California regulators have imposed a $500,000 fine on crypto lending firm Nexo Capital for issuing loans without properly assessing the borrower’s ability to repay.
Summary

• Nexo Capital has been fined $500,000 in California for issuing thousands of loans without assessing borrowers’ ability to repay.
• The firm has been ordered to transfer all customer funds to its licensed US affiliate, Nexo Financial LLC.

Between July 26, 2018, and Nov. 22, 2022, Nexo “offered consumer and commercial loans to at least 5,456 Californians without first considering their ability to make repayments,” the California Department of Financial Protection and Innovation said in a recent announcement.

Crypto-backed loans allow users to borrow fiat or stablecoins by offering crypto assets like Bitcoin or Ethereum as collateral. As they are decentralized in nature, meaning they do not go through the credit checks or income verification that exist across traditional financial systems.

According to the DFPI, Nexo’s “lack of underwriting policies” increased the risk of borrowers defaulting on the loan.

“Lenders must follow the law and avoid making risky loans that endanger consumers — and crypto-backed loans are no exception,” DFPI Commissioner KC Mohseni was quoted as saying.

Further, Nexo Capital Inc. is not licensed in California to issue such loans, and as a result has been ordered to transfer all of its California customers’ funds to Nexo Financial LLC, its licensed US-based affiliate.

“Nexo Financial is required to comply with CFL licensure and disclosure requirements,” the regulator added.

Nexo’s past legal troubles

Back in 2023, Nexo Capital Inc. came under regulatory fire in the U.S. after it was found to have offered its Earn Interest Product without registering it as a security, a move that led to a $45 million settlement. Subsequently, the company stopped accepting new U.S. investors for the EIP and eventually announced its full exit from the U.S. market.

Across the globe, Nexo has faced criminal charges in Bulgaria, where authorities initially alleged that the company had engaged in organized crime, money laundering, and unlicensed banking. However, these charges were later dropped by prosecutors, and the firm later filed a $3 billion arbitration claim against the Republic of Bulgaria.