California Litigation Funding Regulations Guide

September 17, 2026

California litigation funding regulations changed in a meaningful way on January 1, 2026. Business and Professions Code sections 6250 through 6256, added by AB 931, now set requirements for consumer legal funding contracts, disclosures, attorney acknowledgments, referral payments, confidentiality, and settlement control. For plaintiff attorneys, the practical question is how to review a funding option without compromising the client’s recovery, independent judgment, or confidential information.

Contact Us to discuss California client funding

This guide explains the current California framework in plain language. It also separates enacted rules from pending proposals, including AB 743 and AB 2305. It is educational information, not legal advice. Attorneys should review the current statute, professional rules, the full funding agreement, and the facts of each client relationship before making a recommendation.

What California litigation funding regulations govern consumer funding?

Short answer: California’s main consumer litigation funding rules are in Business and Professions Code sections 6250 through 6256, known as the California Consumer Legal Funding Act. Effective January 1, 2026, the law requires written, plain-language contracts, defined disclosures, attorney involvement, and limits on funder control, referral payments, and handling of confidential information.

The California Consumer Legal Funding Act applies to a nonrecourse transaction in which a consumer assigns a contingent right to potential proceeds from a settlement, judgment, award, or verdict. A consumer is a natural person with a pending legal claim who resides or is domiciled in California. The statute also defines charges broadly. Administrative, origination, underwriting, and other fees, including interest, are included in the definition of charges.

The law is focused on consumer funding for a plaintiff’s needs. Section 6250(j) states that the article does not apply to support legal services rendered to an attorney regarding the legal claim. That distinction matters because consumer funding and commercial litigation finance can involve different parties, objectives, risks, and professional-responsibility questions.

For plaintiff attorneys, the statute creates a baseline review framework rather than a substitute for professional judgment. The agreement should be understandable, the client should know the maximum financial obligation and cancellation right, and the funder should not direct the claim or settlement. The attorney must also consider confidentiality, conflicts, and whether the arrangement serves the client’s interests.

California rule	What it addresses	Attorney review question
BPC 6250	Definitions, nonrecourse funding, consumer scope, and charges	Does the transaction fit the statutory consumer funding framework?
BPC 6251	Written contract, plain English, cancellation, and attorney acknowledgment	Can the client understand the agreement and exercise the five-business-day right?
BPC 6252	Front-page financial disclosures and settlement-control language	Are the funded amount, charges, maximum repayment, schedule, and no-control disclosure clear?
BPC 6253	Predetermined repayment based on time intervals	Is repayment a predetermined amount rather than a percentage of recovery?
BPC 6254	Referral payments, misleading information, claim control, and prohibited conduct	Does the funder’s conduct preserve the client’s and attorney’s independence?
BPC 6256	Attorney financial interests and confidential information	Has the client given written consent before privileged information is shared?

What must a California funding contract include?

Short answer: A California consumer legal funding contract must be written and presented in plain English. It must include all terms when first presented, provide a five-business-day cancellation right after funding, state that no undisclosed fees are due, explain how charges accrue, and identify the maximum amount the consumer may owe except in specified cases such as material breach, fraud, or misrepresentation.

Business and Professions Code section 6251 requires a written contract for every consumer legal funding transaction. If the contract was negotiated in a language other than English, the consumer must receive a copy in English and in the language used during negotiations. The agreement must be drafted so an average consumer can read and understand it without professional assistance.

Key contract requirements include:

All contract terms must be included when the agreement is first presented.
The consumer may cancel without penalty or further obligation within five business days after the funding date by returning all disbursed funds.
The consumer must initial each page of the agreement.
The contract must state that no fees or charges are due other than those disclosed in the contract.
The contract must state the maximum amount the consumer may be obligated to pay, subject to the statute’s exceptions.
The contract must explain how charges, including applicable fees, are incurred or accrued.

The five-business-day cancellation period is not a detail to bury in a long agreement. Attorneys should confirm that the contract states the right clearly and that the client understands the practical steps for returning funds. A review should also compare the disclosed maximum obligation with the amount the client expects to retain from a potential recovery.

What disclosures must appear in a California funding agreement?

Short answer: California law requires clear and conspicuous first-page disclosures covering the amount funded, one-time charges, maximum total amount assigned to the consumer legal funding company, and the repayment schedule. The contract must also explain the cancellation right and state that the funder cannot decide whether, when, or for how much the legal claim is settled.

