The Consumer Financial Protection Bureau (CFPB) issued a decision denying Nexo Financial, LLC’s petition to modify a civil investigation demand (CID) originally served on the company on December 1, 2021. At that time, Nexo Financial and its affiliates advertised a range of products, including interest-accruing accounts and lines of credit. In its petition, Nexo Financial argued that the CID should be modified to exclude Nexo’s earn interest product, an interest-bearing crypto lending product, because it fell under the Security Exchange Commission’s (SEC) purview and outside of the CFPB’s jurisdiction. The CFPB denied the request and ordered a corporate representative to appear for oral testimony on December 19, 2022.

According to the CFPB, Nexo Financial did not contend that the SEC has determined that the earn interest product is a security or that Nexo was required to register the product with the SEC. “Nexo Financial is trying to avoid answering any of the [CFPB’s] questions about the [e]arn [i]nterest [p]roduct (on the theory that the product is a security subject to SEC oversight) while at the same time preserving the argument that the product is not a security subject to SEC oversight. This attempt to have it both ways dooms Nexo Financial’s petition from the start,” stated CFPB Director Rohit Chopra in the decision.

Through its CID, the CFPB is seeking to determine the answer to three related questions: (1) whether subject entities were engaged in conduct that is subject to federal consumer financial law (specifically, the Consumer Financial Protection Act (CFPA) and Regulation E); (2) whether those entities had violated the CFPA and Regulation E; and (3) whether a CFPB enforcement action would be in the public interest. Nexo Financial had met and conferred with staff from the CFPB’s Office of Enforcement on December 14 and 20, 2021, January 5, 2022, February 18, 2022, and March 4, 2022. On March 14, 2022, Nexo Financial filed a petition to modify the CID.

The CFPB’s investigation into Nexo Financial is its first investigation to determine whether a crypto firm is abiding by consumer protection laws. Its investigation comes at a time of keen interest in regulating the crypto ecosystem. As we discussed here, Senate Banking Committee Chairman Sherrod Brown (D-OH) recently sent a letter to Treasury Secretary Janet Yellen requesting that she coordinate with other financial regulators to develop legislation that would provide authority for federal regulators to have visibility into, and otherwise supervise, the activities of the affiliates and subsidiaries of crypto asset entities.

Photo of Keith J. Barnett Keith J. Barnett

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts…

Keith’s experience representing clients in the financial services industry as a litigation, compliance, regulatory, investigations (internal and regulatory), and enforcement attorney spans 20 years. Keith represents clients against government regulators (CFPB, FTC, SEC, CFTC), industry regulators (FINRA), and private litigants in federal courts, state courts, and before arbitration and administrative law panels in the financial services industry.

Photo of Ethan G. Ostroff Ethan G. Ostroff

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and

Ethan Ostroff’s practice focuses on financial services litigation and consumer law compliance counseling. Ethan is part of the firm’s national practice representing consumer-facing companies of all types in defense of individual and class action claims and counseling them on compliance with federal and state laws.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Photo of Carlin McCrory Carlin McCrory

Carlin is a regulatory, compliance, and payments attorney with experience representing financial institutions, fintechs, lenders, debt collectors, payment processors, neobanks, virtual currency companies, and mortgage servicers.