Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • California enacts licensing requirements for digital asset businesses, regulation of crypto kiosks

    On October 13, the California Governor signed AB 39, which will create a licensing requirement for businesses engaging in digital financial asset business activity. Crypto businesses will need to apply for a license with California’s Department of Financial Protection and Innovation (DFPI). The bill, among other things, (i) empowers DFPI to conduct examinations of a licensee; (ii) defines “digital financial asset” as “a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender, except as specified”; (iii) empowers DFPI to conduct enforcement actions against a licensee or a non-licensed individual who engages in crypto business with, or on behalf of, a California resident for up to five years after their activity; (iv) allows DFPI to assess civil money penalties of up to $20,000 for each day a licensee is in material violation of the law, and up to $100,000 for each day an unlicensed person is in violation; and (v) requires licensees to provide certain disclosures to California clientele, such as when and how users may receive fees and charges, and how they are calculated. The new law exempts most government entities, certain financial institutions, most people who solely provide connectivity software, computing power, data storage or security services, and people engaging with digital assets for personal, family, household or academic use or whose digital financial asset business activity is reasonably expected to be valued at no more than $50,000 per year. In September of last year, the California Governor vetoed a similar bill because creating a licensing framework was “premature” considering conflicting efforts.

    Also effective on July 1, 2025 is SB 401, which was also enacted on October 13. SB 401 establishes regulations for crypto kiosks under the DFPI’s authority. It will, among other things, prohibit kiosk operators from accepting or dispensing more than $1,000 in a single day to or form a customer via a kiosk. Operators would be required to furnish written disclosures detailing the transaction's terms and conditions as well as transaction details. Kiosk operators will also be obligated to provide customers with a receipt for any transaction at their kiosk, including both the amount of a digital financial asset or USD involved in a transaction and, in USD, any fees, expenses, and charges collected by the kiosk operator. Finally, operators will be required to provide DFPI with a list of all its crypto kiosks in California, and such list will be made public.

    Licensing State Issues California DFPI State Legislation Cryptocurrency Digital Assets Disclosures

  • Payments processor fined $20 million by State Money Transmission Regulators and State AGs

    State Issues

    On October 16, a national payment processor entered into two settlement agreements totaling $20 million with 44 state and territory money transmission regulators and 50 state and territory attorneys general to resolve issues stemming from alleged erroneous payment transactions.  The alleged erroneous payments involved the mistaken initiation of payments on behalf of almost 480,000 mortgage borrowers, with the total amount at issue totaling nearly $2.4 billion.

    According to the settlement entered into between the payment processor and the money transmission regulators, who were working through the Multi-State Money Service Business Examination Taskforce, the mistaken payments resulted from a breakdown of internal data security controls that allowed customer data intended for use in the testing of processing code to trigger actual payments.  The payment processor, who regularly provided payment processing services to a large residential mortgage lending and servicing company, was using actual customer mortgage payment data for test purposes.  As alleged in the settlement, it was determined that in the process of conducting testing on processing code to optimize the payment processors’ payment platform, more than 1.4 million payment entries were unintentionally and erroneously processed.  This erroneous payment processing was said to be primarily the result of “circumvention of internal data security controls and a lack of segregation between internal production and testing environments.”

    The settlement reached with the money transmission regulators requires the payment processor to maintain a comprehensive risk and compliance program and to provide regular reporting to a state regulator monitoring committee to ensure the adequacy of its risk management programs. 

    Under the terms of the settlement with the money transmission regulators, the payment processor is required to pay a total of $10 million, with approximately $9.5 million of that total being shared evenly by each participating state, with the remaining roughly $500,000 being used to cover the administrative costs of the investigating states.  Under the agreement with the state attorneys general, the payment processor is required to pay an additional $10 million to the various participating states and territories.  These amounts are in addition to the $25 million fine previously agreed to in the CFPB Consent Order, bringing the total amount to be paid by the payment processor to $45 million.

    State Issues Settlement DFPI Enforcement Mortgages

  • DFPI finalizes small business UDAAP and data reporting rule

    State Issues

    DFPI recently approved the final regulation for implementing and interpreting certain sections of the California Consumer Financial Protection Law (CCFPL) related to commercial financial products and services. After considering comments and releasing three rounds of modifications to Sections 1060, 1061, and 1062, the final regulation will, among other things, bring protections to small businesses seeking loans, by (i) defining and prohibiting unfair, deceptive, and abusive acts and practices in the offering or provision of commercial financing to small businesses, nonprofits, and family farms; and (ii) establishing data collection and reporting requirements.

    Previous InfoBytes coverage on the (i) initial modifications to the CCFPL proposed regulation can be found here; (ii) the second round of CCFPL modifications proposal is found here; and (iii) the third iteration of the modified CCFPL proposal is located here.

    This DFPI regulation was notably finalized on the heels of the CFPB’s finalized Section 1071 rule on small business lending data, which similarly will require financial institutions to collect and provide the Bureau data on lending to small businesses (covered by InfoBytes here)

    Sections 1060, 1061, and 1062 will be effective on October 1.

