California financial regulators have ordered online crypto loans platform MyConstant to desist from offering some of its crypto-related products in the state.
The Department of Financial Protection and Innovation (DFPI) blocked the platform from conducting the sale of securities in the state, including its flagship lending platform and its interest-bearing accounts.
The DFPI alleged in an action that MyConstant engaged “in the business of acting as a finance lender or broker” without the needed license. Additionally, since at least 2020, MyConstant allegedly offered and sold “unqualified, nonexempt securities in issuer transactions in the State of California by offering two interest-bearing products.”
MyConstant offered loan brokering services for personal loans made from one consumer to another (known as peer-to-peer lending), via its “Loan Matching Service”, which levied interest of between 6% to 9% depending on the repayment timescale.
The consumer borrowers taking these loans had to put up capital of 150% of the value of the loan in crypto assets as collateral, and the company allegedly targeted these loans to individuals with bad credit and no material assets, as per the filing.
The firm also allegedly represented to the individuals lending that there was a “very low” risk of losing their invested capital.
California regulators warn over crypto lending services
California regulators have been warning consumers about the dangers of crypto lending services for months.
In a note issued six months ago, the DFPI told consumers to exercise “extreme caution” when looking at crypto-interest account providers, around the same time that crypto asset prices generally began spiraling downward amid widespread company failures.
The regulator highlighted that “some of these companies are preventing customers from withdrawing from and transferring between their accounts,” laying the blame on market conditions.
The regulator highlighted how many of these that many crypto-interest account providers may not have disclosed the risks faced by customers when depositing crypto assets onto their platforms. It also noted that these providers don’t fall under the same “rules and protections as banks and credit unions, which are required to have deposit insurance.”
Though the case of MyConstant was a relatively small one, Californian regulators had been cracking down on some of the giants of the space for well over a year.
The DFPI presented a cease-and-desist order to BlockFi in July 2022 to stop operating in the state, well before it shuttered withdrawals in November 2022 due to FTX contagion.