California Implements Stricter Regulations on Legal Funding and Attorney Advertising

California lawmakers have implemented comprehensive 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 significant consumer protections for litigation funding arrangements. The legislation requires all legal funding contracts to be written in plain language that consumers can understand without professional assistance, ensuring transparency in financial arrangements between clients and funding companies.

Under AB 931, all fees associated with legal funding must be explicitly detailed in contracts, including the maximum award amounts consumers can expect to receive. The law also prohibits attorneys from receiving referral fees from legal funders, addressing potential conflicts of interest that could compromise attorney-client relationships. These measures are designed to protect consumer interests, maintain attorney-client privilege, and ensure that companies providing litigation funding operate with honesty and ethical standards. The legislation represents a significant shift in how California-licensed attorneys can engage with third-party funding sources for legal cases.

Complementing these funding regulations, lawmakers also passed Senate Bill 37, which imposes stricter parameters on attorney advertising practices. The new law prohibits California-licensed attorneys from referencing past judgments in promotional materials in ways that might improperly influence consumers to engage their services. Additionally, SB 37 bans the use of awards that require payment from recipients in attorney advertising, preventing misleading marketing tactics that could create false impressions of attorney qualifications or success rates.

The enforcement of SB 37 aims to protect consumers from manipulative or unethical marketing strategies that have become increasingly common in legal advertising. Both bills reflect growing concerns about the potential for exploitation in legal funding arrangements and the need for greater transparency in how attorneys market their services to potential clients. The combined effect of these regulations establishes a more robust framework for consumer protection in legal services, addressing both financial arrangements and advertising practices that could potentially mislead or harm consumers seeking legal representation.

These legislative changes come amid increasing scrutiny of the legal funding industry and attorney advertising practices nationwide. California's approach sets a precedent for other states considering similar consumer protection measures in legal services. The regulations balance the need for access to legal funding with appropriate safeguards against predatory practices, while ensuring that attorney advertising remains truthful and non-deceptive. The implementation of these laws will require significant adjustments for legal professionals and funding companies operating in California, potentially influencing industry standards beyond state borders.