, our review of the Code of Professional Responsibility discloses nothing which would materially change the holding of ABA Formal Opinion 320, and we hereby adopt it in principle.

Following the promulgation of Formal Opinion 320, ABA Informal Opinion Nos. 1120 (October 3, 1969) and 1176 (February 4, 1971) were issued. As we interpret these informal opinions, they disapproved a lawyer participating in a credit card plan where (1) the lawyer was required to sign a "Member Merchant Agreement" in which the member (attorney) would offer to sell "sales drafts" to the bank at an agreed percentage of the face amount of the sales draft and, if the cardholder disputes "the performance or quality of service", the attorney would buy the sales draft back; (2) the attorney agreed to indemnify the bank against any claim or counterclaim on the sales draft and to maintain a commercial bank account against which the bank could charge amounts payable by the member; (3) the attorney agreed to pay an additional membership fee and to display promotional materials; (4) the bank had the right to examine the member's (attorney's) records; and (5) publicity concerning the plan was not subject to bar association approval.

This Committee agrees with these informal opinions of the ABA Committee on the facts which appear to have been involved. We do not believe, however, that a plan for financing payment of legal fees, sponsored by a bar association and which is carefully drawn and implemented to meet certain strict requirements, is ethically improper merely because payment of legal fees is financed through use of a recognized credit card. We hold, rather, that whether such a plan is permissible under the Code of Professional Responsibility depends upon whether the particular plan is sponsored by a recognized bar association and is subject in concept and operation to certain specific requirements and conditions.

In setting forth the following criteria and requirements we point out that references to "the bank" are merely for convenience. The requirements and conditions outlined would apply to any other agency or entity issuing the credit card, any assignee of the bank and any other instrumentality involved in the implementation or functioning of the financing aspects of the plan.

The following would be essential minimum standards for any such plan:

1. The plan must be officially sponsored by an organized and bona fide bar association.

2. Where membership in the bar association is voluntary, if attorneys' participation in the plan is limited to members of the sponsoring bar association, there must be no general publicizing of the plan to the public. This is a necessary limitation to avoid the plan becoming an instrument for channeling of professional employment to a particular group of attorneys.

3. Agreements between the bank and the bar association and those between the bank and the participating attorneys must expressly provide that the right to the selection of counsel is, in all instances, reserved exclusively to the client, and that the bank shall have no voice in the control or handling by the attorney of the legal matter involved.

4. The plan must provide for full disclosure to the client of the financing arrangement before it is entered into, and must otherwise comply with all legal requirements regulating such transactions.

5. The plan may not require the attorney to disclose to the bank or any other person any information disclosed by the client to the attorney in confidence. Since the obtaining of financing by the client is of benefit to the client, the privilege may properly be waived by the client if it is done knowingly and for the purpose of the client's obtaining the financing he desires. The plan or agreement between the bank and bar association and any agreement between the bank and a participating attorney should nonetheless contain a provision that the requirements of Canon 4 of the Code of Professional Responsibility are to be applied strictly except to the extent necessary to implement the plan, and that any information given to the bank is to be held in strictest confidence except to the extent necessary to effect collection of the amount owed.

6. The attorney may not act as co-signer, endorser or guarantor to the bank on behalf of the client, and there must be express contractual provision that the bank has no recourse against the attorney in case of default in payment by the client.

7. The plan must provide that the bank will give the attorney the opportunity to purchase the client's obligation before legal action is instituted upon it, but the attorney may not be required to do so.

8. The attorney may not represent the bank in the collection of the client's obligation.

9. The bank must not have any voice in the amount of the fee to be fixed by the attorney and the client, that being a matter solely between attorney and client subject only to the requirement that the fees not be illegal or excessive (Code of Professional Responsibility DR 2_106 and DR 2_107). Notwithstanding the foregoing, contingent fees may not be financed under such a plan, the amount of fees to be financed necessarily being fixed in advance.

10. A lawyer may not be required, and he is not permitted, to advertise the availability of his services under the plan including the display of any insignia or other matter in or about his office or elsewhere suggesting the availability of his services pursuant to the plan or advertising either the bank or the credit card involved.

11. The sponsoring bar association must not surrender its authority and duty to terminate its sponsorship of the plan at any time that, in its judgment, the operation or effect of the plan constitutes a violation of law or of the Code of Professional Responsibility.

12. The obligation representing the fee to be financed must not be delivered to the fee financing agency by the attorney involved until the fee is due and payable, which shall normally be upon completion of the work undertaken; provided that where the contract between the attorney and client expressly provides for an advance retainer or for interim billing for services, the financing documents covering such charges as are desired to be financed by the client may be delivered to the fee financing agency by the attorney when such fees are due and payable under the contract for legal services.

The Committee is aware that some question has been raised as to whether any fee financing arrangement constitutes forbidden "division of fees" with a lay agency. From the attorney's point of view, the bank acts merely as a collection agency for his fee. The bank is performing a financial service for the attorney for which service it receives a payment from the attorney out of his fee in the form of a discount. As noted in ABA Formal Opinion 320,

"From the client's point of view, the amount which he pays for legal fees (principal) and the amount which he pays for financing charges (interest) are clearly segregated. It has been held … that the giving of a promissory note for legal fees and the charging of interest thereon is not ethically improper, provided the note has a definite maturity date and a prepayment privilege without penalty. It has also been held … that there is nothing unethical in the information of a collection agency for lawyers.

"Combining the two does not result in a division of fees, but merely the payment by both attorney and client, each from his own funds, or financing charges to the bank for financial services rendered to each. The fact that the lawyer's payment is made out of funds received by him as fees does not alter this; so are all other payments which he makes, as we pointed out in Opinion 311, as these are the only funds available to him. If (Canon 34 of the Canons of Professional Ethics) prohibited lawyers from paying bankers out of earned fees for financing, it would prohibit them from paying the butcher, the baker and the candlestick maker as well; and this it clearly does not do."

Accordingly, we hold that so long as the amount of the attorney's fee is clearly stated and the amount of finance or interest charge is clearly and separately stated with the right of the client to prepay the obligation without payment of any finance or interest charge, there is no prohibited "division of fees".

The Committee repeats that any such fee financing plan must remain under the continuing scrutiny of the sponsoring bar association to assure that it comports not only with the law but with the Code of Professional Responsibility. Correspondingly, the responsibility remains upon the individual attorney to assure that as to his client, his participation in the plan does not, in any instance, involve him in acts or omissions which are proscribed by the Code.