Can a bar association set up a bank-financed plan to let clients finance their legal fees through installment loans?

Plain-English summary

At the request of the Board of Governors, the committee reviewed a proposed legal services financing plan from the Subcommittee on Financing Legal Services. Under the plan, a local bar association would contract with participating banks on a uniform basis, and each participating lawyer would contract with a bank on identical terms. The bank would lend the client the fee on the client's own credit; the lawyer and the lawyer's staff could not endorse or guarantee the client's obligation; the bank would have no recourse against the lawyer; and the lawyer could not be hired to collect delinquent obligations. Advertising would be the bank's primary responsibility but would have to be cleared by the bar association. Fee disputes would go to a bar-appointed arbitration panel, with the lawyer required to make good any award. Contingent-fee cases could not be financed, though their costs could be, and the plan included safeguards for client confidences.

The committee concluded that the plan, as generally proposed, contained no ethical impediments that should preclude the Board of Governors from giving it general approval. It worked through the objections commonly raised against such plans, citing the American Bar Association's recent Formal Opinion 320: it found the lending institution was not a lay intermediary controlling the legal services (Canon 35); the lawyer and client remained free to agree on a proper fee (Canon 12), though any discount factor had to be fully disclosed to the client; Canon 14 was satisfied because the lawyer could buy back the note to avoid suing the client; there was no improper division of fees with laymen (Canon 34); and the program safeguarded client confidences (Canon 37).

A minority of the committee questioned the arbitration provisions under Florida law, which the committee treated as a question of law beyond its purview, and a minority viewed the advertising provisions as violating Canon 27. The majority could not distinguish advertising approved for indigents under Opinion 66-56 from advertising for fee-paying clients, so long as it was in good taste and subject to bar approval. Subject to those remarks, the committee believed the Board of Governors could sanction the general outline and direct the subcommittee to refine the program.

Currency note

This opinion was issued in 1968, before The Florida Bar's adoption of the 2006 revisions to the Rules of Professional Conduct, and before the 1977 Bates v. State Bar of Arizona decision reshaped lawyer-advertising restrictions. It applied former Canons 12, 14, 27, 34, 35, and 37. A lawyer's professional independence from a lay financier is now addressed by Rule 4-5.4, fees by Rule 4-1.5, and advertising by Rule 4-7.11 and following. Treat this page as historical context, not current guidance. Verify against the current rules before relying on any specific requirement mentioned here.

Common questions

Q: Can a client borrow from a bank to pay legal fees under a bar-sponsored plan?

A: Under this opinion, the committee gave general approval to such a plan where the bank lent on the client's own credit, the lawyer could not endorse or guarantee the loan, the bank had no recourse against the lawyer, and confidences were protected.

Q: Did the committee see the bank as an improper intermediary between lawyer and client?

A: No. The committee concluded the lending institution played no part in rendering the legal services and did not control the lawyer, so it was not a lay intermediary in contravention of Canon 35.

Q: What did the committee require regarding the loan's discount?

A: The committee said that because the discount factor might tempt a fee increase, the lawyer had to make full disclosure of the discount amount to the client before the client entered the plan.

Background and rules framework

The opinion applied former Canons 12, 14, 27, 34, 35, and 37, addressing fees, suing clients for fees, advertising, fee division with laymen, lay intermediaries, and confidences. A lawyer's professional independence from those who finance legal services is now addressed by Rule 4-5.4 of the Rules Regulating The Florida Bar, fee arrangements by Rule 4-1.5, and advertising by Rule 4-7.11; the Model Rule analogues are Rules 5.4, 1.5, and the 7-series.

