California Enacts Legal Funding Reforms with AB 931, Considers Advertising Restrictions Through SB 37

California Governor Gavin Newsom signed Assembly Bill 931 into law on October 13, 2025, establishing significant consumer protections in 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 sources. These measures represent a fundamental shift in how legal services can be financed and marketed within the state.

The new statute mandates that lawyers provide clients with a five-day cancellation window for legal funding agreements, ensuring consumers have adequate time to reconsider financial commitments. Additionally, AB 931 requires enhanced transparency in client-attorney contracts and eliminates hidden fees and compound interest from payment structures. These provisions address concerns about predatory lending practices in legal financing that have drawn increased scrutiny in recent years.

Complementing these reforms, Senate Bill 37 remains pending and would impose stricter government oversight on attorney advertising practices. If enacted, law firms would be restricted to using verifiable facts in their marketing materials. The proposed legislation would prohibit references to potential case results, comparisons to past verdicts, and any language that could be interpreted as misleading or deceptive to consumers. SB 37 would also ban the promotion of awards where attorneys or law firms pay for the prize, addressing concerns about misleading credential claims.

Both bills establish penalties including compensatory damages and civil liability for violations, creating significant financial consequences for non-compliance. While these statutes aim to protect consumers from predatory practices, they will fundamentally reshape how California attorneys attract clients and structure their business operations. Law firms must now reconsider their marketing strategies, fee arrangements, and contractual relationships with third-party funding sources.

The regulatory changes reflect growing concern about the commercialization of legal services and potential conflicts of interest in attorney-client relationships. By separating legal practice from non-lawyer financial interests, the legislation seeks to preserve the integrity of legal representation while ensuring clients receive transparent information about costs and services. The reforms may influence similar legislation in other states and prompt nationwide discussion about ethical standards in legal funding and advertising practices.

These developments come as legal service providers like Focus Law LA navigate the changing regulatory landscape. The firm's experience in business law and commercial litigation positions it to adapt to these new requirements while continuing to serve Southern California entrepreneurs. The broader legal industry must now balance consumer protection with business viability as these comprehensive reforms take effect across California's legal marketplace.