FLORIDA BAR ETHICS OPINION
November 30, 1975
Advisory ethics opinions are not binding.
A lawyer may not participate in an arrangement in which a small loan company agrees to make
loans for living expenses to the attorney’s clients awaiting settlements on the condition that the
attorney and client sign an agreement that the loan will be repaid from the settlement proceeds.
EC 5-8; DR 5-103(B)
65-39, 68-15, 70-8, 72-27
Vice Chairman Sullivan stated the opinion of the committee:
A company, duly registered as a small loan business pursuant to Chapter 516,
Florida Statutes, is willing to make loans to persons who are awaiting settlement
of estates or are involved in personal injury suits or in divorce cases and who are
in immediate need of funds for living expenses.
The company considers an application for such a loan only upon the
recommendation of a member of The Florida Bar representing the client seeking
the loan. The company then makes its own determination about the basic security
for each loan, i.e., the probability of success and recovery in the court proceeding.
If it decides to make the loan, the company requires both the borrower and his
lawyer to sign a loan disbursement agreement which obligates both lawyer and
client to see that the loan is repaid from the proceeds of the settlement or
judgment before other funds are disbursed.
The loans average between $100 and $600 although on occasion the company
makes loans up to its legal limit of $2,500. The loan agreement calls for monthly
payments, but in practice the loans are repaid from the proceeds of funds received
from court proceedings or not at all. A lawyer representing a loan applicant has no
personal liability on the loan but obviously is obligated to comply with the terms
of the loan disbursement agreement.
We are asked whether a lawyer may ethically participate in this arrangement,
and our answer is that he may not.
DR 5-103(B) forbids a lawyer from advancing or guaranteeing financial assistance to
clients except it allows a lawyer to advance or guarantee litigation expenses provided the client
remains ultimately liable for them. EC 5-8 and our Opinion 72-27 are to the same general effect.
In Opinion 70-8 the Committee said that a lawyer should not guarantee a client’s financial
obligation for litigation expenses.
In Opinion 65-39, decided under the former Canons, the Committee said a lawyer should
not advance living expenses to a client pending settlement of a lawsuit. The Opinion did state
that generally lawyers can assist clients in obtaining financial support but did not suggest how
this could be done.
In Opinion 68-15, also decided under the former Canons, the Committee disapproved a
proposal similar in many ways to the present one. A lawyer proposed instituting a non-profit
lending fund financed by contributions from lawyers. The lawyers would process loans to
accident victims, and the loans would be secured by assignments of claims and repaid by
proceeds of settlements or judgments.
Although the CPR allows a lawyer to advance litigation costs under certain conditions,
we do not believe that concept should be expanded. Where the lawyer initiates the loan by
recommending his client to the loan company, it seems to us that he is inherently representing to
the loan company that the client’s claim is meritorious. It becomes unclear whether the lawyer is
acting for the client or the loan company.
Even though the lawyer recommending a loan applicant has no personal liability on the
loan, the amount of the recovery in court in relation to the amount of the loan also presents
problems in relation to the lawyer’s right to recover costs he may have advanced and the
lawyer’s right to a contingent fee from that recovery, as well as payment of other outstanding
A lawyer may suggest to a client where the client may try to obtain financial help for
individual needs, Opinion 65-39, but the lawyer should not become part of the loan process.