California Enacts Comprehensive Legal Funding and Attorney Advertising Regulations

California has implemented significant new regulations governing legal funding arrangements and attorney advertising practices through two recently signed bills. Governor Gavin Newsom signed Assembly Bill 931 into law on October 13, 2025, establishing comprehensive requirements for litigation funding contracts and attorney interactions with funding companies. Under AB 931, all legal funding contracts must be written in plain language that consumers can understand without professional guidance. The legislation mandates that all fees associated with legal funding be explicitly outlined in contracts, including the maximum award consumers can expect to receive. Additionally, the law prohibits attorneys from receiving referral fees from legal funders, a measure designed to prevent conflicts of interest and maintain attorney-client privilege.

The new regulations aim to ensure that companies providing litigation funding interact with consumers honestly and ethically while protecting vulnerable individuals seeking legal representation. The legislation addresses concerns about opaque funding arrangements that have sometimes left consumers with unexpectedly small recoveries after legal fees and funding costs. Simultaneously, lawmakers passed Senate Bill 37, which imposes stricter parameters on attorney advertising practices. The new law prohibits California-licensed attorneys from referencing past judgments in ways that might improperly influence consumers to engage their services. It also bans the use of awards where recipients must pay to receive them in advertising materials.

These advertising restrictions are designed to protect consumers from manipulative or unethical marketing strategies that might misrepresent an attorney's capabilities or achievements. The enforcement of SB 37 represents a significant step toward ensuring that legal advertising provides accurate information without creating unrealistic expectations among potential clients. Both laws reflect growing concerns about the intersection of legal services and financial arrangements, particularly in personal injury and employment litigation where consumers may be financially vulnerable. The legislation establishes clearer boundaries for attorney conduct while providing consumers with greater transparency in their legal financial arrangements.

The new regulations take effect immediately, with enforcement mechanisms built into both bills to ensure compliance across California's legal industry. Legal professionals and funding companies must now adapt their practices to meet these heightened standards for consumer protection and ethical conduct. These changes represent a substantial shift in how legal funding and attorney advertising will operate in California, potentially serving as a model for other states considering similar consumer protection measures. The regulations address longstanding concerns about transparency and fairness in legal financial arrangements, particularly for individuals who may be facing financial hardship while pursuing legal claims.