Some clients may be unable to afford lawyers’ fees absent some form of accommodation or assistance. For example, a criminal defense or family law client may be unable to afford a lawyer’s flat fee at the outset of a representation. The client may be able to afford the lawyer’s fee, however, if the client can finance the fee through a loan from a third-party. Or, a client may simply wish to finance a lawyer’s fee rather than pay a lump sum. In some instances, the client may be able to obtain a loan from a bank or other traditional financial institution, but in other cases that option will not be available. In the latter situation, the client may want to finance the lawyer’s fee through a finance company. This raises the following questions: (a) whether the lawyer may refer the client to a finance company that will likely loan the client money to pay the lawyer’s fees, or (b) whether the lawyer may refer the client to a broker who will assist the client in obtaining fee financing.  The ABA Standing Committee has set forth some guidelines to assist lawyers dealing with such third-party financing:

First, a lawyer who is willing to allow a client to finance the lawyer’s fee must explain the arrangement to the client to the extent reasonably necessary to permit the client to make informed decisions about the representation.  A lawyer may not want to advise a client about the costs and benefits of financing the lawyer’s fee or the terms of any such agreement or transaction. But, if so, and given the possibility that a client might believe that the lawyer is exercising professional judgment in recommending the finance company or broker, or that the lawyer has evaluated the loan terms and believes them to be suitable for the client, the lawyer must limit the scope of the representation under Rule 1.2.  In addition, lawyer may wish to advise the client that the finance company, broker, or bank will not direct or regulate the lawyer’s professional judgment.  unlike litigation funding or financing, a legal fee lender in the scenarios described above has no direct financial interest in the outcome of the matter, and therefore no incentive to attempt to influence the lawyer’s advice, strategy, or tactics. But because the loaned funds are tied to the representation, and because an unsophisticated client may view the finance company, broker, or lending bank as “paying” the lawyer, a lawyer may see value in assuring the client of the lawyer’s obligation to exercise independent professional judgment in representing the client regardless of the source of the funds used to pay the lawyer.

Second, the fee must be reasonable. 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 that the lawyer must pay to the finance company or broker.

Third, if a lawyer accepts loan proceeds to pay a flat fee, the lawyer must deposit those funds in the lawyer’s trust account or operating account and treat them as unearned or earned, just as the jurisdiction provides for the payment of flat fees generally. If either the client or the lawyer terminates the representation before the lawyer fully earns the flat fee, the lawyer must refund the unearned funds to the client.

Fourth, while a lawyer may refer a client to a finance company or broker, the lawyer may not reveal information regarding the client’s representation to the company, broker, or lending bank except as permitted under Rule 1.6.

Fifth, in referring a client to a finance company or broker, a lawyer must be alert to the possibility of a material limitation conflict of interest. Arguably the greatest risk is that the lawyer will recommend the finance company or broker to the client even though fee financing is not in the client’s interests because the client’s arrangement of financing best assures payment or timely payment of the lawyer’s fee. A conflict of interest might also exist if the finance company or broker is also a client of the lawyer.

Sixth, if the lawyer previously represented the finance company, broker, or lender, and is representing his or her current client in obtaining fee financing from the finance company, broker, or lender, the lawyer must consider whether the current client’s interests are materially adverse to the former client’s interests. If they are, the lawyer must obtain the former client’s informed consent to the representation at hand and confirm it in writing.

Finally, it is conceivable that a lawyer might acquire an ownership or other financial interest in a finance company or brokerage, or wish to form such a business. If a lawyer did so and referred a client to that entity, the lawyer would be entering into a business transaction with the client or would be acquiring a security or pecuniary interest adverse to the client, or both. In those situations, the lawyer would need to comply with Rule 1.8, which would require would require the lawyer to (1) ensure that the terms and transaction are fair and reasonable to the client, and fully disclose and transmit the terms and an explanation of the transaction to the client in a manner that the client could reasonably understand; (2) advise the client of the desirability of seeking independent legal advice regarding the transaction and afford the client a reasonable opportunity to do so; and (3) obtain the client’s informed written consent to the transaction’s essential terms and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.


ABA Formal Opinion No. 484 (Nov. 27, 2018).