An act to amend, renumber, add, and repeal Section 6156 of, and to add Article 17 (commencing with Section 6250) to Chapter 4 of Division 3 of, the Business and Professions Code, relating to attorneys.
AB 931 updates the Business and Professions Code to regulate consumer legal funding and to restrict certain attorney fee-sharing and referral practices. The bill defines consumer legal funding as a nonrecourse transaction in which a consumer assigns a contingent right to a portion of the proceeds of a pending legal claim, and it creates the California Consumer Legal Funding Act to govern those transactions. It requires consumer legal funding contracts to be written, in plain English, and to include specified disclosures such as the funded amount, itemized charges, repayment terms, and a five-business-day right to cancel after funding. If the contract is negotiated in a language other than English, the consumer must receive copies in both English and the negotiated language.
The bill also limits the cost of consumer legal funding by prohibiting charges from exceeding 36 months from the funding date and by requiring the repayment obligation to be a predetermined amount based on time rather than a percentage of the recovery. It bars consumer legal funding companies from paying or receiving referral fees or commissions with attorneys or law firms, from influencing settlement decisions, from conditioning funding on a client changing counsel, and from engaging in other specified practices. Violations can lead to automatic contract termination, statutory damages, attorney’s fees, and injunctive or declaratory relief. The bill further states that a consumer’s contingent right to proceeds from a legal claim is assignable.
AB 931 also imposes new rules on attorneys. It prohibits attorneys from giving anything of value to secure referrals, with limited exceptions for advertising, qualified referral services, and certain other permitted arrangements. It separately prohibits California attorneys, until January 1, 2030, from sharing legal fees directly or indirectly with an out-of-state alternative business structure that allows nonlawyer ownership or decisionmaking authority, unless specified conditions are met. That prohibition applies only to contracts entered into on or after January 1, 2026, and violations may trigger State Bar discipline, statutory damages, costs, and equitable relief.
The bill’s impact on state law is to create a detailed statutory framework for litigation funding in California and to reinforce existing professional-conduct limits on attorney referrals and fee sharing. It amends and renumbers Section 6156, adds a new Section 6156 governing out-of-state alternative business structures, and adds Article 17 beginning at Section 6250 to establish consumer legal funding rules, disclosures, and enforcement mechanisms. It also clarifies that certain attorney-client privilege protections remain intact when information is shared with a funding company at the consumer’s request.
The overall sentiment reflected in the voting history was favorable, with the bill advancing through committees and floor votes by substantial margins, including unanimous or near-unanimous committee support at earlier stages and strong majority approval on final concurrence. The main points of contention appear to have centered on the bill’s restrictions on fee sharing with out-of-state alternative business structures and the broader regulation of legal funding arrangements, which can affect how attorneys, funders, and consumers structure litigation financing and referral relationships. The final votes suggest support for consumer protections and anti-abuse measures, while the dissenting votes indicate some concern about the bill’s limits on legal-business innovation and attorney compensation structures.
AB 931 amends the Business and Professions Code to regulate consumer legal funding contracts, prohibit certain referral-fee and fee-sharing arrangements, and create new enforcement remedies through the State Bar and civil actions. It affects consumer legal funding companies, attorneys, law firms, and consumers with pending civil claims by imposing disclosure, rescission, and conduct rules, and by authorizing statutory damages, contract termination, discipline, and injunctive relief for violations.
The bill moved with generally strong support, passing committees and floor votes by wide margins and ultimately becoming chaptered. The vote pattern suggests broad agreement on the need for consumer protections and limits on improper attorney-funder relationships, though the presence of some no votes indicates reservations about the scope of regulation, especially the restrictions on out-of-state alternative business structures and fee-sharing arrangements.
The most notable contention involves the bill’s temporary ban on California attorneys sharing fees with out-of-state alternative business structures that permit nonlawyer ownership or decisionmaking authority, which may be viewed as limiting cross-border legal service models. A second area of concern is the regulation of consumer legal funding, including the ban on referral fees, the mandatory attorney acknowledgement, and the limits on charges and repayment structures; these provisions protect consumers but also constrain funding companies and attorneys who work with them. Supporters appear to have prioritized consumer transparency and anti-kickback safeguards, while opponents likely focused on business-model restrictions and the bill’s impact on legal market innovation.