The California Department of Financial Protection and Innovation (DFPI) has formally withdrawn the license of the now-bankrupt cryptocurrency lender BlockFi two years post-bankruptcy. The license revocation was a sanctioned result of regulatory examination, subsequent to the suspension of BlockFi’s license in November 2022. As part of an enforced settlement, BlockFi has agreed to a license revocation and commitments to cease unsafe and violation-prone activities.
BlockFi’s license was initially suspended two years back, following a decision by the DFPI due to the company’s breach in fulfilling the stipulations of the California Financing Law (CFL). The infractions included a failure to consider the borrowers’ capacity to repay loans and prematurely charging borrowers interest even before the loan amount had been disbursed. BlockFi was also found to be negligent in providing credit counseling to consumers and non-compliant in reporting payment performance to credit bureaus.
Amid these breaches, the regulator also pointed out BlockFi’s inaccuracy in disclosing the annual percentage rates in loan disclosure documents. The DFPI Commissioner Clothilde Hewlett stressed that while innovation in the financial marketplace was encouraged, compliance with laws and consumer protection remained paramount to continue business operations in California.
Although a penalty of $175,000 was imposed on BlockFi for its CFL violations under the settlement agreement, the payment was waived in favor of prioritizing repayments to consumers, considering that the company was bankrupt and non-functional.
The termination of BlockFi’s license in California comes hot on the heels of the company shutting down its web platform in May. As a result, clients lost access to the BlockFi platform. The downfall of BlockFi was triggered by the significant financial exposure between BlockFi and Sam Bankman-Fried’s FTX which collapsed in November 2022.
BlockFi’s extensive exposure to FTX and associated entities led to its bankruptcy in November 2022, declaring that it provided FTX US with a $400 million credit line in July 2022. As of a report by Bloomberg, BlockFi was estimated to owe around $10 billion to over 100,000 creditors in April 2023.