State Bar Act: consumer legal funding.

Assembly Member Kalra's consumer legal funding legislation establishes comprehensive regulations governing transactions between legal funding companies and consumers with pending legal claims. The bill creates the California Consumer Legal Funding Act, defining these arrangements as nonrecourse transactions where companies purchase a consumer's contingent right to potential legal proceeds.

The legislation requires all funding contracts to be written in plain English, with translations provided for non-English negotiations. Contracts must clearly disclose the funded amount, itemized charges, maximum repayment obligations, and a five-business-day right of rescission. Charges cannot extend beyond 36 months from the funding date. Attorneys must acknowledge reviewing disclosures with clients and confirm they receive no referral fees from funding companies.

Consumer legal funding companies face strict operational limitations under the new framework. The bill prohibits them from paying referral fees to attorneys, influencing legal proceedings, obtaining rights waivers from consumers, or funding consumers who have pre-existing assignments without first satisfying those obligations. Violations trigger automatic contract termination and statutory damages up to $10,000 per incident or triple actual damages.

The legislation also addresses attorney conduct, prohibiting lawyers from sharing legal fees with out-of-state alternative business structures through 2030 unless specific licensing and jurisdictional requirements are met. Attorneys and their immediate family members cannot hold financial interests in funding companies or provide direct funding to clients. The State Bar of California maintains disciplinary authority over attorneys who violate these provisions.