Can a lawyer own a consumer-loan company that lends to personal-injury plaintiffs, taking assignments of their recoveries, if it never lends to the lawyer's own clients?

Plain-English summary

An attorney wanted to organize an independent corporation to make consumer loans, with its primary market being plaintiffs in pending personal injury actions who need short-term financing and cannot get it from traditional sources. The corporation would not lend to the attorney's own clients. Creditworthiness would depend in part on the borrower's potential recovery, and loans would be secured by a security interest in or assignment of part of that recovery. Referrals would be sought from other plaintiffs' attorneys (who are barred by Rule 1.8(a) from lending to their own clients), and borrowers would sign a written consent authorizing their attorney to disclose case information for the lender's evaluation. The questions were whether this violates Rule 7.2(c) (paying for recommendations), Rule 1.8(e) (lending non-litigation expenses to a client), or Rules 1.6 or 2.3 (confidentiality).

The committee drew on Advisory Opinion 91-15, which approved attorneys helping establish a loan business they then referred their own personal injury clients to, because the attorneys had no financial interest in the loan company. Here the attorney would have an interest in the loan company, but it would not lend to the attorney's own clients, so the committee found no violation of Rule 1.8 or Rule 7.2, since the attorney's own clients are not involved; ruling otherwise, it said, would question an attorney's right to own or operate any financial institution where none of the attorney's clients are borrowers. It analogized to pawn shops and finance companies, whose markets consist of normally non-creditworthy persons and which lawyers are not forbidden to own. On confidentiality, the committee said the lender relying in part on borrowers' attorneys for information about case merits is like other lenders using third parties to check creditworthiness, the only difference being the nature of the asset; Rule 1.6(a) permits revealing client information with consent after consultation, and Rule 2.3 permits such disclosure if the client consents and it does not conflict with the representation, so there is no violation because disclosure occurs only with consent. The committee added that if the client withdraws consent, the lawyer would be prohibited from honoring the assignment at disbursement without complying with Advisory Opinion 91-10.

Currency note

This opinion was issued in 1992, 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 a lawyer own a company that lends to personal injury plaintiffs?

A: The committee said yes, where the company does not lend to the lawyer's own clients. It found no violation of Rule 1.8 or Rule 7.2 because the lawyer's own clients are not involved, analogizing to pawn shops and finance companies lawyers may own.

Q: Can the lawyer refer clients to the lender and honor assignments of their recoveries?

A: The committee said the lawyer may refer clients and honor assignments so long as the client consents and does not withdraw consent; if consent is withdrawn, the lawyer may not honor the assignment at disbursement without complying with Advisory Opinion 91-10.

Q: Does sharing case information with the lender breach confidentiality?

A: The committee said no, because Rule 1.6(a) and Rule 2.3 permit disclosure with the client's consent after consultation, and the disclosure here happens only with that consent.

Background and rules framework

The opinion applied Rule 1.8(a) and (e) (business transactions with and financial assistance to clients), Rule 7.2(c) (paying for recommendations), Rule 1.6 (confidentiality), and Rule 2.3 (evaluation for use by third persons), each corresponding to the like-numbered Model Rule. It built on Advisory Opinions 91-15 (lawyer-referred loan business) and 91-10 (handling assignments at disbursement). The analysis turned on the company not lending to the lawyer's own clients and on disclosure occurring only with client consent.

Citations and references

Rules of Professional Conduct:

• South Carolina RPC 1.8(a), 1.8(e) / Model Rule 1.8: business transactions with and financial assistance to clients.
• South Carolina RPC 7.2(c) / Model Rule 7.2: a lawyer shall not give anything of value to recommend the lawyer's services.
• South Carolina RPC 1.6 / Model Rule 1.6: confidentiality; disclosure permitted with the client's consent after consultation.
• South Carolina RPC 2.3 / Model Rule 2.3: evaluation for use by third persons, permitted with client consent.

Other opinions cited:

• SC Bar Advisory Opinion 91-15: attorneys may help establish and refer clients to a loan business where they have no financial interest.
• SC Bar Advisory Opinion 91-10: handling an assignment at the time funds are disbursed.

See also

• SC Bar Ethics Op. 92-03: Closing Lawyer Also Serving as Title Insurance Agent
• SC Bar Ethics Op. 92-14: Advancing Collection Costs for a Lender Client

Source

• Landing page: https://www.scbar.org/for-lawyers/quicklinks/legal-resources/ethics-advisory-opinions/ethics-advisory-opinion-92-06/

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 92-06

An attorney desires to organize an independent corporation to make consumer loans. Although loans by the proposed corporation would be available to the general public, the attorney views the corporation's primary market as plaintiffs in pending personal injury actions who are in need of relatively short term financial assistance and are unable to obtain such assistance from traditional sources. The corporation would not make loans to the attorney's own clients.

Creditworthiness would be determined, at least in part, upon an evaluation of the borrower's potential recovery. The loan would be secured in whole of in part by a security interest in or assignment of a portion of the borrower's recovery in the pending legal action.

Referrals would be sought from plaintiff's attorneys who may be barred from lending money to their own clients because of Rule 1.8 (a) of the Rules of Professional Conduct. As a part of the loan application process, the prospective borrower would execute a written consent authorizing disclosure by his attorney of information concerning his case. This information would be used by the corporation to evaluate the security offered for the loan.

Questions:

1. Does the above situation violate Rule 7.2 (c), which prohibits paying someone to recommend a lawyer's services?
2. Does the above violate Rule 1.8 (e), which prohibits a lawyer from lending non-litigation-related expenses to a client?
3. Does the above violate Rules 1.6 or 2.3 relating to confidentiality of information?

Summary:
Since the attorneys have no financial interest in the cases at issue of the borrowers, Rule 1.8 and 7.2 have not been violated. Assuming the clients consent and do not withdraw 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.

There would be no violation of Rules 1.6 or 2.3 because disclosure of client information would be made only after consent of the client.

Opinion:
In Advisory Opinion 91-15, a situation was approved wherein attorneys assisted in the establishment of a loan business, to which they then referred their own personal injury clients. Opinion 91-15 allowed such conduct since the attorney had no financial interest in the loan company. In the present case, the attorney would retain an interest in the loan company, but the company would not make loans to the attorney's own clients. This situation does not violate either Rules 1.8 or 7.2, since the attorney's own clients are not involved. To rule otherwise would essentially question the right of an attorney to own or operate any financial institution, where no clients of the attorney are borrowers.

The market for the lender would consist primarily of persons who may not otherwise be creditworthy absent their pending personal injury cases. Pawn shops and finance companies are examples of other lenders whose market consists of normally non-creditworthy persons, and lawyers are not forbidden to own pan shops and finance companies.

In order to analyze the worth of the borrower's only substantial asset, the lender will rely in part of information supplied by the borrowers' attorneys about the merits of the pending cases. Most lending institutions rely on third parties to check creditworthiness of a borrower, the only difference here is the nature of the asset, not the idea of disclosing data to third parties.

Rule 1.6(a) allows a lawyer to reveal information about a client if the client consents after consultation. Rule 2.3 allows such a disclosure if the client consents, and the disclosure does not otherwise conflict with the lawyer's representation.

If the client withdraws his consent, the lawyer would be prohibited form honoring the assignment at the time the funds are disbursed without complying with Advisory Opinion 91-10.