California has implemented significant reforms to legal funding practices while considering additional restrictions on attorney advertising, marking a substantial shift in how legal services are regulated in the nation's most populous state. Governor Gavin Newsom signed Assembly Bill 931 into law on October 13, 2025, establishing new consumer protections and transparency requirements for legal funding arrangements.
The newly enacted AB 931 prohibits California-licensed attorneys from fee-sharing with non-lawyer entities and bans lawyers from accepting referral fees from non-lawyer organizations. These measures aim to maintain the independence of legal counsel and prevent potential conflicts of interest that could compromise client representation. The legislation also mandates that attorneys provide clients with a five-day cancellation window for legal funding agreements, ensuring consumers have adequate time to reconsider their financial commitments.
Transparency requirements under AB 931 extend to client-attorney contracts, which must now clearly disclose all terms and conditions. The law eliminates hidden fees and compound interest from attorney payment structures, addressing concerns about predatory lending practices in legal financing. These changes represent a significant departure from previous industry standards and require immediate compliance from all California attorneys.
Complementing these reforms, Senate Bill 37 remains pending and would impose additional government oversight on attorney advertising practices. If enacted, SB 37 would require law firms to limit advertising language to verifiable facts, prohibiting references to potential case results, comparisons to past verdicts, and any language that could be interpreted as misleading or deceptive. The legislation would also ban the promotion of awards where attorneys or law firms pay for the prizes, addressing concerns about potentially misleading marketing tactics.
Both bills establish penalties including compensatory damages and civil liability for violations, creating substantial consequences for non-compliance. The legislation responds to growing concerns about aggressive marketing practices and opaque financing arrangements in the legal industry. While these measures are designed to protect consumers from predatory practices, they will fundamentally alter how California attorneys attract clients and structure their business operations.
The reforms come as legal funding has become increasingly common, with companies like those featured on https://www.focuslawla.com offering specialized services to entrepreneurs and business owners. The changes may prompt law firms to restructure their fee arrangements and marketing strategies to comply with the new requirements. Industry observers note that these regulations could set precedents for other states considering similar consumer protection measures in legal services.
For California residents seeking legal representation, these reforms mean greater transparency in attorney-client relationships and more reliable information when evaluating legal service providers. The legislation represents a significant step toward standardizing ethical practices across the legal industry while maintaining access to justice for consumers navigating complex legal matters.
