Protecting consumers and maintaining the integrity of the legal profession

On Oct.10, 2025, Gov. Gavin Newsom signed AB 931 into law, which took effect Jan. 1, 2026. Authored by Assemblyman Ash Kalra and sponsored by the Consumer Attorneys of California, AB 931 closed potential loopholes that could be exploited in two specific areas.

First, AB 931 explicitly prohibits private equity companies and other nonlawyers from receiving attorneys' fees for cases handled in California involving California plaintiffs subject to a few, narrowly tailored exceptions.

Second, AB 931 establishes clear, detailed disclosure requirements for consumer litigation funding companies that provide loans to consumers based on their future litigation recoveries. It also prohibits lawyers and consumer litigation funding companies from engaging in improper conduct relating to obtaining, referring and maintaining clients. AB 931 protects consumers from predatory and exploitative practices, while maintaining the integrity of the legal profession in California.

Prohibiting fee sharing with an ABS

Following a four-year push by the State Bar of California to expand law firm ownership to nonlawyers, California legislators ultimately rejected such efforts in the 2022 State Bar dues bill. (Cal. Bus. & Prof. Code §6034.1(a)(3).)  AB 931 was enacted to unambiguously confirm that California lawyers are prohibited from sharing fees with an out-of-state Alternative Business Structure ("ABS"), except under very limited exceptions. (Cal. Bus. & Prof. Code §6156(a).)  

First, the law excludes nonprofit organizations from the definition of an ABS. (Cal. Bus. & Prof. Code §6156(c).) Second, a California-licensed attorney who is also licensed in a state allowing an ABS, can share fees with an ABS for work that attorney performs in the state allowing the ABS, when such work is subject to discipline by that ABS-allowing state. (Cal. Bus. & Prof. Code §6156(a)(1)-(3).)  Third, fee sharing with an ABS is permissible for fair and reasonable fees deemed necessary for the administration of justice and ordered or approved by a court, such as common fund payments to leadership counsel in coordinated, consolidated or multidistrict litigation when an ABS is also receiving similar payments. (Cal. Bus. & Prof. Code §6156(d).) (Cal. Bus. & Prof. Code §6156(d).)  Fourth, noncontingency fee contracts that specify a specific dollar amount for services rendered and that do not include payment for the referral of a claim or lead on a potential case or client are excluded from the fee-sharing prohibition. (Cal. Bus. & Prof. Code §6156(e).) 

While the ABS portion of AB 931 as codified in section 6156 is due to expire on December 31, 2029, given the tremendous consumer protection provided by law as currently enacted, it is hard to imagine efforts won't be made to extend its application indefinitely.

Protecting consumers from unscrupulous lenders and lawyers

The second part of AB 931 created the California Consumer Legal Funding Act ("the Act"), addressing consumer legal funding--loans that injured victims seek to cover living expenses while their legal claim is pending. (Cal. Bus. & Prof. Code §6250 et seq.) As enacted, the Act requires detailed mandatory disclosure requirements for consumer legal funding agreements to ensure consumers are fully informed about the full costs of such loans and how they are calculated. (Cal. Bus. & Prof. Code §6251.) This includes that the agreement be written in plain English, explicitly stating the maximum amount the consumer would have to repay, with the consumer initialing each page of the contract. (Cal. Bus. & Prof. Code §6251(b).) The Act also requires the lawyer representing the consumer to attest to reviewing the material disclosures of the lending agreement with the consumer, as well as confirming that the lawyer is not receiving any referral fee, kickback or other consideration from the legal funding company. (Cal. Bus. & Prof. Code §6251(c).)  

The Act next requires that specified terms be disclosed in clear and conspicuous language on the first page of the contract, including the amount loaned, any one-time costs, the maximum amount the consumer could owe, the repayment schedule and confirmation of the right of the consumer to cancel the contract within five days. (Cal. Bus. & Prof. Code §6252.)

The Act next identifies conduct prohibited by a consumer legal funding company, including: (1) paying referral fees for customers to attorneys, law firms or their employees; (2) accepting referral fees, rebates or other consideration from attorneys, law firms or their employees; (3) referring, in furtherance of legal funding,  a consumer to a particular attorney, law firm or their employee; (4) providing legal funding to a consumer who previously obtained legal funding without first satisfying the prior obligation; (5) receiving the right to, or making decisions regarding the handling of the consumer's claim, including settlement or resolution of the claim; (6) conditioning legal funding on a consumer firing current counsel and switching to counsel recommended by the legal funding company; (7) assisting a lawyer or law firm in encouraging a consumer to bring a claim the lender knew or should have known was fabricated or otherwise not brought in good faith. (Cal. Bus. & Prof. Code §6254(a).)   To give the prohibitions teeth, the Act also includes a private right of action, including the ability to terminate the contract, obtain statutory damages of $10,000 per violation or three times actual damages, as well as attorney's fees and costs. (Cal. Bus. & Prof. Code §6254(b).)

The Act's final section prohibits a referring attorney or their family members, or a retained attorney or their family members from having any financial interest in a legal funding company offering legal funding to that consumer. (Cal. Bus. & Prof. Code §6256(b) & (c).)  The Act concludes by prohibiting an attorney from providing anything of value in exchange for recommending or securing the services of that attorney or their law firm, subject to exceptions including paying a legal services plan or qualified referral service or engaging in protected advertisements as otherwise allowed by the California Rules of Professional Conduct. (Cal. Bus. & Prof. Code §6256(d).)  Attorney violations of the act subject counsel to State Bar discipline. (Cal. Bus. & Prof. Code §6256(e).) 

The Act ensures that consumers obtaining litigation funding are fully informed as to the true costs of the loans, and that neither consumer legal funders nor attorneys are improperly referring consumers for loans or legal representation in return for referral fees, kickbacks or other promises of consideration. Improving transparency to consumers and eliminating the ability of non-lawyers to direct legal decision-making and representation protects consumers as well as the integrity of the legal profession as a whole.