Crypto lending company Nexo Capital will pay $500,000 to California’s financial regulator over allegations it made thousands of loans to state residents without properly assessing their ability to repay.
California Department of Financial Protection and Innovation (DFPI) he said on Wednesday, Nexo made at least 5,456 consumer and commercial loans to Californians without a valid license.
“Prior to originating the loan, Nexo Capital generally did not evaluate the borrower’s ability to make timely repayments, existing indebtedness, credit history or other documents relating to the borrower’s overall financial situation,” the regulator said.
DFPI Commissioner KC Mohseni said lenders “must comply with the law and avoid making risky loans that endanger consumers – and cryptocurrency-backed loans are no exception.”
DFPI says Nexo loans are at increased risk of default
Crypto-collateralized loans allow users to borrow fiat coins or stablecoins by placing digital assets as collateral.
While they are typically overcollateralized and more readily available than customary loans, often without a credit check, defaulted repayments can result in a forced sale of collateral to cover outstanding balances.
DFPI said Nexo “lacked underwriting policies,” which increased the risk of borrowers defaulting on loans.
DFPI said the loans were made between July 2018 and November 2022 and involved “unlawful activities and practices” related to a consumer product or service that did not comply with consumer finance laws.
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Within 150 days, Nexo must transfer all California residents’ funds to Nexo Financial LLC, a U.S.-based affiliate that holds a California Finance Lenders License issued by DFPI.
In February 2023, the company said it would end offering its profitable Earn Interest product to its U.S. customers, about a month after it agreed to pay $45 million in penalties to U.S. regulators.
The program allowed users to earn a daily rate of return on certain cryptocurrencies by lending them to Nexo.
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