California Regulator Fines Crypto Lender Nexo for Unlicensed Operations, Affirm Pursues Bank Charter

California's financial regulator has settled with cryptocurrency platform Nexo over allegations the company operated as an unlicensed lender in the state, marking the latest enforcement action against crypto firms that blurred traditional lending rules during the industry's boom years.

The California Department of Financial Protection and Innovation announced the settlement on January 25, 2026, alleging Nexo extended dollar-denominated loans to state residents without proper licensing and failed to assess borrowers' ability to repay—a fundamental consumer protection requirement under state lending laws.

The enforcement stems from Nexo's previous U.S. operations, during which the platform allowed California consumers to borrow dollars using their cryptocurrency holdings as collateral. While Nexo required borrowers to overcollateralize their loans—depositing crypto worth more than the loan amount—the company did not conduct traditional credit underwriting to verify income, employment, or debt-to-income ratios.

Nexo began withdrawing from the U.S. market in mid-2023 as regulatory scrutiny intensified around its "Earn Interest Product," which allowed users to deposit crypto and receive yield. The company announced plans to re-enter the U.S. market in 2025, though it has not yet resumed operations. The California settlement will need to be resolved before any return to the state.

The case highlights a persistent tension in crypto lending: platforms argue their overcollateralized loan structures eliminate credit risk, making traditional underwriting unnecessary. Regulators counter that consumer protection laws don't include exemptions for novel collateral types, and that the ability-to-repay analysis protects borrowers from taking on debt they cannot service regardless of what assets back the loan.

For finance leaders, the Nexo settlement reinforces that state lending licenses remain mandatory even when loans are secured by digital assets. The California DFPI's willingness to pursue enforcement actions against companies no longer operating in the state suggests regulators are working through a backlog of crypto-era cases, with potential implications for any fintech that offered crypto-backed credit products during the 2020-2022 period.

The settlement amount was not disclosed in the announcement. Nexo did not immediately respond to requests for comment on whether the company still intends to pursue re-entry into the California market or what operational changes it would implement to comply with state lending requirements.

The enforcement action comes as crypto platforms face renewed regulatory attention following the industry's partial rehabilitation in 2024-2025, with several major exchanges and lenders seeking clearer paths to U.S. market access under evolving federal and state frameworks.