California regulators have fined cryptocurrency lender Nexo Capital $500,000 for issuing thousands of loans to state residents without a license. The Department of Financial Protection and Innovation cited Nexo's failure to assess borrowers' ability to repay as a key violation. The settlement requires Nexo to transfer funds and block new California users.
The California Department of Financial Protection and Innovation (DFPI) announced on January 15, 2024, a $500,000 penalty against Nexo Capital, a Cayman Islands-based cryptocurrency platform founded in 2018. The fine stems from an investigation revealing that Nexo originated 5,456 loans to California residents between July 2018 and November 2022 without a valid state financing license.
Nexo's crypto credit lines allowed customers to borrow fiat currency or stablecoins using digital assets as collateral. However, the company did not evaluate borrowers' credit history, debt, expenses, or overall financial condition before approving loans. Instead, Nexo marketed the absence of credit checks, stating on its website: "With Nexo, there are no credit checks, and nothing is reported to credit agencies."
California law mandates that lenders assess a borrower's ability to repay to protect consumers. DFPI Commissioner KC Mohseni emphasized this in the settlement announcement: "Lenders must follow the law and avoid making risky loans that endanger consumers — and crypto-backed loans are no exception."
To mitigate risks, Nexo required overcollateralization and could liquidate assets if the loan-to-value ratio hit 83.33%. As part of the agreement, Nexo must transfer all California residents' funds to its U.S. affiliate, Nexo Financial, which holds a valid state license, within 150 days. The company also needs to implement IP-based geoblocking to prevent new unlicensed access by California users.
This action follows a January 2023 settlement where Nexo paid $45 million to the Securities and Exchange Commission and state regulators for an unregistered interest-earning product, deemed a security. Nexo subsequently phased out U.S. operations before reentering in April 2023. The DFPI continues to probe other crypto firms, having previously targeted BlockFi Lending, Celsius Network, and Voyager Digital, all of which later filed for bankruptcy.
The case underscores California's push for equal regulatory standards between traditional banks and fintechs, rejecting collateral-only lending as a substitute for repayment assessments.
