Rates of Interest Must Be Lawful & Reasonable
Although it’s acceptable to charge interest on costs, the Ethics Committee of the Florida Bar released an opinion that said a lawyer could not charge their client more than what it cost the lawyer to borrow the money. The committee was asked hypothetically if it was ethical to charge more than 18.5% interest with the client’s informed consent on an advance of contingent costs. The Florida Bar said NO. The committee believed that 18.5% was an unreasonable rate of interest and that a lawyer should be able to find a lower rate of interest than 18.5%.
The Florida Bar’s Ethics Opinion 18-2 stated:
“If taking out a loan, the lawyer can only recover the interest actually charged to the lawyer by the lender[…]”
The real question is how much does it cost the lawyer to borrow the money? If the lawyer can borrow the funds from a bank at 4% interest, then the Ethics Opinion clarifies that they should charge their client that amount and nothing more.
Interest Must Be in the Best Interest of the Client
Florida Rule of Professional Conduct 4-1.7(a)(2) provides that a lawyer may not represent a client if the lawyer’s personal interest interferes with the client’s representation. Therefore, a lawyer must always act in the client’s interest and not allow personal interests to interfere with the representation.
The Ethics Committee discussed the lawyer’s obligation to consider whether using a particular source of funding for advance costs is in the client’s best interest. For example, suppose a company charges a higher interest rate than the lawyer could obtain elsewhere, like a bank. In that case, the lawyer has an obligation to consider substitute funding even if it is inconvenient for the lawyer.
In other words, a lawyer has an affirmative obligation to shop for the lowest rate of interest to fund advance costs for clients.
Suppose lawyers are charging their clients 18% interest on costs. In that case, you have to wonder if they are either not creditworthy or if the lawyer is putting their financial interest ahead of their client’s interests by making money off the advanced costs interest. A lawyer who puts their interest ahead of their clients’ may be required to withdraw from representation under Florida Rule of Professional Conduct 4-1.7.
Clients Must Be Given Informed Consent in Writing
The Florida Bar Ethics Opinion 18-2 clarifies that for a lawyer to charge interest to their client, the client must give informed consent in writing.
“Informed consent’ had been defined by the Florida Bar as the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks of and reasonable available alternatives to the proposed course of conduct.”
Many personal injury law firms have the client sign a contract at the beginning of a case, often before they have spoken with a lawyer. For example, suppose a client never speaks to the lawyer about interest on advanced costs. In that case, they can’t have given “informed consent” because they have never talked with the lawyer about the matter.
Also consider, most personal injury attorneys do not have bookkeeping systems like finance companies. Finance companies have sophisticated computer programs that send periodic statements to customers and website logins to keep track of their account balances. Most personal injury clients have no idea what their cost balance is until the lawyer asks for the cost to be paid from the settlement. Can they trust the amount they are told?
Various laws could come into play that personal injury attorneys unwittingly violate when they charge interest on costs. For example, the Truth in Lending Act (TILA) protects consumers against inaccurate and unfair credit billing practices. It requires lenders to provide loan cost information so consumers can comparison shop for certain types of loans.
Some possible TILA violations law firms commit include:
- Failure to disclose the Annual Percentage Rate (APR). Some law firms’ fee agreements state the amount of interest as 1.5% per month, rather than 18% APR.
- TILA has specific initial disclosure requirements when credit is given.
- TILA has specific periodic statement requirements when a debit or a credit of greater than $1 is entered for the billing cycle or a finance charge during the billing cycle.
Many law firms do not communicate with their clients the amount of costs expended and take zero effort to comply with regulations like TILA when charging interest on advanced costs. This leaves the client in the dark on what the total costs are along with what the finance charges will be until the time of the closing.
What Can I Do to Avoid Paying Unreasonable Interest?
Many law firms have interest provisions in their contracts. It could be expected that those provisions even say they have the right to charge interest at 18% or 1.5% per month. The real question is will they charge you interest at those rates?
If you are presented with a closing that includes interest on costs, you have a right to discuss this with your lawyer and ask questions about how the interest was calculated. You also have a right to know that the interest is charged in accordance with the Florida Bar’s Ethics Opinion 18-2. Most lawyers who are confronted with this information will waive the interest on advance costs or calculate it correctly. However, if they refuse, call us at 863-292-6922, and we can help!
Consultations with 1-800-ASK-DAVE are Free
If you paid interest on your injury settlement in Florida, we might be able to get that money back!
The first step to determining if we can help is reviewing the written fee contract and the closing statement. The rules regulating the Florida Bar, Rule 4-1.5(f)(5) require lawyers to maintain the written fee contract and closing statement in contingency fee cases for six years after the representation is complete. If you don’t have a copy of those contracts, we can get them for you!
Consultations with our attorneys at 1-800-ASK-DAVE are free. We don’t charge any fees or costs unless we recover money for you. In addition, we are some of the few lawyers in the State of Florida that are willing to file claims against other lawyers when they act inappropriately, unlawfully, or in violation of their clients’ contracts.
To take the next step to recover unlawful interest on cost, complete the client intake form below.