Nexo Capital violated local laws by issuing consumer and business loans to at least 5,456 California residents without first assessing their creditworthiness.
The agency alleges that the lender jeopardized the clients' interests by failing to verify their credit history, outstanding debt, and income before issuing the loans. Nexo thus increased the risk of borrowers defaulting on their loans.
Crypto loans, which provide access to fiat money or stablecoins in exchange for collateral in digital assets such as Bitcoin or Ethereum, are marketed as a flexible alternative to traditional lending. However, given the decentralized nature of cryptocurrencies, such loans bypass the due diligence typically performed by traditional financial institutions, the DFPI stated.
Because Nexo Capital is not licensed to issue loans to California residents, the regulator ordered the company to transfer local client funds to Nexo Financial, a licensed US branch.
In 2023, Nexo was forced to close its Ohio interest payment program. Local authorities alleged that Nexo offered its product without registering it as a security. However, the company settled the dispute by paying a $45 million fine. Last April, the crypto lender returned to the US market.