The Department of Financial Protection and Innovation (DFPI) has announced that New Jersey-based crypto lending platform BlockFi Lending LLC (BlockFi) has agreed to provide refunds of more than $100,000 to Californians, subject to approval from the bankruptcy court. The refunds are a result of BlockFi's conduct following the crash of the FTX cryptocurrency exchange. On November 10, 2022, BlockFi paused its platform and stopped consumer withdrawals due to its exposure to FTX, and subsequently filed a chapter 11 bankruptcy petition on November 28, 2022.
Failure to Timely Notify Borrowers of Repayment Options
The DFPI probe found that BlockFi failed to notify debtors in a prompt manner that they could cease repaying their BlockFi debts. Due to their inability to remove money and assets from BlockFi's platform, Californian debtors were forced to send at least $103,471 in loan installments to BlockFi's servicer. With the meeting set for April 19, 2023, BlockFi submitted a petition in bankruptcy court asking for approval to order its servicer to refund these debt installments.
Suspension of Lending License and Other Actions
The Commissioner had previously suspended BlockFi's lending license, which was issued under the California Financing Law, for 30 days beginning on November 11, 2022, and moved to revoke BlockFi's license on December 15, 2022. BlockFi has now consented to a temporary halt while the insolvency and annulment proceedings are ongoing. The business also consented to a final order to stop operating as well as a cease and abstain order as a result of its failure to promptly inform debtors that they could stop making loan payments.
Protecting Consumers and Regulating Financial Services
The Department of Financial Protection and Innovation is responsible for protecting consumers, regulating financial services, and fostering responsible innovation. A fair and egalitarian financial marketplace is made accessible to all Californians through education, while possible risks, deception, and misuse are also prevented thanks to the DFPI's establishment and enforcement of financial laws that encourage openness and accountability.
Conclusion
BlockFi's conduct has resulted in refunds for Californians, with the company agreeing to an interim suspension while bankruptcy and revocation actions are pending. The DFPI's investigation uncovered BlockFi's failure to timely notify borrowers that they could stop repaying their BlockFi loans. The department's role in protecting consumers, regulating financial services, and fostering responsible innovation has been critical in this case.
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