Nexo fined $500K by California regulator over unlicensed crypto loans

Crypto lending firm Nexo Capital has agreed to pay a $500,000 penalty to California’s financial regulator over allegations of issuing risky and unlicensed loans.

The California Department of Financial Protection and Innovation said Nexo made at least 5,456 consumer and commercial loans to residents without holding a valid licence.

“Before making a loan, Nexo Capital generally did not evaluate the borrower’s ability to make timely repayments, existing debt, credit history, or overall financial condition,”

The regulator said.

“Lenders must follow the law and avoid making risky loans that endanger consumers — and crypto-backed loans are no exception,”

DFPI Commissioner KC Mohseni said.

The regulator claimed Nexo’s lack of underwriting policies increased the likelihood of borrowers defaulting on their loans.

The loans were issued between July 2018 and November 2022 and were found to involve unlawful acts under California consumer finance laws.

Under the settlement, Nexo must transfer all California customer funds to its licensed US affiliate, Nexo Financial LLC, within 150 days.

Crypto-backed loans typically allow users to borrow fiat or stablecoins by posting digital assets as collateral, with missed repayments risking forced liquidation.

In February 2023, Nexo announced it would shut down its yield-bearing Earn Interest product for US customers.

The closure followed a separate $45 million settlement with US regulators over compliance issues tied to the lending programme.

At the time of reporting, NEXO price was $0.973.