California Regulator Orders to Suspend MyConstant’s Cryptocurrency Lending Services

California financial regulators have ordered online crypto lending platform MyConstant to desist from offering some of its cryptocurrency-related products in the state.

The Department of Financial Protection and Innovation (DFPI) has barred the platform from conducting securities sales in the state, including its flagship lending platform and its interest-bearing accounts.

The DFPI said in a lawsuit that MyConstant engaged in “the business of acting as a lender or broker” without the necessary license. Additionally, as of at least 2020, MyConstant reportedly offered and sold “non-qualified, non-exempt securities in issuer transactions in the State of California offering two interest-bearing products.”

MyConstant offered loan brokerage services for personal loans made by one consumer to another (known as peer-to-peer lending), through its “Loan Matching Service”, which collected interest between 6% and 9% per depending on the repayment terms.

Consumer borrowers who took out these loans had to put up principal equal to 150% of the loan value in cryptocurrencies as collateral, and the company allegedly targeted these loans to people with bad credit and no tangible assets, as per deposit.

The firm also reportedly told private lenders that there was a “very low” risk of losing the capital invested.

California regulators warn about cryptocurrency lending services

California regulators have been warning consumers of the dangers of cryptocurrency lending services for months.

In a note released six months ago, the DFPI urged consumers to exercise “extreme caution” when reviewing cryptocurrency account providers, around the same time that cryptocurrency prices generally began to plummet amid widespread corporate bankruptcies.

The regulator highlighted that “some of these companies are preventing customers from withdrawing and transferring between their accounts”, blaming 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 cryptocurrencies on their platforms. It also noted that these providers do not fall under the same “rules and protections as banks and credit unions, which are required to have deposit insurance.”

While MyConstant’s case was relatively small, California regulators had been cracking down on some of the space giants for over a year.

The DFPI filed a cease-and-desist order with BlockFi in July 2022 to shut down operations in the state, well before it shut down withdrawals in November 2022 due to FTX contagion.

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