A comprehensive analysis of FCRA requirements, Bar Association rules, and the legal basis for using credit evaluation in retainer structuring.
Law firms that defer a portion of client fees are extending credit. Under the Fair Credit Reporting Act (FCRA), businesses that extend credit have a permissible purpose to obtain consumer credit information for the purpose of evaluating the credit transaction.
The critical distinction is between setting fees (prohibited basis for discrimination) and structuring payment terms (permissible credit decision). RetainerLogic enables the latter while respecting the former.
The Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., governs the collection, dissemination, and use of consumer credit information. The Act establishes when and how consumer reporting agencies may furnish consumer reports.
Section 604 of the FCRA (15 U.S.C. § 1681b) specifies the circumstances under which a consumer reporting agency may furnish a consumer report:
15 U.S.C. § 1681b(a)(3)(A)
"A consumer reporting agency may furnish a consumer report... to a person which it has reason to believe— (A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer."
This provision establishes that any business extending credit has a permissible purpose to obtain consumer credit information in connection with that credit extension.
The FCRA does not limit "credit transaction" to traditional lending. When a law firm agrees to defer a portion of fees—allowing a client to pay over time rather than requiring full payment upfront—the firm is extending credit to the consumer.
15 U.S.C. § 1681a(r)(5)
"The term 'credit' or 'credit transaction'... has the same meaning as in section 1691a of this title." [Equal Credit Opportunity Act]
15 U.S.C. § 1691a(d) (ECOA)
"The term 'credit' means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor."
Under this definition, a law firm that allows a client to defer payment of legal fees is granting credit to that client.
For RetainerLogic's use case, the permissible purpose analysis is straightforward:
State bar associations regulate attorney conduct, including fee arrangements with clients. The relevant rules address fee-setting and client acceptance—not payment term structuring.
ABA Model Rule 1.5(a)
"A lawyer shall not make an agreement for, charge, or collect an unreasonable fee... Factors to be considered... include: (1) the time and labor required... (2) the likelihood... that the acceptance of the particular employment will preclude other employment... (3) the fee customarily charged in the locality... (4) the amount involved and the results obtained..."
Note that the factors for determining fee reasonableness are based on the nature of the work, not the client's financial status. This is the prohibition: you cannot charge a wealthy client more for the same work.
The Model Rules do not prohibit:
Once a fee is set (reasonably, based on the work), determining how much of that fee the client can pay over time is a credit decision—the same decision every other creditor makes.
ABA Model Rule 6.2
"A lawyer shall not seek to avoid appointment by a tribunal to represent a person except for good cause, such as... the client or the cause is so repugnant to the lawyer as to be likely to impair the client-lawyer relationship..."
This rule addresses court-appointed representation. For retained counsel, the prohibition is against discrimination based on protected characteristics—not against making business decisions about payment terms.
Credit bureaus (Equifax, Experian, TransUnion) have historically declined to provide consumer reports directly to law firms for client intake purposes. This is commonly misunderstood as a legal prohibition. It is not.
The bureaus' refusal is based on business policy, not legal requirement:
There is no provision in FCRA, state law, or bar regulations that prohibits:
RetainerLogic operates under our established bureau relationship (through Underwrite.ai), using the same permissible purpose framework that any credit-extending business uses.
To use RetainerLogic compliantly, law firms must adhere to standard FCRA requirements:
15 U.S.C. § 1681b(a)(2)
"A consumer reporting agency may furnish a consumer report... in accordance with the written instructions of the consumer to whom it relates."
RetainerLogic provides an FCRA-compliant consent form. The client must sign before any inquiry is performed.
The law firm certifies that the inquiry is for a permissible purpose (evaluating a credit transaction). RetainerLogic cannot be used for:
15 U.S.C. § 1681m(a)
"If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall... provide oral, written, or electronic notice of the adverse action to the consumer..."
If a law firm requires different payment terms based on credit evaluation, this may constitute an adverse action. RetainerLogic provides guidance on adverse action notice requirements.
Credit information must be handled securely and disposed of properly. RetainerLogic does not provide the full credit report—only the risk assessment—which minimizes data handling obligations.
The legal framework clearly supports the use of credit evaluation in law firm payment structuring:
Law firms extending credit deserve the same tools every other creditor uses. RetainerLogic provides compliant access to that data.
Questions about compliance?
Contact us for detailed guidance on implementing RetainerLogic in your practice.
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