Third-Party Fee Financing Sails into Uncharted Waters

Advisory opinions from three bar associations highlight the potential ethical pitfalls for attorneys when clients seek to pay by taking loans from third-party finance companies, crowdfunding, or giving a secured interest in property.

Such arrangements can raise a number of ethical issues, including what, if anything, attorneys must tell clients about their financing options, the potential for overcharging clients or misclassifying their funds, inadvertent waiver of privilege, and hidden conflicts of interest, among others. Moreover, certain financing plans may cross the line into unethical business transactions or fee splitting. ABA Section of Litigation leaders urge practitioners to fully disclose to clients the potential consequences of any financing arrangement as both financing options and ethics rules continue to evolve.