    State Issues Agency Rule-Making & Guidance State Regulators DFPI CCFPL Commercial Finance UDAAP Small Business Lending Consumer Finance California

  • DFPI launches actions against crypto scams, initiates education campaign

    State Issues

    On August 9, the California Department of Financial Protection and Innovation (DFPI) announced that it issued cease and desist orders against three entities (orders here, here, and here) for allegedly offering and selling unqualified securities, and making material misrepresentations and omissions to investor related to cryptocurrency investments. The entities allegedly created high-yield investment programs (HYIPs), which DFPI characterizes as “investment frauds that typically promise high returns with low risk, promise overly consistent returns, provide little details about the people running the HYIP, use vague language to describe how the HYIP makes money, offer referral bonuses, facilitate deposits and withdrawals with crypto assets, and use social media to gain attention and attract investors.” 

    The cease and desist orders are just one of the tools DFPI employs to address investment scams involving crypto assets, also using enforcement actions, social media, and a Crypto Scam Tracker. DFPI has posted videos to its social media accounts that are directed towards the same group of individuals targeted by the crypto community in order to educate investors about its enforcement actions and violations of law. The Crypto Scam Tracker was launched earlier this year to help Californian’s identify and avoid scams involving cryptocurrency. (Covered by InfoBytes here).

    State Issues Privacy, Cyber Risk & Data Security Cryptocurrency California Enforcement Cease and Desist DFPI FDCPA

  • DFPI concludes MTA licensure not required for data processor

    State Issues

    On July 25, the California Department of Financial Protection and Innovation (DFPI) released a new opinion letter concluding that a company that merely receives payment instructions, orders, or directions to transmit money or monetary value does not constitute “receiving money for transmission” requiring licensure under the California Money Transmission Act (MTA).

    Citing the California regulations, DFPI states that to “receive money for transmission,” a person must actually or constructively receive, take possession, or hold money or monetary value for transmission; merely receiving instructions, orders, or directions to transmit money or monetary value does not constitute “receiving money for transmission.”

    As described in the letter, the data processor facilitated payments made by customers to contracting merchants in exchange for goods and services sold by merchants.  The data processor forwards customer account and transaction details to partner financial institutions for debiting the customer’s account, and also facilitates refunds initiated by the merchants, including sending ACH instructions to the partner financial institution.  However, the data processor at no point handles transferred funds or has custody or legal ownership of the rights to the transferred funds.  DFPI, based on several factors and not solely limited to the services described, determined that the inquiring data processor’s payment system does not constitute money transmission or require an MTA license.

    State Issues Licensing State Regulators California Money Transmission Act Consumer Finance California Fair Access to Credit Act California Financing Law DFPI

  • DFPI orders crypto platform to halt operations

    State Issues

    On June 27, the California Department of Financial Protection and Innovation (DFPI) issued a desist and refrain order against a digital asset trading platform and two of its promoters for allegedly selling unqualified securities and making material misrepresentations and omissions to investors, a violation of California securities laws.

    DFPI alleges that the platform leveraged a “multi-level marketing scheme” to award its promoters who sold unqualified securities to investors in the form of investment contracts and received cash investments ranging from $5,000-$20,000. Allegations also include that the platform “purported” to provide educational classes designed to empower the Latino community with respect to crypto asset trading. The order details that through these efforts to garner more investors, “misrepresentations of material fact [were made] to investors and potential investors, namely that investors would receive a return on their initial investment every three months.” Investors have allegedly not received any return on their initial investment. The commissioner found that the platform “fail[ed] to provide the promised returns on their purported investments” and that “[d]espite multiple requests, investors have not had their funds returned.”

    The order requires the platform to desist and refrain from the offer and sale of securities and stop making misrepresentations about returns in California.

    State Issues Securities Fintech DFPI Cryptocurrency Enforcement Digital Assets California

  • DFPI highlights CCFPL enforcement actions

    State Issues

    On June 8, the Department of Financial Protection and Innovation (DFPI) released its second annual report covering California Consumer Financial Protection Law (CCFPL) actions two years after the statute took effect. DFPI reported growth across rulemaking, enforcement, supervision, complaint handling, stakeholder outreach, and consumer education. It also developed several new department functions to support historically underserved communities.

    According to the report, DFPI’s increased visibility in the consumer protection space has generated more consumer complaints, resulting in more enforcement actions. Compared to 2021, there was a 514 percent increase in CCFPL-related complaints (approximately 454 complaints), and an 85 percent increase in CCFPL-related investigations (approximately 196 investigations). Top complaint categories included debt collection and crypto assets, with student loan servicers and credit reporting closely following at third and fourth. To address these issues, DFPI opened 110 crypto-related investigations and launched a consumer alerts page on its website featuring 67 public actions and 65 consumer alerts.

    Other key takeaways from the report include that DFPI (i) ordered more than $250,000 in penalties; (ii) ordered over $300,000 in restitution to consumers; (iii) brought its first two civil actions using CCFPL authority; (iv) had 105,000 people attend its outreach and education events; (v) published a notice of proposed rulemaking requiring providers of certain financial services and products to register with the DFPI; and (vi) chaptered two pieces of legislation adding to the laws that DFPI may enforce under the CCFPL.

