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Crypto lending firm Nexo Capital pays a $500,000 to California’s monetary regulator over allegations it issued hundreds of loans to state residents with out correctly assessing their capability to repay.

The California Division of Monetary Safety and Innovation (DFPI) stated on Wednesday that Nexo made a minimum of 5,456 shopper and business loans to Californians with out a legitimate license.

“Earlier than making a mortgage, Nexo Capital typically didn’t consider the borrower’s capability to make well timed repayments, current debt, credit score historical past, or different paperwork regarding the borrower’s total monetary situation,” the regulator stated.

DFPI Commissioner KC Mohseni stated lenders “should comply with the legislation and keep away from making dangerous loans that endanger customers — and crypto-backed loans aren’t any exception.”

DFPI says Nexo loans at elevated threat of default

Crypto-backed loans enable customers to borrow fiat or stablecoins by posting digital property as collateral. 

Whereas usually overcollateralized and simpler to entry than conventional credit score, typically with out credit score checks, missed repayments can set off the pressured sale of collateral to cowl excellent balances.

The DFPI claimed that Nexo had a “lack of underwriting insurance policies” that heightened the danger of debtors defaulting on their loans.

The DFPI stated the loans had been issued between July 2018 and November 2022 and concerned “illegal acts and practices” associated to a shopper services or products that didn’t adjust to shopper monetary legal guidelines.

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Inside 150 days, Nexo should switch all California residents’ funds to Nexo Monetary LLC, a US-based affiliate that holds a California Finance Lenders License with the DFPI.