Citations and references

Rules of Professional Conduct:

• Canons 12, 14, 27, 34, 35, 37 [Canons of Professional Ethics; now Rules 4-5.4, 4-1.5, 4-7.11 and following]

Other opinions cited:

• ABA Formal Opinion 320 (Feb. 19, 1968): ethical objections to legal services financing plans
• Florida Opinion 66-56 (since withdrawn): proposed OEO-funded legal services program

See also

• FL Bar Ethics Op. 70-48: ACLU and Group Legal Services
• FL Bar Ethics Op. 68-2: Legal Aid Case Handoffs
• FL Bar Ethics Op. 68-15: Loan Fund for Clients

Source

• Landing page: https://www.floridabar.org/etopinions/etopinion-67-46/
• Original PDF: https://www-media.floridabar.org/uploads/2017/04/FL-Bar-Ethics-Op-67-46.pdf

Original opinion text

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

FLORIDA BAR ETHICS OPINION
OPINION 67-46
May 6, 1968
Advisory ethics opinions are not binding.
The Committee gives its general approval to a proposed legal service financing plan.
Canons: 12, 14, 27, 34, 35, 37
Opinions: 66-56, ABA 320
Chairman MacDonald stated the opinion of the committee:
By request of the Board of Governors of The Florida Bar we are asked to review the ethical aspects of a proposed legal services financing plan suggested by the Sub-Committee on Financing Legal Services of the Committee on Economics of Law Practice. We are told that the basic format of the proposed plan would be as follows:
(a) The local bar association would enter into a separate contract with each participating local financing institution. Such contract would cover the basic plan. Presumably, the bar association would enter into the same business arrangement with each local participating financial institution, although we recognize that some variation due to local conditions might be possible and desirable.
(b) Individual contracts would then be entered into between each participating financing institution and each participating attorney setting forth the respective rights and obligations of each, the interest rate, discount rate, etc. The terms of this contract would be governed by the bar association's contract with the bank and would be identical for all participating attorneys.
(c) The loan would be made by the bank to the client on the client's own credit, either with or without an endorser, or security.
(d) The lawyer, his secretary, etc. would be precluded from acting, directly or indirectly, as an endorser or guarantor of the client's obligation to the bank.
(e) The bank would have no recourse against the lawyer in the event of default.
(f) The participating lawyer would be precluded from being hired by the bank to collect any delinquent obligations, even though the lawyer is the regular attorney for the bank.
(g) The participating bank would have the primary responsibility for advertising and promoting the financial plan, but, all advertising would have to be cleared by the bar association.
(h) Each bank would make its individual arrangements for its own bad debt reserve. In other words, there would be no pooling of discount for bad debt contingencies by the participating banks.
(i) In the event of default by clients, the bank would contact the lawyer, advise him of the default, and give the lawyer the opportunity to buy back the obligation from the bank. The lawyer would be under no obligation to do so; however, if he did, he would then proceed to attempt to collect the debt as he presently does. If he does not buy it back, the bank would then proceed to collect the obligation as it normally would.
(j) Should the client raise a question of overcharge; or that the attorney had not done all he had originally contracted to do for the particular fee; or that the attorney had withdrawn before all the work had been done and therefore that the client was entitled to a refund of a portion of the fee, or the like, the client would be required by the loan contract to submit the question to arbitration for determination. In the event the client is given relief by the arbitration panel, the attorney would be required to make good that award.
For these purposes, the arbitration panel would be appointed by the local bar association and would consist of three lawyers and two laymen who would serve without pay. The terms of the panel members would be for at least one year, perhaps with staggered terms. There would be no charge either to the lawyer or to the client for this service.
(k) No contingent fee cases could be financed; however, the costs of contingent fee cases could be financed.
(l) The attorney-client privilege will be safeguarded. However, if an outline of the legal services requested would result in a disclosure of a confidential communication, such an outline would not have to be set forth in the loan agreement. In its place there would be a statement only that such services would not impair the client's ability to repay the loan. If there was any danger of the matter impairing the client's ability to repay the loan, the client would have to agree to waive the confidential communication in order to obtain the loan; but even in that event, the bank would agree in its contract with the bar association to safeguard such information.
