Opinion #138. Payment of Legal Fees by Finance Company
Issued by the Professional Ethics Commission
Date Issued: March 25, 1994
The Commission has been asked whether a proposed arrangement to finance the payment of legal fees may be undertaken without violating the Bar Rules. The name given to this device is Lawcard. That name is to some extent a misnomer, however, since the plan does not, in fact, contemplate the issuance of a credit card to be used to pay legal fees. Instead the finance company would take an assignment from the attorney of the account receivable which it would classify in categories depending on the creditworthiness of the client.
An application for credit would be filled out by the client and faxed to the financing agency which assures that it will reach an opinion on creditworthiness within approximately one hour. The agency would then send the attorney a check in the amount of 90% of the bill if the client received an “A” rating or 80% if the client is classified as a “B”. If the client receives a “C” listing, the financing agency will advance no money, but will provide collection services. In that event, the agency will remit 80% of the amount collected to the attorney including interest of up to 18%.
Bar Rule 3.3(b) states that “A lawyer may accept payment by credit card for legal services.” The Commission believes that the proposed Lawcard arrangement is permissible under the Rule provided certain restraints are observed.
The American Bar Association has blown hot and cold regarding the financing of legal fees. Compare A.B.A. Informal Opinion No. 1176 (1971) with A.B.A. Formal Opinion 338 (1974) (allowing credit card financing with certain limitations). In Informal Opinion No. 1120, the A.B.A. disapproved of any arrangement which allowed recourse against the attorney on the grounds that his future relationship with the client might be adversely affected. An opposite result was reached by the Maine Bar Association Professional Ethics Committee in Opinion No. 49 (1977). In that opinion, the Committee concluded that the agreement between the attorney, the client, and the financing agency must permit recourse against the attorney.
The Commission agrees that the client should not be disadvantaged in asserting defenses against the financing agency. Any such financing arrangement must allow the client to assert any defenses based on the attorney’s failure to perform in resisting the financing agency’s demand for payment. In addition, there can be no impairment of the client’s right to submit a fee dispute with the attorney to binding arbitration pursuant to Bar Rule 9.
It is also essential that the attorney not be required to communicate client confidences as part of the financing agreement. See Mich. Opinion No. R1‑168 (1993). The attorney could only agree to disclosure of information regarding the nature of the services performed with client consent.
In Maine Bar Association Opinion No. 20, one member of the Committee who concurred in the decision that credit card financing of legal fees is unethical commented that this practice could lead an attorney to subject a client to an onerous interest‑bearing loan in a matter which he should have been willing to undertake at no charge or for a fee payable in installments without interest. Subsequently Bar Rule 3.10 was adopted encouraging each attorney to render unpaid public interest legal service which may consist of professional services at no fee or a reduced fee. This rule stands as a reminder that a lawyer may have an obligation to provide legal services to at least some clients without charging a fee regardless of the availability of financing arrangements such as Lawcard.
Under the Lawcard arrangement, the financing agency would act as a collection agent with respect to category “C” clients not deemed sufficiently creditworthy to receive loans to pay their legal fees. In those cases, the financing agency will charge interest of up to 18% on the amount being collected, a portion of which will be remitted to the attorney. Although it is not per se unethical to charge interest on overdue legal fees, such an arrangement would not be enforceable without client consent supported by consideration. Cloutier, Barrett, Cloutier and Conley v. Wax, 604 A.2d 42, 45 (Me. 1992). Moreover, the requirement of Rule 3.4(f)(2) that any arrangement in which an attorney acquires a pecuniary interest adverse to the client must be “fair and reasonable to the client” might under some circumstances preclude imposing an interest rate as onerous as the 18% maximum prescribed in the case of Lawcard class C clients.
Concern has also been expressed in ethics opinions in other jurisdictions about permitting an attorney to relinquish to a financing agency the decision about whether or not to bring suit to enforce collection of the debt. See, e.g., N.Y. State Opinion No. 362 (1974). Thus it has sometimes been required that the arrangement with the financing agency reserve to the attorney the right to buy back the client’s financial obligation before suit is instituted. See, e.g., N.H. Ethics Opinion, 1975 (Maru, 8792). Although it may be doubted that such buy‑back rights would frequently be exercised, the Commission believes that the reservation of such rights would nevertheless constitute a significant safeguard against potentially oppressive threats of litigation as a collection device on the part of employees of the financing agency. Although no Bar Rule expressly requires it, the admonition of Rule 3‑10 that an attorney should provide professional services “at no fee or a reduced fee to persons of limited means” suggests that it would be the better practice for an attorney to reserve to himself the ultimate decision as to whether it would be appropriate to bring suit to collect a fee in light of the client’s ability to pay at the time that litigation is contemplated.
 The Commission does not accept the holding of Maine Bar Association Opinion No. 49 that fees for “legal services” cannot be read to include out‑of‑pocket expenses.