Two years after bankruptcy, California's DFPI has permanently revoked BlockFi's license due to regulatory violations, concluding ongoing investigations into its lending practices and prioritizing consumer recovery over penalties.
Permanent License Revocation
The California Department of Financial Protection and Innovation (DFPI) has permanently revoked the lending license of BlockFi, a bankrupt cryptocurrency lender. This decision, announced on November 7, follows an extensive examination by the DFPI, which had initially suspended BlockFi’s license in November 2022. BlockFi’s settlement with DFPI includes the license revocation and an agreement to cease unsafe practices and regulatory violations.
Violations and Regulatory Findings
The DFPI’s examination revealed multiple compliance violations by BlockFi under California’s lending regulations. The findings indicate that BlockFi did not assess borrowers' repayment capacity, charged interest prior to loan disbursement, and failed to provide consumers with credit counseling. Furthermore, BlockFi neglected to report clients’ payment performance to credit bureaus and did not accurately disclose annual percentage rates in loan documents.
DFPI Commissioner Clothilde Hewlett commented on the regulatory decision, emphasizing the importance of consumer protection and legal compliance for financial firms operating in California.
Hewlett noted,
“While we encourage innovation in our financial marketplace, companies must comply with laws and protect consumers.”
Fine and Settlement Details
As part of the settlement, BlockFi faced a $175,000 fine for violations of California’s Financial Lending (CFL) laws. However, DFPI waived this fine to prioritize consumer recovery, given BlockFi’s bankruptcy status. BlockFi is no longer operational, and the DFPI has clarified that the firm will not resume any activities in California.
BlockFi’s recent license revocation arrives months after the platform’s official shutdown in May. With the platform’s termination, clients lost access to their BlockFi accounts, signaling the end of the company’s consumer services.
Background and Ongoing Issues Post-FTX Collapse
BlockFi’s financial troubles became public in November 2022 following the high-profile collapse of Sam Bankman-Fried’s FTX exchange. BlockFi held substantial exposure to FTX, reportedly up to $1.2 billion, leading the crypto lender to file for bankruptcy. By April 2023, BlockFi’s debt was estimated to exceed $10 billion, affecting more than 100,000 creditors.
Earlier this year, BlockFi reached a settlement with the FTX estate, securing a potential $874 million in repayments. This agreement enabled BlockFi to sell its FTX claims, with plans to distribute proceeds to creditors. The estate’s objective is to reimburse clients 100% of their claims, though reimbursement values will be based on the bankruptcy filing date rather than current cryptocurrency market rates.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.