The American Bar Association (ABA) prohibits lawyers from loaning money directly to clients. It’s part of the association’s Model Rules of Professional Conduct, which state that an attorney cannot provide a client financial assistance in connection with pending or ongoing litigation. But can an attorney advance money to a client in a way that doesn’t violate ethical rules or break the law?
What Happens When an Attorney Gives a Client a Loan?
Believe it or not, this is legal in California. The issue has been the subject of much debate. The State Bar of California says a lawyer can’t directly or indirectly pay or agree to pay a client’s personal or business expenses. They can’t say a legal or professional firm will do so either. But the verbiage also says a lawyer can agree to lend money to a client they’ve already retained, assuming the said client has promised to repay the loan.1
How an Attorney Can Advance Funds
Providing financial assistance to a client isn’t accepted in every state. Pennsylvania explicitly forbids attorneys from loaning a client money no matter what. In California, the law pertaining to it is a bit more confusing, but its general language suggests it is legal under certain circumstances.
Per the ABA, a lawyer cannot provide financial assistance to a client unless:
- It’s to advance court and litigation costs, with repayment being contingent on the case’s outcome.
- The attorney agrees to cover court costs and litigation expenses on the client’s behalf.
- A lawyer represents a client pro bono through a nonprofit legal service/public interest organization or law school.
If they so choose, a lawyer can cover transportation, food, rent, and living costs, but can’t use these to retain a client. They also can’t pursue or accept reimbursement for such offerings, and can’t advertise to prospective clients that these perks may be available.
Additionally, a lawyer cannot accept payment for representing a client from anyone else unless the client agrees to it. Doing so must also not interfere with their professional judgment or client-lawyer relationship.
Guidelines for Accepting Advances from an Attorney
The client and attorney must follow strict guidelines if a lawyer provides financial assistance in California. The loan must:
- Be Used for Reasonable Living Expenses: A client can use a loan to cover rent, utilities, food, and other necessities. The money can’t be used for unrelated legal issues such as paying parking tickets or bail. Using it to start a business or fund a non-emergency renovation are other violations.
- Not Involve a Change in Counsel: The promise of a loan should never be to pressure a client into changing counsel. It’s an ethics violation and shows the lawyer is only out to make money rather than provide tangible benefits for their client.
- Be Signed Off in Writing: A signed written contract provides clear, reasonable terms, advises the client of their rights, and serves as a promise to pay back the loan. The attorney must also clearly explain the terms.
How to Easily Obtain a Lawsuit Cash Advance
“Can an attorney advance money to a client?” is just one of many questions that may arise during a personal injury case. Not every lawyer is comfortable doing so and it can often reflect a conflict of interest. Lawsuit funding is another option if your attorney agrees to it. Going this route comes with fewer ethical and legal ambiguities. At Fund Capital America, we offer a fast and easy application process with no out-of-pocket costs. If approved, you’ll receive a non-recourse advance on your future settlement.