BlockFi has agreed to refund more than $100,000 to customers in California who continued to repay loans even after the crypto lender froze customer withdrawals on November 10, 2022.
This comes after California’s Department of Financial Protection and Innovation (DFPI) realesed an official press release claiming BlockFi had failed to “provide timely notification to borrowers that they could stop repaying their BlockFi loans”.
Earlier on March 27, the American financial watchdog specified that its investigation had discovered that at least 111 borrowers in California made roughly $103,471 in loan repayments between November 11 and November 22.
Californian @BlockFi users: BlockFi to refund over $100k after failing to notify borrowers about halting repayments post-FTX crash. The motion was filed, with a hearing set for April 19, 2023. Updates to follow. More info: https://t.co/bJkiyfgA1b #FTX #BlockFi #CryptoRefund pic.twitter.com/u0QpwY6oou
— CA Department of Financial Protection & Innovation (@CaliforniaDFPI) March 27, 2023
Penalized for not Providing Timely Notification
The agency claimed that borrowers were not notified until November 22 that they could stop repaying their BlockFi Loans “until further notice.” This resulted in California borrowers remitting more than $100,000 in loan repayments to BlockFi’s servicer while they were unable to withdraw funds and collateral from BlockFi’s platform.
As per the DFPI announcement, a hearing concerning the refund request which is subject to a bankruptcy court’s approval will take place on April 19. Only if the motion is approved will the refunds be able to go ahead.
Meanwhile, the DFPI said BlockFi has agreed to an ”interim suspension” of its California Financing Law (CFL) license while “the bankruptcy and revocation actions are pending.” In addition, the regulator said BlockFi’s agreement to the interim suspension means it will continue to direct its agents to pause the collection of repayments for California customers on loans, interest payments and “not charge, levy, or assess any late fees associated with any payments, including at maturity.”
BlockFi’s Mounting Liquidity Troubles
Amidst the company’s ongoing fininacial crisis, BlockFi was reportedly planning to sell nearly $160 million worth of its loans backed by about 68,000 Bitcoin mining machines as part of its bankruptcy, earlier this month. Furthermore, on March 24, the federal bankruptcy court administering the case of BlockFi approved the sale of nearly 6,400 mining rigs for $4.7 million to U.S. Farms & Mining Opportunity Fund.
Following its Chapter 11 bankruptcy protection, BlockFi has been frantically looking for cash infusion in the wake of FTX implosion. On March 3, the bankruptcy court had also ordered distressed Silvergate bank to immediately release nearly $9.9 million to the bankrupt crypto lender.
