May a lawyer refer collection of unpaid fees against clients to a credit bureau or a commercial collection agency?

Plain-English summary

An attorney asked whether it is permissible to refer collection efforts against clients to a "credit bureau." The committee distinguished a credit bureau, whose purpose is to provide credit information to potential lenders, from a commercial collection agency, whose purpose is to collect bills. It concluded it would be improper for a lawyer to report a client's unpaid account to a credit bureau where the sole purpose is to impede the client's ability to obtain credit.

The committee concluded a lawyer may generally use a commercial agency, paid on a contingent basis, to collect unpaid, earned fees, after pursuing all other reasonable alternatives, and provided the lawyer first determines the unpaid fee is reasonable and considers each case individually to determine the referral is appropriate. It grounded the disclosure analysis in Rule 16-106(D), which excepts from the confidentiality rule disclosures necessary to establish a claim on the lawyer's behalf in a controversy with the client; in a collection effort, the lawyer should disclose only the minimum background information about the client necessary to establish or collect the fee, and disclosures beyond that minimum may be grounds for discipline.

The committee added that, in referring a matter to a collection agency, the attorney must observe the proscription against splitting fees with non-lawyers: there must be no division of fees with the agency for any legal services rendered to collect the fee, and the agency may not exercise any control over litigation instituted to collect the fee.

Currency note

This opinion was issued in 1988, under the New Mexico Rules of Professional Conduct effective January 1, 1987 (Rule 16-106(D)). It predates the State Bar of New Mexico's November 3, 2008 revisions to those Rules (the New Mexico adoption of the ABA Ethics 2000 changes). Treat this page as historical context, not current guidance.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 report a non-paying client to a credit bureau?

A: The opinion concluded it would be improper to report a client's unpaid account to a credit bureau where the sole purpose is to impede the client's ability to obtain credit.

Q: Can a lawyer use a collection agency to recover unpaid fees?

A: The committee concluded a lawyer may generally use a commercial collection agency on a contingent basis for earned fees, after exhausting other reasonable alternatives and first determining the fee is reasonable and the referral appropriate in the individual case.

Q: How much can the lawyer tell the agency about the client?

A: The committee concluded the lawyer should disclose only the minimum background information necessary to establish or collect the fee under Rule 16-106(D), and that disclosures beyond that minimum may be grounds for disciplinary proceedings.

Q: Are there limits on the lawyer's arrangement with the agency?

A: Yes. The committee concluded there must be no division of fees with the agency for any legal services rendered to collect the fee, and the agency may not exercise control over any litigation to collect it.

Background and rules framework

The opinion applied Rule 16-106(D) (the confidentiality exception for disclosures necessary to establish a claim or defense in a controversy between lawyer and client) and the prohibition on sharing legal fees with non-lawyers. These correspond to current Model Rules 1.6 (confidentiality), 5.4 (professional independence; fee-sharing), and 1.5 (fees).

Citations and references

Rules of Professional Conduct:

• Rule 16-106(D) (confidentiality exception for a fee controversy with the client)
• Prohibition on splitting legal fees with non-lawyers

Other opinions cited:

• ABA Formal Opinion 320 (1968); Alaska Bar Op. 86-3 (1986); Georgia State Bar Op. 49 (1985); Florida Bar Op. 81-3(M) (1981); West Virginia Op. 80-1 (1981); Arizona Op. 81-23 (1981); Kansas Op. 83-5 (1983)

See also

• NM Ethics Op. 1988-1: Destruction of Closed Client Files

Source

• Landing page: https://www.sbnm.org/Leadership/Committees/Ethics-Advisory-Committee/Ethics-Advisory-Opinions
• Original PDF: https://www.sbnm.org/Portals/NMBAR/AboutUs/committees/Ethics/1988/1988-7.pdf

Original opinion text

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

Advisory Opinion 1988-7
An attorney has asked whether it is permissible to refer collection efforts against clients to a "credit bureau."
A distinction should be made between a credit bureau whose purpose is to provide credit information to potential lenders, and commercial collection agencies, whose purpose it is to collect bills. The committee believes that it would be improper for a lawyer to report a client's unpaid account to a credit bureau where the sole purpose in doing so is to impede the client's ability to obtain credit. See, Alaska Bar Assoc. opinion 86-3 (1986).
A lawyer, however, may generally use a commercial agency, paid on a contingent basis, to collect unpaid, earned fees, after pursuing all other reasonable alternatives to collect the fee, and provided that the lawyer first determines that the unpaid fee is reasonable, and considers each case individually to determine that the referral is appropriate. See, e.g., Georgia State Bar Opinion 49 (1985); Florida Bar Opinion 81-3(M) (1981); but see, West Virginia State Bar opinion 80-1 (1981).
New Mexico Supreme Court Rule 16-106(D) provides an exception to the general rule that a lawyer shall not reveal information relating to representation of a client, for situations where disclosure is necessary to establish a claim on behalf of the lawyer in a controversy between the lawyer and the client. In a collection effort, a lawyer should disclose only the minimum background information regarding the client that is necessary to establish or collect the fee. ABA Formal opinion 320 (1968); Georgia State Bar Opinion 49 (1985). Disclosures beyond the necessary minimum may be grounds for disciplinary proceedings. See generally, ABA/BNA Lawyers' Manual on Professional Conduct, pp. 41:2003 and 55:703-704 (1988).
In referring a matter to a collection agency for collection efforts, the attorney must also observe the ethical proscription against splitting fees with non-attorneys. There must be no division of fees with the collection agency for any legal services rendered to collect the fee, and the agency may not exercise any control over any litigation instituted to collect the fee. State Bar of Arizona Opinion 81-23 (1981); Kansas Bar Assoc. opinion 83-5 (1983).