AB 931 creates the California Consumer Legal Funding Act to regulate companies that buy a claimant’s contingent right to settlement or judgment proceeds. The bill defines consumer legal funding as a nonrecourse purchase, requires written, plain‑English contracts with specific disclosures and a short cancellation window, and imposes restrictions on pricing, referrals, and funder involvement in litigation.
The law reshapes how pre‑settlement funding is structured and sold in California: it replaces percentage‑of‑recovery pricing with a predetermined, time‑based contracted amount, requires an attorney’s written attestation in every funded transaction, and gives consumers statutory remedies and contract termination rights for prohibited practices. Compliance obligations and new liability exposures will directly affect funders, plaintiff attorneys, and certain intermediaries, and may influence the availability and cost of litigation financing for California claimants.
At a Glance
What It Does
AB 931 sets uniform contract rules and disclosure requirements for consumer legal funding, bans percentage‑of‑recovery pricing in favor of a predetermined, time‑based charge structure, and prohibits funders from paying referral fees or directing litigation. It also requires an attorney’s written acknowledgement for each transaction and creates civil remedies for prohibited conduct.
Who It Affects
Consumer legal funding companies operating in California, plaintiff attorneys who work with funded clients, and California residents with pending civil claims who use pre‑settlement financing. Local bar associations and courts will also see new procedural and enforcement touchpoints.
Why It Matters
The bill changes business economics for litigation funders, transfers a gating role to attorneys through attestation and trust‑account disbursement rules, and gives consumers clearer information and statutory remedies—potentially reducing conflicts and abusive practices but also altering access to capital for litigants.
More articles like this one.
A weekly email with all the latest developments on this topic.
What This Bill Actually Does
AB 931 writes commercial rules around what used to be an opaque market. It starts by defining the product: consumer legal funding is a nonrecourse purchase of a contingent right to settlement or judgment proceeds for a natural person with a pending civil claim in California.
The statute sets up foundational contract rules—written agreements, plain‑English drafting, and bilingual delivery where the negotiation used another language—to ensure consumers see every term before they sign.
The bill imposes detailed disclosure and execution mechanics. Every agreement must disclose the funded amount, one‑time charges, the maximum total the consumer might owe, and a repayment schedule on the first page; consumers must initial every page.
Contracts must include a short rescission window: the consumer can cancel and return funds under narrow conditions. The contract also may not include prepayment penalties.Pricing and payment mechanics are constrained in two ways.
First, the contract must state a predetermined contractual amount owed to the funder calculated by time intervals from the funding date through resolution rather than as a percentage of recovery. Second, the text sets a limit on the duration over which charges can be assessed measured from the funding date.
Funders must also be notified of the outcome of the underlying claim by the consumer or the consumer’s attorney so the contract can be resolved.To curb conflicts, the statute requires a written acknowledgement from the consumer’s retained attorney on each contract confirming that the attorney reviewed the required disclosures, is working on contingency under a written agreement, will receive settlement proceeds through a client trust or settlement fund, will disburse funds consistent with the funding contract, and has not and will not receive referral fees or other consideration from the funder. If that attestation is absent the funding contract is void—but the law preserves the consumer’s ability to keep a deal in force if the consumer later dismisses the attesting attorney.
Separately, the bill bars funders from paying or taking referral fees, steering consumers to specific attorneys, influencing litigation strategy or settlement decisions, funding conditional on dropping counsel, paying court costs out of funding proceeds, or knowingly assisting fabricated claims.Enforcement combines contract remedies and statutory penalties. A violating funder faces automatic termination of the contract, monetary statutory damages (with a formula tied either to a fixed statutory cap or multiples of actual damages), attorneys’ fees and costs, and injunctive relief; courts are directed to consider aggravating and mitigating factors when setting damages.
The law also treats attorneys who violate its anti‑kickback and conflict provisions as subject to State Bar discipline.
The Five Things You Need to Know
The contract must give the consumer a right to cancel within five business days after the funding date if the consumer returns the full disbursed funds.
The amount payable to the funder must be a predetermined sum tied to time intervals from funding to resolution—not a percentage of the claimant’s recovery.
The statute caps the period for which charges may be assessed to no more than 36 months measured from the funding date.
If the consumer’s retained attorney does not provide the required written attestation about disclosures, contingency compensation, trust‑account disbursement, and lack of referral fees, the funding contract is null and void (with a narrow exception if the consumer later replaces that attorney).
A funder that violates the prohibitions (for example, paying referral fees or directing litigation) faces automatic contract termination, statutory damages up to either a specified cap per violation or treble actual damages, plus attorneys’ fees and injunctive relief; courts weigh the seriousness and willfulness when setting damages.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Definitions and scope
This section defines the key terms—consumer, consumer legal funding, funded amount, funding date, legal claim, and immediate family member—and narrows who counts as a funding company (explicitly excluding attorneys, immediate family, and banks or lenders that only finance funders). Practically, it pins the statute to nonrecourse purchases of contingent rights in bona fide civil claims and sets the territorial hook: consumers domiciled in California.
Contract formalities and execution rules
Section 6251 requires written contracts in plain English and, when negotiations occur in another language, bilingual copies. It compels upfront presentation of all terms, page‑by‑page initials, and a five‑business‑day rescission right conditioned on returning funds. It also bars prepayment penalties. For compliance officers this means implementing standard form contracts, bilingual workflows, and a documented process to track rescissions and returned funds.
