LEGAL ETHICS

New guidance for lawyers helping clients who seek loans for legal fees

With some clients needing assistance to pay their legal fees for either civil or criminal matters, the American Bar Association Standing Committee on Ethics and Professional Responsibility has issued Formal Opinion 484 that outlines model rules for lawyers who refer clients to fee financing companies or brokers.

The new formal opinion addresses a half-dozen scenarios in which lawyers might assist their clients secure third-party financing through traditional lenders, such as a bank, or a loan financing company. In each case, the opinion notes that lawyers may participate in these arrangements but should comply with specific model rules to ensure communication and transparency and avoid any conflict of interest.

“Any fee that the lawyer charges the client must be reasonable,” Formal Opinion 484 says. “If the lawyer increases the fee for the representation above what the lawyer normally charges for a similar matter to account for any finance fee or subscription the lawyer must pay to the finance company or broker, the fee charged to the client must still be reasonable. Furthermore, the lawyer must inform the client that the lawyer will be charging the client a higher fee to account for the finance or subscription fee.”

The opinion underscores that lawyers who help clients with financing should follow the ABA Model Rules of Professional Conduct, including those related to scope of representation, communications with clients, confidentiality of information, conflicts of interest and fees.

The ABA Standing Committee on Ethics and Professional Responsibility periodically issues ethics opinions to guide lawyers, courts and the public in interpreting and applying ABA model ethics rules to specific issues of legal practice, client-lawyer relationships and judicial behavior. The formal opinions are recommendations and do not serve as a regulatory framework per se.

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