Judge Rules CFL Applies To Cryptocurrency Lending – Financial Services

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

InJeong v. Nexo Cap. Inc., 2022 WL 3590329 (N.D. Cal.
Aug. 22, 2022), the plaintiff predicated an unfair competition
claim on the alleged failure of the defendant, Nexo Capital, Inc.,
to obtain a license under the CFL. In seeking dismissal,
Nexo argued that
“the CFL defines ‘money’ as ‘a medium of exchange
that is authorized or adopted by the United States or a foreign
government’, Cal. Fin. Code § 2003(p), but Plaintiff fails
to plead his loan was in ‘money,’ rather than a non-fiat
currency ‘stablecoin’ like USDT or USDC.” Although not
noted by the Court, the definition of “money” cited by
the defendant is found in the California Money Transmission Act,
not the the CFL. In any event, Judge Beth Labson Freeman ruled that “In
keeping with the CFL provision that it should be ‘liberally
construed and applied to promote its underlying purposes and
policies,’ one of which is ‘[t]o protect borrowers against
unfair practices by some lenders,’Cal. Fin. C. §
22001(a)(4), the Court finds that 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 enlargement rather than limitation, the
problem is that the statute is that this makes the statute entirely
open-ended.

I first began contemplating the meaning of “money”
nine years ago in these posts: Ever Wonder What Money Is? California Has Some
Answers And I Have Some Questions and Bitcoin And The Corporations Code.

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