State Bar Act: consumer legal funding.

Assembly Member Kalra's consumer legal funding legislation establishes a comprehensive framework regulating transactions where companies purchase rights to potential legal settlement proceeds from California consumers. The bill creates the California Consumer Legal Funding Act, which requires all funding agreements to meet specific contractual and disclosure requirements while prohibiting certain business practices.

Under the new provisions, consumer legal funding contracts must be written in plain English, provide a five-day right of rescission, and clearly disclose the funded amount, all charges, and maximum repayment obligations. Attorneys representing funded clients must acknowledge reviewing disclosures with their clients and confirm they receive no referral fees from funding companies. The bill mandates that repayment amounts be predetermined based on time intervals rather than calculated as a percentage of settlement proceeds.

The legislation prohibits funding companies from paying referral fees to attorneys, influencing settlement decisions, or requiring clients to change legal representation. Violations trigger automatic contract termination and statutory damages of $10,000 per incident or triple actual damages. The bill also bars California attorneys from sharing legal fees with out-of-state entities that allow non-lawyer ownership, with violations subject to State Bar discipline and monetary penalties.

To protect consumers' interests, the bill establishes that only attorney liens and statutory liens related to the legal claim take priority over funding company liens. Attorneys and their immediate family members are prohibited from having financial interests in funding companies serving their clients, and privileged information can only be shared with funding companies with written client consent.