    State Issues DFPI Consumer Finance CCFPL Enforcement State Regulators Consumer Protection Consumer Complaints

  • California imposes CLRA advertising requirements

    State Issues

    Covered entities in California are reminded that Section 1770 of the Consumer Legal Remedies Act requires persons offering or providing a consumer financial service or product to include certain language when making solicitations. As previously covered by InfoBytes, AB 1904 was enacted last year to amend Section 1770 of the Civil Code relating to unfair methods of competition and unfair or deceptive acts. The amended code prohibits a covered person or a service provider from engaging in unlawful, unfair, deceptive, or abusive acts or practices regarding a consumer financial product or service, such as: (i) misrepresenting the source, sponsorship, approval, or certification; (ii) advertising goods or services with the intent not to sell them as advertised; and (iii) making false or misleading statements of fact concerning reasons for, the existence of, or amounts of, price reductions. The amendments authorize the California Department of Financial Protection and Innovation to bring a civil action for a violation of the law, and make unlawful the failure to include certain information, including a prescribed disclosure, in a solicitation by a covered person, or an entity acting on behalf of a covered person, to a consumer for a consumer financial product or service. Specifically, Cal. Civ. Code § 1770(a)(28) requires covered persons to include the following language in solicitations:

    • “The name of the covered person, and, if applicable, the entity acting on behalf of the covered person, and relevant contact information, including a mailing address and telephone number.”
    • “The following disclosure statement in at least 18-point bold type and in the language in which the solicitation is drafted: ‘THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.’”

    The requirements took effect at the beginning of the year.

    State Issues State Legislation California Advertisement DFPI Consumers Legal Remedies Act

  • DFPI, Fed to oversee bank’s self-liquidation

    Fintech

    On June 1, the California Department of Financial Protection and Innovation (DFPI) announced that it issued a joint cease-and-desist order with the Federal Reserve Board to fulfill the voluntary liquidation of a crypto-friendly bank. Focusing on providing financial services in the crypto-asset industry, the bank began operating in 2013. In 2023, however, the bank announced its voluntary liquidation, following a mass exodus of high-profile clients. In the fourth quarter of 2022, the bank experienced a sudden drop in deposits, triggered by the collapse of a crypto-exchange company in the previous quarter. DFPI noted that in its most recent examinations of the bank, the bank showed deficits in security and compliance with regulations. Within 10 days of the order, the bank must submit a voluntary self-liquidation plan acceptable to DFPI and upon approval, must implement that plan to wind down its operations “in a safe and sound manner and in compliance with all applicable federal and state laws, rules, and regulations.” The bank has advised that the liquidation will include full repayment of all of its deposits.

    Fintech Federal Issues State Issues Federal Reserve DFPI California State Regulators

  • Fintech fined over interest charges billed as tips and donations

    Fintech

    A California-based fintech company recently entered separate consent orders with California, Connecticut, and the District of Columbia to resolve allegations claiming it disguised interest charges as tips and donations connected to loans offered through its platform. The company agreed to (i) pay a $100,000 fine in Connecticut and reimburse Connecticut borrowers for all loan-related tips, donations, and fees paid; (ii) pay a $30,000 fine in the District of Columbia, including restitution; and (iii) pay a $50,000 fine in California, plus refunds of all donations received from borrowers in the state. The company did not admit to any violations of law or wrongdoing.

    The Connecticut banking commissioner’s consent order found that the company engaged in deceptive practices, acted as a consumer collection agency, and offered, solicited, and brokered small loans for prospective borrowers without the required licensing. The company agreed that it would cease operations in the state until it changed its business model and practices and was properly licensed. Going forward, the company agreed to allow consumers to pay tips only after fully repaying their loans. The consent order follows a temporary cease and desist order issued in 2022.

    A consent judgment and order reached with the D.C. attorney general claimed the company engaged in deceptive practices by misrepresenting the cost of its loans and by not clearly disclosing the true nature of the tips and donations. The AG maintained that the average APR of these loans violated D.C.’s usury cap. The company agreed to ensure that lenders accessing the platform are unable to see whether a consumer is offering a tip (or the amount of tip) and must take measures to make sure that withholding a tip or donation will not affect loan approval or loan terms. Among other actions, the company is also required to disclose how much lenders can expect to earn through the platform.

    In the California consent order, the Department of Financial Protection and Innovation (DFPI) claimed that the majority of consumers paid both a tip and a donation. A pop-up message encouraged borrowers to offer the maximum tip in order to have their loan funded, DFPI said, alleging the pop-up feature could not be disabled without using an unadvertised, buried setting. These tips and/or donations were not included in the formal loan agreement generated in the platform, nor were borrowers able to view the loan agreement before consummation. According to DFPI, this amounted to brokering extensions of credit without a license. Additionally, the interest being charged (after including the tips and donations) exceeded the maximum interest rate permissible under the California Financing Law, DFPI said, adding that by disclosing that the loans had a 0 percent APR with no finance charge, they failed to comply with TILA.

    Fintech State Issues Licensing Enforcement Washington California Connecticut Interest TILA DFPI State Regulators State Attorney General

Pages

Upcoming Events