On May 7 2025, California Assembly Bill 931, introduced by Assembly Member Ash Kalra, was referred to the Judiciary Committee following several amendments. The bill proposes comprehensive regulations under the State Bar Act concerning consumer legal funding and legal fee-sharing practices.
AB 931 defines “consumer legal funding” as a nonrecourse transaction in which a funding company purchases a consumer’s contingent right to a portion of proceeds from a legal claim. It requires such agreements to be in writing, presented in plain language, and include detailed disclosures, including total charges, repayment schedules, and a five-day cancellation right. Importantly, attorney acknowledgment is required to validate the contract, confirming the absence of referral fees and proper handling of settlement funds.
The bill bans consumer legal funding companies from engaging in various unethical practices, such as paying or accepting referral fees, exerting influence over legal decisions, or encouraging consumers to change legal representation. Violations result in harsh penalties, including contract termination, $10,000 in statutory damages per violation, and potential disciplinary action.
Further, AB 931 bars California attorneys from sharing legal fees with out-of-state legal service entities that permit non-lawyer ownership or control, reaffirming ethical boundaries on alternative business structures.
This legislation aims to protect consumers from predatory litigation funding practices while preserving the integrity of the attorney-client relationship and maintaining ethical standards in legal fee arrangements. It also aligns attorney conduct with the State Bar’s disciplinary oversight.