California Enacts Legal Funding Reforms, Pending Advertising Restrictions for Law Firms
New California legislation imposes stricter regulations on legal funding transparency and attorney advertising practices, potentially reshaping how law firms operate and protect consumers from predatory practices.
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 marketed and financed in the state. Governor Gavin Newsom signed Assembly Bill 931 into law on October 13, 2025, introducing immediate consumer protections for legal funding arrangements. The legislation prohibits California-licensed attorneys from fee-sharing with non-lawyer entities and bans lawyers from accepting referral fees from non-lawyer sources.
The new statute requires attorneys to provide clients with a five-day cancellation window for legal funding agreements, mandates greater transparency in client-attorney contracts, and eliminates hidden fees and compound interest from payment structures. These changes aim to protect consumers from potentially predatory lending practices that have emerged in the legal funding industry. The legislation establishes penalties including compensatory damages and civil liability for violations.
Meanwhile, Senate Bill 37 remains pending and would impose additional government oversight on attorney advertising practices if enacted. The proposed legislation would require law firms to limit advertising language to verifiable facts only. Prohibited content would include references to potential case results, comparisons to past verdicts, and any language that could be interpreted as misleading or deceptive. The bill also disallows promotion of awards where attorneys or law firms pay for the prize, addressing concerns about potentially misleading marketing tactics.
Both bills represent a comprehensive approach to consumer protection in legal services. While AB 931 addresses financial transparency and funding practices, SB 37 focuses on marketing integrity. The combined effect of these measures could fundamentally alter how California attorneys attract clients and structure their business operations. Law firms may need to completely restructure their fee arrangements and marketing strategies to comply with the new requirements.
The legislation emerges amid growing concerns about aggressive marketing tactics and opaque funding practices in the legal industry. By establishing clear boundaries for attorney conduct in both financial arrangements and advertising, California aims to maintain professional standards while protecting consumers from potentially exploitative practices. The reforms could serve as a model for other states considering similar consumer protection measures in legal services.