Amid rising concerns about the mental health impacts of artificial intelligence chatbots, several new state laws are restricting their use in therapeutic contexts. Psychiatric experts, including a University of California, San Francisco psychiatrist, warn that prolonged interaction with AI chatbots may induce psychosis, particularly in individuals predisposed to such conditions. Reports have also highlighted AI's role in replacing parental guidance, contributing to increased self-harm among children. Public alarm has grown over AI's potential to distort users' perceptions of reality. In response, states like Colorado are advancing legislative measures to regulate AI applications, especially concerning children's data privacy and teen privacy protections. These developments come alongside broader amendments to state consumer data privacy laws enacted in 2025, with Colorado holding special legislative sessions to consider revisions. Legal analyses emphasize the evolving landscape of mental health chatbot regulation and the implications for companies offering online services.