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On January 14, the DFPI announced a consent order requiring a crypto lending platform to pay $500,000 in penalties for alleged violations of the California Financing Law and the California Consumer Financial Protection Law. According to the regulator, the company offered crypto-backed consumer and commercial loans to California residents without obtaining a required finance lender license and without adequately considering borrowers' ability to repay.
The consent order resolves allegations arising from DFPI's examination of the platform's crypto-backed lending program, which the Department alleges was offered to California residents between 2018 and 2022 through a website and mobile application. The company neither admitted nor denied the findings set forth in the order.
The consent order identifies several alleged compliance failures under California law, including the following:
- Unlicensed lending activity. DFPI alleges the company contracted for and originated loans with 5,456 California residents without holding a license under the California Financing Law, despite engaging in activities that meet the definition of finance lending.
- Failure to assess ability to repay. The Department alleges the company did not maintain underwriting policies that evaluated borrowers' credit history, existing debt, expenses, or overall financial condition before originating loans, as required under California regulations.
- Reliance on overcollateralization. According to DFPI, the company relied on crypto collateral and automatic liquidation mechanisms as a substitute for evaluating a borrower's ability to repay, an approach the Department alleges does not satisfy California's underwriting requirements.
- Unlawful acts under the CCFPL. DFPI further alleges that, by committing repeated violations of the California Financing Law, the company engaged in unlawful acts and provided consumer financial products not in conformity with consumer financial law.
Putting It Into Practice: The DFPI continues to expand its supervision and enforcement activity across crypto-related products operating in California (previously discussed here and here). As California maintains an active state-level approach to crypto oversight amid evolving federal priorities, market participants should continue to monitor enforcement trends and adjust compliance programs for digital-asset lending activities offered to California residents.
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