California DFPI suspends BlockFi license for violating financial laws, halting harmful practices, and ensuring consumer protection in crypto lending.
The California Department of Financial Protection and Innovation (DFPI) has suspended the California Financing Law (CFL) license of crypto lender BlockFi Lending LLC. This decision follows a prolonged investigation into the company’s business practices and comes after a temporary suspension of BlockFi’s license in November 2022. Accordingly, BlockFi committed to halting the violations, stopping detrimental behaviors, and avoiding operation as a company of this formation.
The DFPI’s examination also showed that the company violated some California financial laws. The most egregious were the lack of a process for evaluating borrowers’ capacity to repay, charging interest before providing loan proceeds, and never offering appropriate credit counseling services to borrowers.
Additionally, the company failed to provide the credit bureaus with borrowers’ payment records and provided false information about the annual percentage rates (APRs) in contracts. These lapses forced the DFPI to intervene, leading to the revocation of the license in question.
DFPI Emphasizes Compliance with California Laws
BlockFi faced difficulties starting in 2022 after filing for bankruptcy due to the failure of a key partner—the cryptocurrency trading platform FTX. Nevertheless, BlockFi’s bankruptcy administrator recently stated that enough assets had been recovered to repay its customers fully.
The Department of Financial Protection and Innovation (DFPI) has supported financial technology. Commissioner Clothilde V. Hewlett noted that companies should follow California’s laws to shield consumers from fraud. The Department also agreed to pay a $175,000 fine as part of the settlement. However, due to BlockFi’s insolvency and inability to operate, hence the BlockFi bankruptcy, the fine was exempted so that the focus would be placed on retrieving consumer money.
Earlier this year, in February 2022, BlockFi was again on the wrong side of regulators when the DFPI filed a consent order against it for the sale of unqualified securities. This settlement reflects the DFPI’s determination to ensure that the financial services suppliers and those within the crypto industry adjust to the Californian rules.
The DFPI’s actions remind financial services providers to follow California’s laws to protect consumers and their right to financial services. The department requires continued compliance from anyone selling securities or providing financial services in the state, including BlockFi, which lends money.
