SBM - State Bar of Michigan


August 5, 1993


    It is permissible for a lawyer to arrange for a client to pay for legal services by credit card and to assign to the credit card company the right to collect the fees from the client, provided the following requirements are met:

  1. The lawyer shall fully inform the client about any relationship between the lawyer and the credit card company and of the interest rate charged on the outstanding balance;

  2. The lawyer shall not disclose to the credit card company any confidences or secrets without the client's consent;

  3. The lawyer shall not charge additional fees to compensate for the fact that the lawyer will be receiving less than 100% of the client's billings by using the credit card company;

  4. The client's defenses, counterclaims and potential actions against the lawyer shall not be jeopardized, diminished or destroyed by the lawyer's assignment of the collection rights to the credit card company;

  5. The client must give written consent to the arrangement;

  6. The lawyer's agreement with the credit card company prohibits the credit card company from instituting litigation against any client of the lawyer during any period of time in which the lawyer still represents the client on any matter.

  7. References: MRPC 1.5(a), 1.6, 1.7, 1.8(a), 1.15(a) and (b); RI-40, RI-159; CI-1106.


A credit card company has solicited a lawyer to subscribe to a credit program which assists lawyers in billing and collecting client accounts. Under the program, the credit card company agrees to pay the client's legal fees as soon as they are invoiced by the lawyer. In return, the lawyer agrees to assign to the credit card company the right to collect the fees from the client. The credit card company assumes the risk that the client will not pay.

In order for a client to be eligible for the service, the client must fill out an application, either before, during or after the lawyer's representation. Based upon the strength of the client's credit worthiness, the client is categorized as an A, B, or C risk. If the client is determined to be an A or B risk, the company pays the client's fees up front, directly to the lawyer, upon receipt of a "voucher" sent by the lawyer. In exchange for a fee of 10% (for A clients) or 20% (for B clients) of the amount invoiced, the company then attempts to collect the fees from the clients, and retains any interest accruing on the amount outstanding.

In the event of a high risk "C" client, the company does not pay the fees up front. Rather, the company pays the lawyer 80% of the fees and interest which it is ultimately able to collect from the clients.

The inquiring lawyer asks whether it is ethically permissible for a lawyer to subscribe to the payment arrangement system set forth above. The following opinion focuses on the ethical obligations of the lawyer and not on the legality of the transaction between the parties. It is assumed that all truth-in-lending laws and other applicable laws have been complied with.

Conflict of Interest

The credit card company's program is not a typical credit card arrangement. In the typical credit card situation, the customer has a contractual relationship independent of any relationship that the retailer may have with the credit card company. In the present situation, however, the lawyer is actually involved in the solicitation of customers for the credit card company. In addition, for high risk "C" clients, the lawyer's ability to be paid is contingent upon the credit corporation's success, thus creating a possible conflict. However, that potential conflict can be overcome, so long as the client is completely informed of the details of the lawyer's relationship with the credit card company.

A lawyer may not engage in any activity which conflicts with the interests of a client without full disclosure and consent of the client. MRPC 1.7(b) states:

    "(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests unless:

      "(1) the lawyer reasonably believes the representation will not be adversely affected; and

      "(2) the client consents after consultation. When representation of multiple clients in a single matter is undertaken, the consultation shall include explanation of the implications of the common representation and the advantages and risks involved."

In order for the credit card arrangement to be valid, there are at least six disclosures which must be made: (1) that the lawyer is accepting less than 100% of the fees charged, (2) that the client will be charged interest on the outstanding balance, (3) that the lawyer may receive a portion of the interest on high risk clients, (4) that the lawyer will assign the right to sue the client, (5) that the lawyer may be called as a witness in a suit by the credit company against the client, and (6) that the client does not lose or jeopardize any defenses or right to sue the lawyer for malpractice by agreeing to the credit program.

A lawyer does not create a conflict of interest by encouraging or allowing a client to enter into the credit program, so long as the client is fully informed of the consequences of entering that program, and given the opportunity for independent counsel regarding the arrangement, MRPC 1.8(a). See CI-1106, RI-40, 70 MBJ 948 (Sept 1991), regarding charging interest. In addition, MRPC 1.7(b) requires the lawyer to reasonably believe that the representation given to the client will not suffer as a result of the credit card arrangement. Thus, if the lawyer believes that the receipt of less than 100% of the actual billings would jeopardize the lawyer's representation of the client, the credit program should not be used.

Disclosure and Consent

Intimately tied with the conflict discussion above is the requirement that the lawyer disclose that the lawyer has a financial interest in the credit card company program. It is clear that a lawyer cannot obtain an interest in the client's property in exchange for legal services unless the client is completely apprised of all of the details and consents to the arrangement. MRPC 1.8(a) states:

    "(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client unless:

      "(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;

      "(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

      "(3) the client consents in writing thereto."

