California Regulators Fine Nexo $500,000 Over Crypto-Backed Lending Practices
The California Department of Financial Protection and Innovation (DFPI) has Nexo Capital Inc. $500,000 for breaking state financial rules by tradeing crypto-backed loans without a license.
The fine stems from Nexo issuing thousands of these loans without verifying borrowers’ ability to repay, thereby increasing the risk of default in the space. Regulators made it clear that loans backed by cryptocurrencies must follow the identical rules as regular loans, including credit and income checks.
Uncovered Violations
Nexo gave loans to at least 5,456 Californians for personal and business purposes between July 26, 2018, and November 22, 2022, without checking their ability to repay, prior debt, or credit history.
The DFPI pointed out that Nexo lacked underwriting policies, which put clients at significant that is usually avoided in regular banking. According to DFPI Commissioner KC Mohseni, “Lenders must follow the law and not make risky loans that put consumers at risk. Crypto-backed loans are no diverse.”
Actions By Regulators and Following the Rules
must also pay a fine and move all of its California customers’ money to its licensed U.S. affiliate, Nexo Financial LLC, within 150 days. Nexo Capital does not have a California lending license.
California Finance Lender (CFL) guidelines require Nexo Financial to comply with licensing and transparency requirements. The goal of this step is to protect consumers by ensuring that ongoing services are always under regulatory oversight.
Nexo’s Past Under Scrutiny
Nexo has had to deal with U.S. regulatory issues many times. For example, in 2023, it had to pay $45 million to resolve a case for distributing its Earn Interest Product without registering it as a security.
The company stopped accepting new U.S. investors for that product and later left the U.S. market due to growing demand. Nexo was charged with money laundering and unauthorised banking in Bulgaria, but those accusations were withdrawn. This led to a claim against the country.
Wider Effects on Crypto Lending
This fine shows that state-level oversight of crypto lenders is strengthening, meaning that decentralised excellents can’t fall under consumer protection rules.
As platforms like Nexo work to return to the U.S. with stronger compliance, this action shows the DFPI’s commitment to protecting borrowers from practices. People who study the industry say that these kinds of sanctions could make crypto companies more careful when they lend money to avoid the identical thing happening to them.
