California financial regulators have recently ordered online crypto loans platform MyConstant to stop offering some of its crypto-related products in the state. The Department of Financial Protection and Innovation (DFPI) has blocked the platform from offering its flagship lending platform, interest-bearing accounts, and other securities. This decision comes as a result of regulators’ concerns over the safety of customers in the state and their lack of protection when investing in these products. MyConstant has been advised to comply with the order and desist from offering these products in California.
The Department of Financial Protection and Innovation (DFPI) recently filed an action against MyConstant, alleging that the company had been illegally engaging in the business of acting as a finance lender or broker without the proper license. Furthermore, the DFPI also alleged that since 2020 MyConstant has been offering and selling unqualified, nonexempt securities to investors in California through the offering of two interest-bearing products. If the allegations are proven to be true, MyConstant could face serious consequences, including fines and potential criminal prosecution.
MyConstant was a loan brokering service that offered consumer-to-consumer (peer-to-peer) lending. Through its “Loan Matching Service,” MyConstant allowed borrowers and lenders to match up and agree on personal loans, with interest rates ranging from 6% to 9%, depending on the repayment timescale. MyConstant was a useful financial resource for those seeking to borrow money, or for those looking to lend and gain a return on their investment.
The consumer borrowers taking out loans from MyConstant were required to put up capital of 150% of the value of the loan in crypto assets as collateral. It appears that the company was targeting individuals with bad credit and no material assets, as per the filing. Furthermore, the firm allegedly misrepresented the risk of losing their invested capital by claiming it was “very low.” Clearly, this company was taking advantage of individuals who may not have been aware of the risks associated with such loans.
MyConstant’s case was relatively minor compared to the crackdown California regulators had been carrying out on some of the larger players in the space for over a year. In July 2022, the DFPI issued a cease-and-desist order to BlockFi, well before the company had to close withdrawals in November 2022 due to the FTX contagion and later filed for Chapter 11 Bankruptcy. This shows the level of scrutiny California regulators have been placing on the industry, even for a small organization like MyConstant.
