California Revokes BlockFi’s Lending License Two Years After Bankruptcy

The California Department of Financial Protection and Innovation (DFPI) has permanently revoked BlockFi’s lending license two years after the crypto lender filed for bankruptcy.

Today, we’re announcing we’ve revoked crypto lender BlockFi’s California Financing Law (CFL) license. BlockFi has agreed to a settlement that includes a revocation of its license and a cease-and-desist from harmful practices. More: https://t.co/gdi28TpY7H pic.twitter.com/S1uieLHbkP

— CA Department of Financial Protection & Innovation (@CaliforniaDFPI) November 8, 2024

The move follows an investigation into the company after its license was suspended in November 2022. The DFPI stressed the importance of compliance with financial law to safeguard consumers in California.

BlockFi Violates the CFL

BlockFi was found to have violated the California Financing Law (CFL). According to DFPI, the company failed to evaluate borrowers’ ability to repay loans and charged interest before disbursing funds. It did not provide the required credit counseling or report payment performance to credit bureaus.

The company was criticized for misleading annual percentage rate (APR) disclosures in its loan documents.

In a settlement with the DFPI, BlockFi agreed to stop its risky lending practices. Although the company was fined $175,000, the payment was waived to prioritize consumer reimbursements, given its bankruptcy status.

BlockFi’s Financial Struggles

BlockFi’s license revocation follows the shutdown of its web platform in May 2024, which restricted clients’ access to their accounts. The company then partnered with Coinbase to assist in the repayment process. As part of the arrangement, creditors were required to create Coinbase accounts to access their funds.

In July, BlockFi announced plans to begin customer repayments that month, though public records have yet to confirm if this has occurred. Recently, however, BlockFi transferred a large portion of its assets—$184.96 million in USDC—to Coinbase Prime, an institutional asset management platform, suggesting that repayments to creditors may be approaching.

The company’s troubles began after the collapse of the FTX exchange, with which it had significant financial connections. BlockFi had extended a $400 million credit line to FTX US and listed the exchange among its top unsecured creditors, with an outstanding loan of $275 million.

Earlier in 2024, BlockFi settled with the estates of FTX and Alameda Research, agreeing to $875 million, which led to interim crypto distributions starting in July.