Mandatory disclosures on the first page
This section prescribes front‑loaded disclosures: funded amount, itemized one‑time charges, the maximum total amount that may be assigned to the funder, and a repayment schedule listing due dates. It also requires a plain language cancellation notice and a statement that the funder does not make settlement decisions (while permitting status updates). Operationally, funders must redesign their contract templates and customer intake so the required items visibly appear on page one.
Pricing structure: time‑based and predetermined
Section 6253 forbids pricing a transaction as a percentage of recovery and instead requires the contracted amount to be a predetermined figure tied to time intervals from funding to resolution. That forces funders to move from contingency‑style percent models to fixed, time‑based schedules; compliance must document how interval pricing is calculated and disclosed to avoid being treated as a disguised percentage fee.
Prohibitions on funder conduct and civil remedies
This provision lists prohibited practices—paying or accepting referral fees, steering clients to specific counsel, influencing litigation or settlement decisions, funding conditioned on terminating counsel, paying court costs from funding proceeds, or knowingly aiding fabricated claims. It creates a remedy package: automatic contract termination, statutory damages (subject to a per‑violation cap or treble damages), attorney’s fees and costs, and injunctive relief. The section also instructs courts to consider factors like willfulness and persistence when calibrating damages.
Right to assign contingent proceeds
Section 6255 confirms that a consumer may assign their contingent right to receive proceeds. This preserves the basic market mechanism: consumers can transfer potential recovery rights to funders—but subject to the statute’s disclosure, pricing, and anti‑kickback constraints.
Attorney conflicts, privilege, and discipline
This section bars attorneys (and their immediate family) retained by a consumer from having a financial interest in a funding company or from providing funding directly to a client. Attorneys must protect privilege—disclosure to funders requires written client consent—and may not compensate persons for client referrals except in narrowly defined, professional‑rule‑compliant contexts. Violation exposes attorneys to State Bar discipline, creating a professional‑ethics enforcement track alongside the statute’s civil remedies.
This bill is one of many.
Codify tracks hundreds of bills on Finance across all five countries.
Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- California plaintiffs who receive funding: gain clearer, front‑loaded disclosure of costs, an explicit cancellation window, and statutory remedies if funders engage in prohibited practices, reducing surprise costs and conflicts.
- Non‑English‑speaking consumers: receive bilingual contract copies when negotiations occur in another language, improving informed consent and lowering translation barriers.
- Contingency‑fee plaintiff attorneys: get procedural clarity that settlement proceeds must flow through trust accounts and that funders may not steer or control litigation, reducing conflicts and protecting attorney discretion.
- State Bar and consumer advocates: obtain statutory tools to challenge funder‑lawyer kickbacks and misleading practices and to seek injunctive relief and damages.
Who Bears the Cost
- Consumer legal funding companies: must redesign product pricing away from percentage models, overhaul contract templates, absorb bilingual and attestation workflows, and accept increased liability exposure and statutory damages risk.
- Referral intermediaries and brokers that relied on attorney referral fees: lose a revenue stream and face potential civil exposure if practices continue.
- Attorneys representing funded clients: must provide written attestations, ensure trust‑account processing, and manage privilege waivers carefully, increasing administrative burdens and professional risk.
- Consumers in marginal cases: may face reduced access to funding if funders exit or tighten underwriting in response to constrained pricing and higher compliance costs.
Key Issues
The Core Tension
The central tension is between protecting consumers from opaque pricing, attorney kickbacks, and funder control over litigation, and preserving access to pre‑settlement capital for plaintiffs who lack resources: stronger guardrails reduce abusive practices but also increase compliance costs and legal exposure for funders, which may reduce the supply of affordable financing to meritorious claimants.
The statute stitches consumer protections into a market that has historically used percentage‑of‑recovery pricing and informal referral networks. That creates several implementation and interpretive challenges.
First, the rule that charges “shall not exceed 36 months from the funding date” is drafted as a temporal cap but leaves open how to convert time‑based charges into an annualized cost comparable to APR or to evaluate whether a time‑based schedule is economically equivalent to a banned percentage fee. Regulators and courts will need to define acceptable interval formulas and disclosure practices so time‑based schedules cannot be used to mimic predatory rates while technically complying with the ban.
Second, the attorney attestation regime raises practical dilemmas. Making an attestation a gating condition—failure renders the contract void—creates a powerful procedural safeguard, but also risks collateral effects: transactions could be invalidated for technical failures (missing signature, timing error) harming consumers who already received funds.
The exception allowing a contract to remain valid if the consumer later terminates the attesting attorney reduces that risk but invites strategic behavior and potential litigation over sequencing. Finally, the statutory damages and automatic termination remedies are strong levers that will deter misconduct but could chill smaller funders or prompt market exits, which in turn affects access to capital for lower‑value claims.
Enforcement will require courts to grapple with standards like “knew or should have known” about prior assignments and to calibrate damages in ways that punish abuse without creating windfalls or undermining legitimate funding arrangements.
Try it yourself.
Ask a question in plain English, or pick a topic below. Results in seconds.