The California Department of Financial Protection and Innovation (DFPI) permanently revoked BlockFi’s lending license on November 7, two years after the cryptocurrency lender filed for bankruptcy.
The decision stems from findings of unsafe lending practices and multiple violations of the California Financing Law (CFL).
BlockFi Faces Permanent License Revocation in California
The DFPI first suspended BlockFi’s license in 2022 after investigations revealed that the company had failed to comply with regulatory requirements and financial laws.
Subsequent findings highlighted serious concerns, including inadequate assessment of borrowers’ ability to repay loans and the charging of interest before disbursing funds.
BlockFi agreed to a settlement with the DFPI that required it to surrender its license and cease unsafe lending practices within California.
While the DFPI imposed a $175,000 fine on BlockFi, the regulator waived the payment to prioritize consumer repayments, given the company’s bankruptcy status.
The permanent license revocation underscores the DFPI’s strict stance on enforcing compliance among financial service providers.
The regulator also found that BlockFi failed to provide essential credit counseling to borrowers and neglected to report repayment data to credit bureaus.
These lapses likely impacted customers’ credit scores, reducing their ability to secure future loans.
Commenting on the case, DFPI Commissioner Clothilde Hewlett stated, “While we encourage innovation in our financial marketplace, companies must comply with laws and protect consumers to continue operating in California.”
Her remarks reflect the DFPI’s ongoing commitment to protecting consumers from potential risks in the evolving crypto lending sector.
BlockFi’s Bankruptcy and Ties to FTX Collapse
BlockFi’s financial troubles trace back to its substantial exposure to the collapse of FTX in late 2022.
As a creditor, BlockFi had extended a $400 million credit line to FTX US, while FTX also held substantial loans from BlockFi.
The ripple effect of FTX’s downfall destabilized BlockFi’s finances, pushing it into bankruptcy.
At the time of its collapse, BlockFi reportedly owed over $10 billion to more than 100,000 creditors.
Despite shutting down its web platform in May 2024, leaving many customers without account access, the company began distributing interim crypto assets through Coinbase in July 2024.
These efforts reflect its commitment to repaying creditors, even as it ceased regular operations.
California’s decisive action against BlockFi underscores the DFPI’s dedication to regulating developing financial technologies and shielding consumers from the risks posed by non-compliant practices.
BlockFi’s challenges reveal the dangers of ignoring borrower assessment standards, transparency, and customer support within the crypto industry.
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