Section 6252 is designed to put the most important financial and control terms in front of the consumer. On the first page, the agreement must identify the funded amount to be paid to the consumer upon completion of litigation, itemize one-time charges, state the maximum total amount assigned to the funder including the funded amount and charges, and provide a repayment schedule with due dates.

That schedule gives an attorney and client a way to discuss the economic effect of time. A funding agreement should not be evaluated only by the amount delivered on day one. The review should ask what the client could owe if the case resolves after six months, one year, two years, or another realistic period under the agreement.

California law also requires a disclosure that the consumer legal funding company has no role in deciding whether, when, or for what dollar amount a legal claim may be settled. The funder may seek updated information about the status of the claim, but status updates are different from directing litigation strategy or settlement decisions.

Section 6253 adds another important protection: the contracted amount paid to the consumer legal funding company must be a predetermined amount based on intervals of time from the funding date through the resolution date. It may not be determined as a percentage of recovery. Attorneys should therefore distinguish a time-based repayment schedule from a contract that gives the funder a variable share of the client’s recovery.

A careful contract review helps attorneys and clients understand repayment, disclosures, and independence before funding is accepted.

How does attorney involvement work under California law?

Short answer: California requires a written attorney acknowledgment in the consumer legal funding contract. The retained attorney must confirm review of the statutory disclosures, contingency-fee representation, client-trust-account handling of claim proceeds, and the absence of referral fees or other consideration from the funder. Without the required acknowledgment, the transaction and contract may be void.

Section 6251 requires the contract to contain a written acknowledgment by an attorney retained by the consumer. The acknowledgment must confirm that the attorney reviewed the section 6252 disclosures with the consumer and that the attorney represents the consumer on a contingency basis under a written agreement.

The acknowledgment also addresses how proceeds will be handled. It states that all proceeds of the legal claim will be disbursed through the attorney’s client trust account or a separate settlement fund established to receive the proceeds for the consumer. The attorney agrees to disburse funds according to the contract and take necessary steps to fulfill the funding contract’s terms.

Finally, the attorney must state that the attorney has not received a referral fee or other consideration from the consumer legal funding company in connection with the contract and will not receive future fees or consideration from that company. Section 6254 separately prohibits a consumer legal funding company from paying or offering commissions, referral fees, or other consideration to an attorney, law firm, or employee for referring a consumer.

This structure does not mean an attorney must promote funding or approve every agreement. It means the attorney’s participation has a defined role in protecting the client’s understanding and the proper handling of settlement proceeds. The attorney should remain alert to conflicts, undue pressure, and terms that could make a client feel forced to settle.

Learn more about attorney-aligned funding options

What conduct is prohibited or restricted for a California funding company?

Short answer: California prohibits a consumer legal funding company from paying referral compensation, providing materially false or misleading information, directing settlement or claim decisions, requiring a represented consumer to change attorneys, or seeking certain waivers of consumer rights. Violations can trigger contract termination, statutory damages, attorney fees, and injunctive or declaratory relief.

Business and Professions Code section 6254 gives attorneys a practical conduct checklist. A consumer legal funding company may not:

Pay or offer commissions, referral fees, rebates, or other consideration to an attorney, law firm, or employee for a consumer referral.
Accept commissions, referral fees, rebates, or other consideration from an attorney, law firm, or employee.
Intentionally provide materially false or misleading information about its products or services.
Refer a consumer or potential customer to a specific attorney, law firm, or employee in furtherance of legal funding, subject to the statute’s local bar referral service exception.
Fund a consumer while knowingly ignoring a prior assignment of rights to claim proceeds.
Receive a right to or make decisions about the conduct of the underlying claim, settlement, or resolution.
Attempt to obtain a waiver of a consumer remedy or right, including the right to a jury trial.
Pay court costs, filing fees, or attorney fees using funds from the consumer legal funding transaction.
Condition funding on a represented consumer terminating current counsel and adopting counsel recommended by the funder.
Knowingly assist a lawyer or law firm in pursuing a fabricated or bad-faith claim.

The law provides meaningful remedies for prohibited conduct. Depending on the violation, the contract may terminate automatically, and the company may face statutory damages of up to $10,000 per violation or three times actual damages, whichever is greater, plus attorney costs and fees and injunctive or declaratory relief.

How should attorneys handle confidentiality and independent judgment?

