California’s finance watchdog claims Nexo made nearly 5,500 loans to Californians without a valid license and did not properly assess their ability to repay.
Crypto lending company Nexo Capital will pay a $500,000 to California’s financial regulator over allegations it issued thousands of loans to state residents without properly assessing their ability to repay.
The California Department of Financial Protection and Innovation (DFPI) said on Wednesday that Nexo made at least 5,456 consumer and commercial loans to Californians without a valid license.
“Before making a loan, Nexo Capital generally did not evaluate the borrower’s ability to make timely repayments, existing debt, credit history, or other documents relating to the borrower’s overall financial condition,” the regulator said.
DFPI Commissioner KC Mohseni said lenders “must follow the law and avoid making risky loans that endanger consumers — and crypto-backed loans are no exception.”
DFPI says Nexo loans at increased risk of default
Crypto-backed loans allow users to borrow fiat or stablecoins by posting digital assets as collateral.
While typically overcollateralized and easier to access than traditional credit, often without credit checks, missed repayments can trigger the forced sale of collateral to cover outstanding balances.
The DFPI claimed that Nexo had a “lack of underwriting policies” that heightened the risk of borrowers defaulting on their loans.
The DFPI said the loans were issued between July 2018 and November 2022 and involved “unlawful acts and practices” related to a consumer product or service that failed to comply with consumer financial laws.
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Within 150 days, Nexo must transfer all California residents’ funds to Nexo Financial LLC, a US-based affiliate that holds a California Finance Lenders License with the DFPI.
In February 2023, the company said it would end its yield-bearing Earn Interest product for its US customers, roughly a month after it agreed to pay $45 million in penalties to US regulators.
The program allowed users to earn daily compounding yields on certain cryptocurrencies by loaning them to Nexo.
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