I have to be honest and let you know that I am generally inclined to agree with the client's attorney, but I do not believe that it is as clear cut as I am sure that attorney has presented the law to you and it depends very much on the details.
Under any scenario, the client paid you $1,400 in exchange for a referral to a company that would assess his risk in contemplation of a loan. You failed to perform this task (because the company just took his money), so you were right in refunding the client's money.
The question then becomes what sort of explicit or implicit assurances were made to the client. If the client was assured that the company was legitimate and relied on your assurance, or if (as the client's agent) you recommended this company and the client relied on your expertise, you would ordinarily be responsible for the full amount. If neither of these scenarios played out, you would ordinarily not be liable to the client for the $7,500.
Had you not taken or charged the fee, my opinion would probably be different.
Maybe something else can still be worked out; perhaps, for example, you can work out a repayment schedule or a situation where you pay back 1/2 and give the client credit toward other services for the remaining 1/2. The expression is that you can't get blood from a turnip... it is one thing to have the law on your side, but being right doesn't mean that there is money to get back.
If the client wanted to receive the full amount, he would have to initiate a lawsuit which is expensive in and of itself, so it would probably not be worth it to pursue if he could get at least something back from you without litigation
, and there is always the chance that he would not be able to make his case or persuade a jury that he was entitled to the full amount.
I realize that this is probably not what you had wanted to hear, but I do hope that you understand my philosophy that I cannot help customers unless I give them the truth, regardless of whether it is "good" news or "bad" news. Thank you, XXXXX XXXXX me know if I may be of further assistance.