American Bar Association / ABA, Wall Street

ABA Trying to Push Back Against the Financial Reform Bill

The ABA might remain silent when it comes to stopping law schools from taking financial advantage of law students. They might pass rules that allow legal work to flow freely overseas, damaging the livelihoods of lawyers back home. But when it comes to Congress potentially stepping in to regulate lawyers, the organization finds its voice and gets to work.

The ABA Journal reports that the ABA is spearheading an effort to get practicing lawyers excluded from the increased regulation contemplated in the financial reform bill which is now in reconciliation:

The spate of recession-induced financial help scams loomed large in the push for national consumer protection, and competing House and Senate bills now headed for conference committee both specifically target for regulation anyone involved in offering a “consumer financial product or service.”

But the House version has an exemption for lawyers engaged in the practice of law as well as employees directly supervised by them, or in matters incidental to the practice and within the scope of attorney-client relationship. The Senate version does not. In the Senate version, for example, simply holding a trust account would bring a lawyer under the eyes of federal regulators.

Almost a year ago, I noted that it would be very bad if the general public decided to hold lawyers to the same level of scrutiny as bankers in response to the global economic crisis. But screw the public; it should go without saying that lawyers don’t need the federal government on their backs…

The ABA is clear about the precise problem it has with the Senate’s version of financial reform:

The ABA and state bars are asking the U.S. Senate to add to its bill the same “practice of law” exclusion that’s in the House bill. They do not object to regulation of activities by lawyers outside lawyer-client relationships, and not under the disciplinary authority of state-court disciplinary systems.

“We’re not asking them to exempt someone with a JD who sets up some sham-façade nonlaw business where people think they’re dealing with a lawyer but aren’t being protected by the legal disciplinary arm,” says Thomas Susman, director of the ABA’s Governmental Affairs Office in Washington, D.C. “When we talk to people on the Hill, they say that kind of activity is the problem. The Senate solution as crafted is much too broad and doesn’t address it.”

Financial lawyers don’t want to be held to the same level of scrutiny as the clients they represent. That sounds totally reasonable, but it’s not a slam dunk that the Senate will amend this bill in the way lawyers want:

This latest reach for federal regulation of lawyers adds to an increasing trend, both legislatively and in the agencies.

For example, the Federal Trade Commission in 2002 said lawyers engaged in the practice of law were “financial institutions” under the Gramm-Leach-Bliley Financial Modernization Act of 1999. The ABA sued for a declaratory judgment and the U.S. Court of Appeals for the District of Columbia Circuit ruled in 2005 that lawyers are not “financial institutions.”

Under a rule recently proposed by the U.S. Department of Housing and Urban Development, any lawyer helping clients negotiate loan modifications would be considered a “loan originator” or “third-party loan modification specialist.” That would result in federal licensing and registration. Also, the FTC has proposed a Mortgage Assistance Relief Services rule that would dictate a fee structure to lawyers who are helping clients renegotiate mortgages or avoid foreclosure.

Essentially, the ABA’s best argument is: “Damnit Jim, I’m a lawyer, not a decision maker.” The ABA has to convince legislators that lawyers are just well-paid paper pushers — instead of valued counsel with a crucial role in developing and shaping the financial instruments at issue. Kidding aside, it’s an argument the ABA should be able to win. Lawyers serve at the pleasure of their clients.

Let’s just hope that the Senate doesn’t call up a bunch of partners who charge $1,000 an hour for their opinions on the matter. It doesn’t come naturally to those guys to say that their role in shaping financial products is so unimportant and ancillary that it would be inappropriate for the government to pay them any attention.

ABA & Others Object to Sweeping Law Practice Regulation in Financial Reform Bill [ABA Journal]

Earlier: The Mainstream Media Is Aware That Law Firms Exist, Right?

(hidden for your protection)

comments sponsored by

Show all comments