When a lawyer agrees to accept 80% of any fees and interest collected by "C" risk clients, the lawyer is in essence acquiring an interest adverse to the client. Thus, it is imperative that the lawyer disclose the details of that arrangement. The lawyer must disclose that it is accepting less than 100% of the fees charged (for A, B and C risks), that the client will be charged interest on the outstanding balance, and that the lawyer may receive a portion of the interest on high risk ("C") clients. As the rule states in addition to disclosure, the client must consent to the lawyer's conduct and such consent must be in writing.

Client Confidences

A lawyer may not reveal any confidential information which could embarrass or be detrimental to the client, without the client's consent. MRPC 1.6.

Under the credit card program, the lawyer assigns away the right to sue the client. Despite this arrangement, in the absence of a lawsuit, the lawyer still has a strict ethical obligation to maintain any confidences owed to the client. This extends to the nature of the representation as well as the client's financial wherewithal. If the client voluntarily discloses personal information in the credit application, the lawyer has not breached the lawyer's duty to keep that information confidential. As a safeguard, the lawyer is advised to disclose all of the uses for which the application information will be used.

If the credit company files suit, it needs to know about the facts surrounding the lawyer's representation. In such instances, MRPC 1.6(c)(5) specifically allows the disclosure of otherwise confidential information in order to collect legal fees.

Reasonable Charges

A lawyer may not charge a client an unreasonable fee for legal services. MRPC 1.5(a) states:

    "A lawyer shall not enter into an agreement for, charge, or collect an illegal or clearly excessive fee. A fee is clearly excessive when, after a review of the facts, a lawyer of ordinary prudence would be left with a definite and firm conviction that the fee is in excess of a reasonable fee. The factors to be considered in determining the reasonableness of a fee include the following:

      "(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

      "(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

      "(3) the fee customarily charged in the locality for similar legal services;

      "(4) the amount involved and the results obtained;

      "(5) the time limitations imposed by the client or by the circumstances;

      "(6) the nature and length of the professional relationship with the client;

      "(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

      "(8) whether the fee is fixed or contingent."

From the above cited language, it is clear that the lawyer may not charge a client extra merely because the lawyer has contracted with the credit card company to accept less than 100% of the client's fees (by accepting 80% or 90% from the credit company). Thus, any charges beyond the actual hourly rates agreed upon by the parties is impermissible.

Assignment Duties

By shifting the risk of the collection matter to the credit card company, a third party enters the relationship between the lawyer and client. As a result, the client's obligation to pay legal fees appears to become promissory in nature, and the dispute appears to be separated from the original contract between the lawyer and client. If the obligation were to undergo that change, there would clearly be conflict of interest because the client's rights would be changed and/or jeopardized. Clearly, a lawyer cannot engage in any activity which could jeopardize a client's legal rights. However, in the instant scenario, the client's interest is not jeopardized, and no impermissible conflict is created.

An assignment of a cause of action does not deprive the client of the personal defenses, counterclaims or causes of action against the lawyer which existed at the time of the assignment. Thus, the credit card company's suit is in fact based on the underlying obligation. To avoid any confusion, the lawyer is well advised to fully inform the client that the client's legal rights have not been altered by the agreement to pay by credit.

Further, the agreement between the lawyer and the credit card company should prohibit the credit card company from instituting litigation against the lawyer's client for collection of any unpaid bills during the time the lawyer still represents the client on any matter. See RI-159, prohibiting an assignor of a law practice receivable from pursuing a collection action against the debtor when the assignor lawyer still represents the debtor.

Payment Arrangements

We note that in one part of the proposed agreement, Participant's Representations, states at paragraph (11) that the lawyer is required to deliver to the credit card company "any payment received . . . which relates to any Voucher." When such moneys come into the lawyer's possession, the check should be deposited into the lawyer's trust account pursuant to MRPC 1.15(a), then disbursed pursuant to the agreement to which the client has already consented. The client's accounting under MRPC 1.15(b) should reflect the transaction.

In a particular representation matter a lawyer may obtain settlement proceeds or judgment proceeds for the client, a portion of which is liened by the Friend of the Court or some other third party. A lawyer is required under MRPC 1.15 to pay a valid lien or other valid claim against moneys which the lawyer holds on behalf of a client. There must be a provision in the agreement between the lawyer and the credit card company providing for the lawyer to pay any valid liens from funds received by the lawyer before sending the balance to the credit card company.

Lastly, the payment of legal fees by a third person must be considered. Under certain circumstances, payment by one other than the client is clearly permissible. MRPC 1.8(f) limits a lawyer from accepting compensation for representing a client from one other than the client unless certain conditions are met. In the proposed arrangement, however, the credit card company is not paying for the client, but rather is purchasing an assignment under which the credit card company will collect from the client.