(m) In most of the existing plans, a participating attorney has a kit provided him by a participating bank, and it is the attorney who actually assists the client in filling out the installment obligation. He then assigns the obligation to the bank without recourse. This is probably the most practical and efficient way of handling the plan. We do not believe that Chapter 520 of the Florida Statutes will apply to this plan. See Op. Atty. Gen. 067-1.
(n) All participating attorneys would be prohibited from exhibiting signs or plaques, etc. disclosing that he is a participant of the legal services financing plan, and all hand-outs and brochures would be prohibited.
It has been suggested by the Sub-Committee that a prototype contract between the local bar association and a bank, a contract between the participating lawyer and participating bank and a retail installment contract be subsequently prepared and submitted to this Committee for approval after the general features of the plan have been considered and approved by the Board of Governors.
Two members of this Committee assisted in the work of the Sub-Committee and initially were of the view that they should refrain from participation in the preparation of this opinion. However, the Chairman believes that the significance of this issue to The Florida Bar is such that all members of the Committee should participate and accordingly has counted the responses of all participating members of the Committee in the formulation of this opinion.
As noted, the proposal is at the present time in general form and necessarily our comments are confined thereto. At such time as the plan, complete with all of its salient forms, is prepared it may be that a more definitive opinion can be rendered. Moreover, as was emphasized in our Opinion 66-56 [since withdrawn], wherein we considered a proposed OEO funded legal services program, the practical operation of any program is necessarily a question apart from its proposed format.
With these limiting observations we have concluded that the plan as generally proposed contains no ethical impediments which should preclude the Board of Governors from giving the plan the general approval now requested by the Sub-Committee. The Committee on Professional Ethics of the American Bar Association, in its formal Opinion 320 rendered on February 19, 1968, has recently considered in exhaustive detail the various ethical objections commonly advanced in connection with these plans. There is no reason to reiterate the exhaustive detail into which this opinion goes. It also is not necessary for us to acquiesce in all of what is said in that opinion in order to reach our conclusion.
The objections to these type plans are several. It is sometimes assumed that their operation causes a lay intermediary to intervene between the client and lawyer, in contravention of Canon 35. In our judgment the plan does not so operate. The lending institution plays no part in the rendition of the legal services, nor does it in any way control or regulate the activities of the lawyer.
Moreover, operation of the plan need not involve a violation of Canon 12 because both attorney and client are left free to agree upon a fee which may properly include consideration of all of the elements set forth in that canon. We do perceive that the existence of a discount factor may afford a temptation for the increase of the fee. If such is the case then necessarily full disclosure of the amount of this discount must be made to the client by the attorney before the client enters into the plan.
We see no problem in connection with Canon 14. The lawyer may avoid suit against the client by procuring the return of the note from the bank, in which case he would be in precisely the same position he would have been had he elected not to make an effort to collect the fee from the client in the first instance.
There is some concern among a minority of the Committee that the arbitration provisions of the proposal are in contravention of the law of Florida. This, of course, is a question of law beyond the purview of this Committee.
We see no features in the program which would violate Canon 34, precluding the division of fees with laymen, and the program contains salutary safeguards against the disclosure of the confidences of the client as required by Canon 37.
A vigorous minority of the Committee believes that the portions of the program dealing with advertising are violative of Canon 27. So long as this advertising is in good taste and is entirely subject to approval of the Bar, a majority is unable to distinguish between the advertising permissible in this respect for paying clients and the one which is sanctioned by Opinion 66-56 for indigents. Indeed it appears to the majority that to contend otherwise would be to permit notice to the indigent procuring services from a publicly financed plan not otherwise permitted to be given to fee paying clients.
Under the circumstances and subject to the remarks contained herein we believe that the Board of Governors may properly sanction the general outline of the program presented and may properly direct the Sub-Committee to proceed with further efforts to refine and formalize the proposed program.