This may occur because a fixed-fee representation was terminated before all of the contemplated services were completed or because the services performed on an hourly basis did not exhaust the retainer deposited. Lawyers in these situations often find themselves caught between competing claims of the client and the person who paid the fees, both demanding delivery of the refund. There does not appear to be any authority on point to provide guidance. The problem in the scenario posed is that the client's entitlement to the funds in the lawyer's possession may not be at all clear. Lawyers are understandably reluctant to deliver funds to the wrong person and subject themselves to a disciplinary complaint or civil claims.
Some situations lend themselves to obvious solutions.
For instance, if the client brings the cash directly to the lawyer or pays with the client's own check, it is reasonable to conclude that any refund belongs to the client. In that case, the lawyer should not be responsible to a third party who contacts the lawyer after the fact claiming to have made a loan for legal fees and claiming a right to the refund. More typically, however, the third party delivers the fees to the lawyer. Prudence would suggest that whenever a lawyer accepts payment from someone other than the client, the written engagement letter should clearly address who will receive any refund. In the absence of such written direction, however, lawyers must proceed carefully.