An Illinois Supreme Court case claiming that mortgage lenders who charged document preparation fees engaged in the unauthorized practice of law, has touched a nerve with at least eight major banking organizations and has also set off an industry inquiry into the ramifications of allowing laypersons to draft legal documents.

The case in question is actually a consolidation of two cases: King et al. v. First Capital Financial Services Corp. and Jenkins et al. v. Concorde Acceptance Corp. et al. In both, the primary issue is whether or not the charging of document preparation fees by lenders constitutes the unauthorized practice of law.

Last year, an Illinois appellate court ruled on behalf of the defendants in King v. First Capital, saying that the charging of the fees did not imply a provision of legal services. King's attorney, Daniel Edelman, appealed to the Supreme Court, who agreed to hear the case as a consolidated action along with Jenkins v. Concorde, a case involving 37 similar suits against lenders such as Washington Mutual, Citibank and Charter One Bank.

Concerned with the outcome of the consolidated action, eight organizations filed an amicus brief requesting that the Supreme Court uphold the ruling of the appellate court. The organizations included the Illinois Bankers Association, American Bankers Association, America's Community Bankers, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Financial Services Roundtable and the Mortgage Bankers Association of America.

A consumer organization for legal reform, HALT, previously filed an amicus brief supporting the defendants in the appellate court hearing of King, and have continued to follow the case since. Thomas Gordon, senior counsel for HALT, described the specifics of the case.

"The consumer [King] went to get a home loan from the lender and the lender charged a line item for preparing the loan document. Lenders do this all the time - prepare loan documents. It's a contract between the lender and the party they are loaning money to, and there's two ways they can charge for it. They can either roll it in with their other costs or they can separate it out and say, 'Hey, we prepared the document that we're using to memorialize the agreement.'"

In this case, Gordon said, "they went with the latter, and because of that, the consumer thought, 'I can't pay for this, these are legal services. I shouldn't have to pay for legal services rendered by a non-lawyer.'"

One reason is that the direct link between charging fees for document preparation and the practice of law is hazy at best. Both amicus briefs pointed out that the plaintiffs' have not alleged any problems with the legal content of the documents. Specifically, the brief filed by Chicago attorneys Craig Varga and Joshua Davidson on behalf of the eight industry groups, states, "In short, the plaintiffs fail to allege that the lenders engaged in conduct even remotely resembling the practice of law on behalf of another person, which is the fundamental prerequisite for any unauthorized practice of law claim."

Without that claim, the briefs allege, there is nothing inherent in the document preparation that would tie it to the unauthorized practice of law. As Gordon said, "You're always allowed to practice law on your own behalf—the pro se exception is always in play. And the mortgage lender here was acting pro se." The industry brief agreed, stating, "A lender itself may prepare documents for use in a transaction incidental to its own business under the pro se exception."

Another issue under consideration is the more universal question of how detrimental the drafting of legal papers by laypersons is to consumers. That concern came to the forefront last year when a similar case was decided in the Supreme Court of Michigan. That case, Dressel v. Ameribank, also involved a consumer suing a lender for the unauthorized practice of law in conjunction with document preparation fees. The presiding judge ruled that "a person engages in the practice of law when he counsels or assists another in matters that require the use of legal discretion and profound legal knowledge," but that in this case, the lender only filled in standard forms.

That outcome spawned negative reactions in the industry from some who felt that it set a dangerous precedent in continuing to allow lenders the freedom to draft their own documents.

At that time, Patrick Randolph, the Elmer F. Pierson Professor of Law at the University of Missouri at Kansas City School of Law, told The Legal Description, "There isn't one instrument in a real estate transaction that doesn't involve the creation of significant legal rights. Consequently, the professionalism necessary to draft the documents to accurately reflect the law of the state in which they are going to be used, avoid pitfalls and comply with various regulations, all would suggest that a lawyer's expertise is necessary to draft the documents."

Gordon, however, disagrees with that assessment. "If you go to an attorney for the preparation of most of these documents," he said, "they're going to hand it off to a paralegal anyway." He emphasized that in many cases, the people drafting documents for the lenders are paralegals who have previously worked for lawyers in that capacity. "There are paralegals out there who have been preparing these documents for 15 to 20 years and are very competent in what they do," he said. "But they're not members of the bar, and therefore, in most jurisdictions, are not allowed to prepare these documents." In addition to that, Gordon stated, "There's a risk any time you go to any sort of professional that the work may not be satisfactory."

One of the key issues that Gordon is most concerned with is what the impact could be on consumers should the Supreme Court side with the plaintiffs. He fears that lenders would be forced to use attorneys to draft all of their documents, and in doing so, drive consumer costs significantly upward. "If the position were to prevent bankers from doing this, it would raise costs enormously, he said, "because every time a banker wanted to prepare a contract, they would have to go to an attorney, and that's going to raise costs considerably for consumers." Some people, like Randolph, perhaps, would argue, however, that it would be a small price to pay for the security of knowing that a document was legally sound.

A possible compromise has already surfaced in the Illinois senate this year, however, in the form of a bill (SB 2136, "The Legal Document Preparer Act") that would "allow legal document preparers to work aboveboard and clarify what they are and are not allowed to do," Gordon said. Specifically, the Act would establish eligibility requirements for certification as a legal document preparer, identify the services that could be provided, establish a code of conduct and statute for disciplinary actions, and essentially "allow and regulate legal document preparers as an industry," he explained.

Regardless of what happens with the Act, however, the question still remains of which way the Supreme Court will rule in the current case. If past precedent is relied upon, the judge would rule in favor of the lenders, as has been the case in Dressel and numerous other suits, and is a trend that Gordon and the other industry groups are hoping will continue.

"As a simple way to resolve this case, the judge should find that this is not the unauthorized practice of law because of the pro se exception," he stated. However, "if they want to even further elaborate the policy concerns at issue here," he said, "they could further point out that these activities, even when not carried out pro se, are not any more harmful to consumers than any other provision of services, be they legal or otherwise."