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MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 1989-15
Conflict: Loan to Clients
Your letter indicates that for many years you have represented personal injury clients and are confronted on a daily basis with three or four client requests for loans. These loans are requested for purposes such as obtaining medical treatment and medication, paying a house mortgage to avoid foreclosure, purchasing food for families and other absolute necessities of daily life. You indicated that many of the clients are poor credit risks and that it is virtually impossible for them to obtain a bank loan. You indicate that there is a possibility that you could persuade a finance company to agree to loan funds for survival to personal injury clients who cannot get a bank loan. You further indicate that the company would have no connection to the client or to client's attorney other than in relation to the loan. The loans would typically range from $1,000 to $10,000, averaging $2,500. With the client's written consent, the company would investigate the case, confirm the liability, damages and insurance coverages. If the investigation reveals facts or evidence important to the case which the client's attorney did not already know, said facts would be conveyed to that attorney free of charge. Once approved, you indicated that the loan would last until the case was resolved, either by settlement or by trial, and the case proceeds collected. The rate of interest would be lawful and would be something similar to what major credit card companies charge. At the outset of the loan, the client would direct, in writing, the attorney involved to repay the loan out of the cases proceeds, and the attorney would agree to honor a lien on the case. In no way would the attorney guarantee, co-sign or be responsible for the loan itself. You ask this Committee's opinion as to whether such a referral would be ethically permissible.
The Committee has assumed for purposes of this opinion that there is no relationship either financial or otherwise between the lender and the lawyer or firm making the referral. Since it would appear that the attorney's cooperation with the lender will be necessary in order for the lender to make the loan, it is also assumed that the lawyer will comply with Rule 1.6 dealing with confidentiality of information and secure the client's consent to discuss the case with the lender. It would also be incumbent upon the lawyer to fully and carefully explain to the client the legal ramifications of the loan and the assignment.
Lastly, your letter indicates the fact that you are mindful of Canon 5 regarding the loaning of money to clients. We would point out that the Maryland Rules of Professional Conduct have been recodified and it is now Rule 1.8, Conflict of Interest; Prohibited Transactions, that addresses a lawyer's provision of financial assistance to a client.
Assuming compliance with the above mentioned Rules, it is the Committee's opinion that the mere referral of clients to a lender willing to make the loans would be ethically permissible.
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