California Enacts Legal Funding Reforms and Considers Attorney Advertising Restrictions

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 legislation immediately prohibits California-licensed attorneys from fee-sharing with non-lawyer entities and bans lawyers from accepting referral fees from non-lawyer organizations. The new law requires attorneys to provide clients with a five-day cancellation window for legal funding agreements and mandates greater transparency in client-attorney contracts. AB 931 specifically eliminates hidden fees and compound interest from attorney payment structures, addressing concerns about predatory lending practices in the legal industry. These changes aim to protect consumers from potentially exploitative financial arrangements while maintaining access to legal representation.

Meanwhile, Senate Bill 37 remains pending and would impose additional government oversight on how lawyers advertise their services to potential clients. If enacted, the legislation would require law firms to limit advertising language to verifiable facts and prohibit references to potential case outcomes or comparisons to past verdicts. The bill would ban any advertising content that could be interpreted as misleading or deceptive, including promotions where attorneys or law firms pay for awards or recognition. Both legislative measures establish penalties including compensatory damages and civil liability for violations.

While these statutes are designed to safeguard consumers against predatory practices, they are expected to significantly alter how California attorneys attract clients and structure their business operations. Law firms will need to review and potentially restructure their fee arrangements, contract terms, and marketing strategies to comply with the new requirements. The changes represent a substantial shift in the regulatory landscape for legal services in California, balancing consumer protection with professional practice standards. The implementation of these reforms comes amid growing concerns about the commercialization of legal services and the potential for vulnerable clients to be exploited by complex financial arrangements.

The legislation reflects a broader trend toward increased regulation of legal service providers, with California joining other states in addressing concerns about transparency and fairness in attorney-client relationships. Legal experts anticipate that these changes will prompt significant adjustments within the legal industry, particularly for firms that rely heavily on advertising and alternative fee structures. The reforms are likely to influence how legal services are marketed and financed not only in California but potentially in other jurisdictions considering similar measures. As the legal landscape evolves, these regulatory changes underscore the ongoing tension between consumer protection and professional autonomy in the practice of law.