CFL Judge’s Rules Apply to Cryptocurrency Lending – Financial Services


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California Finance Law prohibits anyone from engaging in the business of a “financial lender” without a license from the Department of Financial Protection and Innovation. Cal. Fin. Code§ 22100(a). The CFL provides that a “‘financial lender’ includes any person who is engaged in the business of making consumer loans or making commercial loans”. Cal. Fin. Code §22010(a). The law further explains that “may include the lending of money” and the taking of guarantee. Identifier.

InJeong against Nexo Cap. Inc., 2022 WL 3590329 (ND Cal. Aug. 22, 2022), plaintiff based an unfair competition claim on the alleged failure of defendant, Nexo Capital, Inc., to obtain a license under the CFL. By applying for dismissal,
Nexo argued that “the CFL defines ‘money’ as ‘a medium of exchange authorized or adopted by the United States or a foreign government’, Cal. Fin. Code § 2003(p), but plaintiff does not not plead that his loan was in “money” rather than a non-fiat “stablecoin” like USDT or USDC.” Although the Court did not note it, the definition of “money” cited by the defendant is found in the California Money Transmission Act, not the CFL. In any event, judge Beth Labson Freeman ruled that “In accordance with the CFL’s provision that it be “liberally interpreted and applied to promote its underlying purposes and policies”, one of which is “[t]o protect borrowers against unfair practices by certain lenders,’cal. Fin. C.§ 22001(a)(4)the Court finds that the plaintiff is not required to plead that his loan was in fiat currency.”

While it is true that the word “include” is generally interpreted as a term of extension rather than limitation, the problem is that the law is that this makes the law entirely open.

I started contemplating the meaning of “money” nine years ago in these articles: Ever wondered what money is? California has some answers and I have some questions and bitcoin and corporate code.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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