Finance companies are not engaging in the unauthorized practice of law when their employees prepare documents involving loan transactions for which the company is a party, the Illinois Supreme Court said.

In addition, the court ruled April 21, lenders may charge their clients fees for the document preparation work. King v. First Capital Financial Services Corp., No. 97263.

Willard and Sheila King claimed that First Capital Financial Services Corp. engaged in UPL after they noticed that the company charged them $225 for document preparation. Although the defendants acknowledged that the document preparation constituted law practice, they claimed it fit within the pro se exception, which applies "in situations where the party preparing the legal documents does so for his or her own benefit in a transaction to which the preparer is a party." Chicago Bar Association v. Quinlan & Tyson Inc., 34 Ill. 2d 116 (1966).

The plaintiffs argued that charging fees for the document work placed the finance companies outside the pro se exception.

The Illinois Supreme Court disagreed, ruling that the pro se exception applied to First Capital-as well as to lenders in most of 37 class actions that were combined with the King case. Those cases, consolidated for appeal as Jenkins v. Concorde Acceptance Corp., also involved UPL claims based on document preparation services.

"We are not persuaded by plaintiffs' arguments that the mere charging of a fee for document preparation, when the conduct is otherwise within the pro se exception, changes the nature of the transaction to one that becomes the unauthorized practice of law," the state high court ruled. "Accordingly, we hold that the charging of a fee, without more, for the preparation of the loan documents by the lenders' employees did not transform their conduct into the unauthorized practice of law."

In two of the 37 Jenkins cases, however, the lending institutions used independent document preparation services. There, the court declined to allow the pro se exception because "a different situation is presented … where a person or entity that is not a licensed attorney and not a party to the transaction prepares the loan documents."

However, the court still ruled in favor of these defendants, finding no private right of action to sue under the Attorney Act, which contains the UPL regulations. The statute merely provides that an individual or entity in violation may be cited for contempt as a sanction. "Its plain language does not provide for any other remedy for a violation of the statute, although it does say that the contempt remedy is 'in addition to other remedies permitted by law,' " the court said.

"Had the legislature intended to provide a cause of action for damages for violation of the Attorney Act, it could have easily done so," the court concluded.

"The court has prevented a brazen attempt by the bar to increase its monopoly power over legal services," says Tom Gordon, senior counsel of HALT, a Washington D.C.-based legal reform organization that filed an amicus brief. "While the bar would love to be able to have a guaranteed fee for every mortgage loan transacted in Illinois, the court has recognized that the basis for unauthorized practice restrictions is consumer protection, not lawyer protection."

Chicago attorney Joshua D. Davidson, who wrote an amicus brief on behalf of several bankers' and lenders' associations, agrees. The ruling, he says, "is an endorsement of the mortgage lending industry's current practice of preparing notes, mortgages and related documents that are incidental to a mortgage lender's main business of loaning money to homeowners."

Adds Davidson, "Residential mortgage loans are currently a cornerstone of the economy, and changes in the law requiring lenders to hire lawyers to prepare mortgage documents for every individual loan would reduce the efficiencies of the current loan processes and increase the cost of home financing for borrowers."

Efforts to contact an attorney for the Kings were unsuccessful.