California DFPI Permanently Revokes BlockFi’s Lending License, Cites Multiple Consumer Protection Violations

The California Department of Financial Protection and Innovation (DFPI) has permanently revoked the lending license of bankrupt cryptocurrency lender BlockFi, marking the final regulatory action against a company that once exemplified the risks of unregulated crypto lending.

In its announcement on November 7, the DFPI detailed multiple violations of the California Financing Law (CFL), including BlockFi’s failure to assess borrowers’ repayment ability, premature interest charges, and inadequate consumer protections. The company also failed to provide credit counseling and neglected to report payment histories to credit bureaus.

“While we encourage innovation in our financial marketplace, companies must comply with laws and protect consumers to continue operating in California,” stated DFPI Commissioner Clothilde V. Hewlett.

Under the settlement agreement, BlockFi accepted the license revocation and agreed to cease unsafe practices. While the DFPI imposed a $175,000 fine for the violations, it waived the penalty to prioritize consumer repayments, given BlockFi’s ongoing bankruptcy proceedings.

The regulatory action follows BlockFi’s bankruptcy filing in November 2022, triggered by its significant exposure to the collapsed crypto exchange FTX. The crypto lender had provided FTX US with a $400 million credit line and was left vulnerable when the exchange failed. At the time of its bankruptcy, BlockFi owed approximately $10 billion to over 100,000 creditors.

Despite these challenges, BlockFi’s bankruptcy plan administrator recently reported recovering sufficient assets to make customers whole. In March, the company secured an $875 million settlement from the estates of FTX and Alameda Research, leading to the commencement of interim crypto distributions through Coinbase in July 2024.

The company shut down its web platform in May 2024, effectively ending its operational presence in the cryptocurrency lending market. Today’s license revocation by the DFPI serves as a reminder of the increasing regulatory scrutiny faced by crypto financial services providers and the importance of consumer protection in the evolving digital asset landscape.