Crypto lending firm Nexo Capital has been fined $500,000 by California authorities for operating without a valid lending license and failing to evaluate whether borrowers could afford to repay their loans, according to a statement released by the state’s financial watchdog. The California Department of Financial Protection and Innovation (DFPI) said that Nexo had violated local laws by issuing consumer and commercial loans to thousands of residents between July 2018 and November 2022. According to regulators the company offered these crypto-backed loans without conducting proper credit assessments and lacked the required authorisation to operate under state law. Crypto-collateralised loans, which allow users to access fiat or stablecoins by pledging digital assets like Bitcoin or Ethereum, are often advertised as faster and more flexible alternatives to traditional lending. However, their decentralised nature typically means they bypass the kinds of checks that are routine in traditional financial services. “Nexo offered at least 5,456 loans in California without verifying borrowers’ financial capacity,” the DFPI said, citing a failure to review credit history, outstanding debt, or income levels before lending. The agency noted that these practices violate the California Financing Law and increase the likelihood of defaults, especially in volatile crypto markets. “Lenders must follow the law and avoid making risky loans that endanger consumers, ” DFPI Commissioner KC Mohseni said. “Crypto-backed loans are no exception.” In addition to the monetary penalty, Nexo has been ordered to transfer all California customer funds to its US-based affiliate, Nexo Financial LLC, which holds a valid California Finance Lenders License. According to the DFPI, this affiliate is required to meet all relevant licensing and disclosure obligations going forward. Regulatory scrutiny extends beyond California The action in California adds to a growing list of regulatory challenges for Nexo. In January 2023, the company paid $45 million in a settlement with the US Securities and Exchange Commission and multiple state regulators over its Earn Interest Product (EIP), which was deemed an unregistered securities offering. As part of that deal, Nexo agreed to stop offering the product to US investors and exited the American market entirely by April 2023. Despite the scrutiny, Nexo continues to operate globally through its licensed entities and remains active in the digital asset lending and wealth management space. Last year, Nexo resumed operations in the US , rolling out a new suite of compliant offerings that include crypto savings products, asset-backed credit lines, trading services, and liquidity solutions for both retail and institutional clients. Earlier this month, the firm also announced it had become the first-ever title partner of the US ATP 500 Dallas Open, marking a multi-year sponsorship agreement that forms part of Nexo’s push to rebuild its brand presence through high-profile global partnerships. The post Crypto lending firm Nexo hit with $500,000 fine for violating California laws appeared first on Invezz