Short answer: Attorneys should preserve independent professional judgment and obtain the client’s informed written consent before disclosing privileged information to a funding company. California Business and Professions Code section 6256 addresses written consent and attorney financial interests, while State Bar Formal Opinion No. 2020-204 discusses confidentiality, conflicts, and the risks of sharing case information with a third-party funder.

Section 6256 prohibits a retained attorney, the attorney’s immediate family, and certain referring attorneys from having a financial interest in a consumer legal funding company offering funding to that consumer. It also prohibits the retained attorney from providing consumer legal funding directly to the consumer.

The same section provides that a retained attorney must not disclose privileged information to a legal funding company without the consumer’s written consent. Disclosure at the consumer’s request does not otherwise void the attorney-client privilege, but the consent requirement does not remove the need for a careful confidentiality analysis.

The State Bar of California’s Formal Opinion No. 2020-204 identifies independent professional judgment and confidentiality as principal ethical issues in third-party litigation funding. The opinion advises that a lawyer should explain the relevant circumstances and material risks of disclosure and obtain informed consent. Depending on the facts, appropriate safeguards may include a nondisclosure agreement, confidential labeling, and limiting the materials shared with the funder.

A practical attorney review can ask:

What information does the funder request, and is each item necessary?
Has the client given informed written consent after receiving an explanation of material risks?
Does any attorney or referral source have a financial interest or receive consideration?
Does any contract term influence case strategy, settlement timing, or the client’s choice of counsel?
Can the client understand the agreement and compare the repayment obligation with likely recovery scenarios?

What should a plaintiff attorney check before recommending funding?

Short answer: Before recommending a consumer litigation funding company, a plaintiff attorney should verify the agreement’s scope, plain-language disclosures, maximum repayment, cancellation right, time-based repayment structure, referral-fee position, settlement-control language, confidentiality process, and trust-account instructions. The attorney should also document the client’s informed choice without substituting the funder’s interests for the client’s.

Use the following checklist as a starting point for a California agreement review:

Confirm the transaction type: Determine whether the agreement is consumer legal funding covered by BPC 6250 through 6256 or a different form of commercial litigation finance.
Read the first page first: Confirm that the funded amount, one-time charges, maximum total assignment, repayment schedule, cancellation disclosure, and no-settlement-control language are clear and conspicuous.
Test the time periods: Calculate the expected obligation at reasonable resolution dates. Look for compounding, unclear administrative charges, or terms that change the amount without a clear explanation.
Check for a recovery percentage: California requires a predetermined amount based on time intervals, not a percentage of the recovery.
Confirm the five-business-day right: Make sure the client understands how to cancel and return the full disbursed amount without penalty or further obligation.
Review attorney acknowledgment terms: Confirm the agreement accurately reflects contingency representation, trust-account handling, disclosure review, and no referral consideration.
Protect confidential information: Obtain written consent before sharing privileged information and limit disclosure to what is necessary.
Preserve settlement independence: Reject provisions that give the funding company control over litigation, settlement, counsel, or the client’s legal decisions.
Explain the client’s alternatives: The client should understand that funding is optional and should not be pressured to accept an advance or a settlement.

The Milestone Foundation is the United States’ first and only 501(c)(3) nonprofit consumer litigation funding organization. Its mission-driven model is designed as an alternative to traditional for-profit funders. When pricing is relevant, The Milestone Foundation states 15% simple annual interest for pre-settlement funding and 10% simple interest for post-settlement funding. Interest never compounds, funding is non-recourse, and there are no hidden fees. Attorney participation is required for a plaintiff funding application.

What California funding legislation is still pending?

Short answer: AB 931 is enacted and effective, while AB 743 and AB 2305 should be treated separately as pending measures unless and until their official status changes. AB 743 would create a licensing framework for lawsuit financiers. AB 2305 addresses corporate legal funders and states that its provisions would apply to qualifying contracts entered into on or after January 1, 2027.

AB 743: The official California Legislative Information status page lists AB 743, California Financing Law: lawsuit financiers, as an active bill in the Senate Banking and Financial Institutions committee process. The bill would require a person engaged in lawsuit financing to obtain a license from the Commissioner of Financial Protection and Innovation and would impose related surety-bond, recordkeeping, reporting, advertising, and penalty provisions. It is not the current enacted rule described in this guide. Attorneys should check the official bill status before relying on any proposed licensing requirement.

