State Bar Act: consumer legal funding.

Existing law, the State Bar Act, provides for the licensure and regulation of attorneys by the State Bar of California, a public corporation. The act prohibits an attorney from accepting a client from a referral service, unless it is a certified lawyer referral service or specified conditions are met, and makes a violation of that prohibition subject to a civil penalty. The act additionally imposes various restrictions on contracts for legal services and specified fee agreements, including that the contract or agreement be in writing and that the basis of compensation is expressly included. This bill, for purposes of the State Bar Act, would define consumer legal funding to mean a transaction in which a consumer legal funding company, as defined, purchases and a consumer assigns to the company a contingent right to receive an amount of the potential proceeds of a settlement, judgment, award, or verdict obtained in the consumer's legal claim. The bill would require a consumer legal funding transaction to be in writing and contain specified provisions, including that the contract contain the amount to be paid to the consumer by the consumer legal funding company upon the completion of litigation and an itemization of any one-time charges. The bill would require, for a consumer legal funding contract negotiated in a language other than English, that the consumer receive a copy of the contract in both English and that language. The bill would prohibit those charges from exceeding 36 months from the funding date. The bill would prohibit a consumer legal funding company from paying commissions, referral fees, or other forms of consideration to an attorney or law firm, or their employees, for referring a consumer to the company, among other things, and would impose various penalties, including statutory damages, set as prescribed, for violation of those prohibitions. The bill would additionally state that the contingent right to receive an amount of the potential proceeds of a legal claim is assignable by a consumer. This bill would prohibit an attorney from, among other things, promising or giving anything of value to a person for the purpose of recommending or securing the services of the attorney or the attorney's law firm, except as provided. The bill would additionally, until January 1, 2030, prohibit an attorney licensed or otherwise authorized to practice in the state from sharing legal fees directly or indirectly with an out-of-state entity that provides legal services while allowing nonlawyer ownership or decisionmaking authority, except as specified. The bill would specify that the above-described prohibition of the sharing of legal fees only applies to contracts entered into on or after January 1, 2026. The bill would make a violation of that prohibition of the sharing of legal fees cause for the imposition of discipline by the State Bar of California and would subject a violator to specified penalties.