California’s financial watchdog, the Department of Financial Protection and Innovation (DFPI), has announced that crypto lender BlockFi has agreed to refund more than $100,000 to its California customers who continued to repay loans even after a trading halt on Nov. 10 last year. The regulator claimed that BlockFi failed to inform borrowers in a timely manner that they could stop repaying their loans. A total of 111 borrowers in California paid back roughly $103,471 in repayments between Nov. 11 and Nov. 22, 2022. According to documents, BlockFi filed a motion with the bankruptcy court on Feb. 24, 2023, seeking permission to return these payments to borrowers. If the motion is approved, the refunds will be carried out, with a hearing scheduled for April 19.
Meanwhile, the DFPI said BlockFi has agreed to suspend its California Financing Law (CFL) license while bankruptcy and revocation actions are under review. The regulator said that BlockFi’s agreement to the interim suspension means that it will continue to direct its agents to pause the collection of repayments on interest payments and loans for California customers and not charge or assess any late fees on payments. BlockFi has also agreed to continue not reporting to credit agencies that loans from California residents have defaulted or become delinquent since Nov. 11, 2022, and will not take any action that could harm California residents’ credit scores on such loans.
In November 2022, BlockFi halted client withdrawals and requested clients not to deposit to BlockFi wallets or interest accounts citing a lack of clarity around the collapse of FTX. By Nov. 28, BlockFi filed for Chapter 11 bankruptcy for the company and its eight subsidiaries. BlockFi International also filed for bankruptcy with the Supreme Court of Bermuda on the same day.
According to the DFPI, Commissioner Clothilde V. Hewlett previously suspended BlockFi’s lending license for 30 days from Nov. 11, 2022, and moved to revoke BlockFi’s CFL license on Dec. 15, 2022.
The refund agreement comes after BlockFi reached several agreements with regulators over allegations of securities violations. In March 2022, the New Jersey Bureau of Securities issued a cease and desist order to BlockFi, alleging that the lender offered and sold unregistered securities in violation of the state’s securities laws. The firm reached a settlement with the bureau, agreeing to pay a $400,000 fine and halt its interest account product in the state for 30 days. In December, federal regulators charged BlockFi with violating securities laws by raising more than $14.7bn through the sale of unregistered securities. BlockFi again reached a settlement, agreeing to pay $15m in penalties.
BlockFi is a cryptocurrency savings account and lending platform that offers interest-bearing accounts for Bitcoin and other cryptocurrencies. It allows users to get loans collateralized with Bitcoin and Ethereum at low interest rates. The company has raised around $800m from investors, including Tiger Global and Fidelity. The controversial lender has come under scrutiny from regulators and lawmakers for its interest account product, which was considered by some to be a form of unregistered securities.