Can lawyers refer clients who need to borrow money to a lender the lawyers helped set up, and pay the lender from the settlement?

Plain-English summary

Attorneys A and B assisted a lender in establishing a loan business but had no financial or equity interest in it. Their personal injury and tort clients occasionally wished to borrow money, and the attorneys asked whether they could refer such clients to the lender and pay the lender the amount loaned plus interest from any settlement if the client so directed. The questions were whether this violated Rule 7.2(c) (paying for referrals) or Rule 1.8(e) (a lawyer lending money to a client beyond litigation costs).

The committee said the first consideration is whether the lender's acts can be attributed to the attorneys, and concluded they cannot: no ethical rule suggests an agency relationship was created, and Rule 1.9 would bar involvement only in a transaction materially adverse to a party in the same or a substantially related matter, which filing incorporation papers and a later loan are not; with the client's consent to the assignment, only a contract exists, not a materially adverse relationship. Because the lender's acts are not attributed to the lawyers, the lawyers have not provided financial assistance to the client under Rule 1.8(e); they have only helped the client obtain such assistance, which may be a lawyer's job. Similarly, the lawyers have not paid anyone to recommend their services, so Rule 7.2(c) is not violated. The committee added that payment of interest is permitted so long as the client agreed to it and consented to the assignment.

Currency note

This opinion was issued in 1991, before the South Carolina Bar's adoption of the 2005 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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 lawyers refer clients to a lender they helped set up but have no stake in?

A: The committee said yes; with no financial interest, the lender's acts are not attributed to the lawyers, so the referral does not violate the Rules.

Q: Does referring clients to the lender amount to prohibited financial assistance?

A: The committee said no; because the lender's acts are not attributed to the lawyers, they have not provided financial assistance under Rule 1.8(e), only helped the client obtain it.

Q: Can the lawyers pay the loan plus interest from the settlement?

A: The committee said yes, so long as the client agreed to the interest and consented to the assignment.

Background and rules framework

The opinion interprets Rule 7.2(c) (payment for referrals), Rule 1.8(e) (financial assistance to a client), and Rule 1.9 (duties to former clients), each corresponding to the like-numbered Model Rule. The committee made attribution (whether the lender's acts are the lawyers') the threshold question, and client consent the key safeguard for honoring assignments.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 7.2(c) / Model Rule 7.2: a lawyer shall not give anything of value to a person for recommending the lawyer's services.
• South Carolina RPC 1.8(e) / Model Rule 1.8: a lawyer shall not provide financial assistance to a client in connection with litigation except for litigation costs.
• South Carolina RPC 1.9 / Model Rule 1.9: a former-client conflict arises only in the same or a substantially related matter.

See also

• SC Bar Ethics Op. 91-31: Advancing a Client Money for a Rental Car
• SC Bar Ethics Op. 91-10: Medical Liens and Assignments Against a Client's Settlement

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-91-15/

Original opinion text

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

UPON THE REQUEST OF A MEMBER OF THE SOUTH CAROLINA BAR, THE ETHICS ADVISORY COMMITTEE HAS RENDERED THIS OPINION ON THE ETHICAL PROPRIETY OF THE INQUIRER’S CONTEMPLATED CONDUCT. THIS COMMITTEE HAS NO DISCIPLINARY AUTHORITY. LAWYER DISCIPLINE IS ADMINISTERED SOLELY BY THE SOUTH CAROLINA SUPREME COURT THROUGH ITS COMMISSION ON LAWYER CONDUCT.

Ethics Advisory Opinion 91-15

Attorneys A and B assisted lender in establishing a loan business. Attorney A and B have no financial interest in the loan business and no equity interest in the loan company. Attorneys A and B have clients they represent in personal injury and other tort actions. These clients occasionally wish to borrow money. The inquirer wishes to receive an Advisory Opinion as to whether it is ethically permissible to refer clients who wish to borrow money to the lender. Attorneys A and B further wish to receive an Advisory Opinion as to whether it is ethically permissible to pay to the lender the amount loaned plus interest from any settlement if the client so directs.

Questions:
Does the above situation violate Rule 7.2(c), which prohibits paying someone to recommend a lawyer's services? Does the above situation violate Rule 1.8(e), which prohibits the lawyer from lending money to his client (except for costs of litigation)?

Summary:
Since the attorneys have no financial interest in the loan company and merely represented the lender in establishing its business, the acts of the loan company cannot be attributed to the attorneys. Assuming the client consents and does not withdraw his consent at the time the personal injury case is settled, the attorneys may honor the assignments to the loan company and may refer clients to the lender.

Opinion:
The first consideration is whether the acts of the lender may be attributed to the attorneys. There is no ethical rule which suggests that such an agency relationship would be created. Rule 1.9 would prohibit the lawyers involvement in a transaction wherein the lawyers' role is "materially adverse" to one of the parties, if the lawyers' earlier representation involved the "same or substantially related matter." Since filing incorporation papers and the like are not substantially related to a later loan, Rule 1.9 would not apply in any event. Further, as long as the client consents to the assignment, all that exists is a contract, not a "materially adverse" relationship. Under the facts presented, the loan company's acts cannot be attributed to the attorneys.

If the acts of the loan company cannot be attributed to the lawyers, then the lawyers have not provided financial assistance to the client under Rule 1.9(e). All the lawyers have done is help the client to obtain such assistance, which may be a lawyer's job.

Similarly, the lawyers have not paid anyone to recommend their services, so Rule 7.2(c) has not been violated.

The payment of interest would further be permitted so long as the client agreed to it and consented to the assignment.