California Enacts Legal Industry Reforms to Protect Consumers from Predatory Practices

California has implemented significant reforms to its legal industry with the signing of Assembly Bill 931, creating new consumer protections and transparency requirements for attorneys practicing in the state. Governor Gavin Newsom signed the legislation on October 13, 2025, immediately prohibiting California-licensed attorneys from fee-sharing arrangements with non-lawyer entities and banning lawyers from accepting referral fees from non-lawyer organizations.

The new statute mandates that attorneys must now offer clients a five-day cancellation window for legal services, prioritize transparency in all client-attorney contracts, and eliminate hidden fees and compound interest from their payment structures. These changes represent a substantial shift in how legal services are marketed and delivered to California consumers, addressing concerns about predatory practices that have emerged in the legal funding industry.

Complementing AB 931, Senate Bill 37 is currently pending and would provide additional government oversight on attorney advertising practices. If enacted, SB 37 would require law firms to limit their advertising language to verifiable facts only. 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. The bill also disallows the promotion of awards where an attorney or law firm pays for the prize, addressing concerns about misleading marketing tactics.

Both bills establish penalties including compensatory damages and civil liability for violations, creating significant consequences for attorneys who fail to comply with the new regulations. While these statutes are designed to protect consumers from predatory legal practices, they will also fundamentally reshape how California attorneys attract clients and require firms to restructure their fee arrangements and contractual relationships.

The legislation addresses growing concerns about the legal funding industry, where consumers have sometimes faced complex fee structures and unclear terms. By eliminating compound interest and hidden fees, AB 931 aims to create more transparent financial arrangements between attorneys and their clients. The five-day cancellation window provides consumers with additional time to reconsider their legal representation decisions without financial penalty.

For the legal industry, these changes will require substantial adjustments to business practices, particularly for firms that have relied on referral arrangements or aggressive advertising tactics. The pending SB 37 legislation would further restrict how attorneys can market their services, potentially limiting the types of claims they can make about their success rates or case outcomes. These reforms represent California's ongoing effort to balance consumer protection with maintaining a robust legal services market, setting precedents that could influence similar legislation in other states facing comparable challenges in legal industry regulation.