AB 2305: The official status page lists AB 2305, Attorneys: corporate legal funders, as enrolled and presented to the Governor on August 31, 2026. The enrolled text addresses improper corporate interference with litigation decisions and states that its provisions apply to contracts entered into on or after January 1, 2027. As of this guide’s September 17, 2026 research date, the measure should be treated as pending rather than presented as current law. If enacted, counsel should review the signed statute, effective date, and implementing guidance.

Pending legislation is especially important in a fast-changing regulatory area, but a bill is not the same as a statute. Keep a dated copy of the official source used in a client or firm review, identify whether a provision is enacted or proposed, and recheck status before publishing an update or advising on a new agreement.

Why do simple-interest terms matter when attorneys compare funding options?

Short answer: Simple interest is calculated on the principal rather than on previously accrued interest. The Milestone Foundation uses 15% simple annual interest for pre-settlement funding and 10% simple interest for post-settlement funding, with interest that never compounds. Comparing the total repayment over time helps attorneys protect a client’s expected net recovery.

California’s statute requires a predetermined repayment amount based on time intervals and prohibits making that amount a percentage of recovery. Attorneys still need to read the agreement carefully because a simple-interest label alone does not answer every question. Review the principal, rate, time period, fees, repayment schedule, maximum obligation, and any event that accelerates payment.

For example, a $10,000 advance at 15% simple annual interest would accrue $1,500 in interest for one year before any disclosed fees. A compounding structure would calculate later interest on a growing balance. That is why a plain-language schedule and a clear explanation of whether interest compounds matter when a client is comparing consumer litigation funding companies.

The legal and financial review should remain client-centered. A non-recourse structure means the plaintiff owes nothing if the case is lost, but the agreement still affects the amount available from a successful recovery. Attorneys can help clients avoid taking more than they need, understand the time cost, and avoid pressure to accept an unfair settlement simply because immediate expenses are difficult.

Contact The Milestone Foundation about a California plaintiff funding question

Frequently asked questions about California litigation funding regulations

Short answer: California’s consumer legal funding law now requires written and understandable agreements with specific financial disclosures, attorney acknowledgment, and a five-business-day cancellation right. It also restricts referral payments, misleading conduct, settlement control, and unauthorized disclosure of privileged information. Pending bills should be checked separately from the enacted California Consumer Legal Funding Act.

Is consumer litigation funding legal in California?

Yes. California Business and Professions Code sections 6250 through 6256 regulate consumer legal funding transactions effective January 1, 2026. The law does not prohibit consumer funding. It sets requirements for written contracts, disclosures, attorney involvement, repayment structure, confidentiality, and funder conduct.

Does California require a funding contract to be in writing?

Yes. BPC 6251 requires every consumer legal funding transaction to be documented in a written contract. The agreement must be in plain English, include all terms when first presented, and be provided in both English and the negotiated language when the contract was negotiated in another language.

How long does a California consumer have to cancel a funding agreement?

The consumer may cancel without penalty or further obligation within five business days after the funding date by returning all funds disbursed by the consumer legal funding company. The cancellation right must be stated in the contract, and the client should understand the required return procedure.

Can a funder decide whether a California case settles?

No. BPC 6252 requires a disclosure that the consumer legal funding company has no role in deciding whether, when, or for what dollar amount a legal claim may be settled. BPC 6254 also prohibits the funder from receiving rights to or making decisions about the underlying claim’s conduct or resolution.

Can a California attorney receive a referral fee from a consumer legal funding company?

The California Consumer Legal Funding Act prohibits a consumer legal funding company from paying or offering a commission, referral fee, rebate, or other consideration to an attorney, law firm, or employee for referring a consumer. The contract acknowledgment must also state that the attorney has not received and will not receive such consideration.

What should an attorney do before sharing case information with a funder?

The attorney should explain the relevant circumstances and material risks, obtain the consumer’s informed written consent, and limit the information shared to what is necessary. State Bar Formal Opinion No. 2020-204 discusses confidentiality, independent judgment, conflicts, and safeguards such as nondisclosure agreements and confidential labeling.

Sources and a final review reminder

This guide was researched against the official California sources below. Legislation and professional guidance can change, so attorneys should confirm the current text and consult qualified counsel about a specific agreement or client situation.

For a broader review of funding disclosures, see The Milestone Foundation’s attorney overview of litigation funding disclosure rules. For client-facing information about terms and eligibility, visit the application and funding information page or the frequently asked questions.

Back to All Posts