On June 25, the California Department of Financial Protection and Innovation (DFPI) entered a consent order with Coinme, Inc., a cryptocurrency “ATM” operator, for noncompliance with the California’s Consumer Financial Protection Law (CCFPL) and Digital Financial Assets Law (DFAL). The consent order marks a significant milestone in California’s regulatory efforts because it represents the conclusion of the agency’s first enforcement action under the DFAL.
What Happened
The California Legislature passed the DFAL in 2023 to mitigate risks associated with the use of digital asset ATMs, which are alleged to be instantaneous and irreversible and involving minimal compliance screening or identity verification. Two provisions of the DFAL that went into effect on January 1, 2024, include the requirements that kiosk operators: (1) disclose the “spread” (i.e., the difference between the market price of a digital asset and the price quoted and used by the kiosk operator in the transaction) on the customer’s receipt; and (2) limit transactions per customer to no more than $1,000 a day. (Cal. Fin. Code §§ 3905, 3902).
Following an investigation of Coinme, which primarily operates kiosks located in grocery and convenience stores, DFPI alleged that Coinme violated DFAL by exceeding the $1,000 transaction limit and failing to include essential disclosures on customer receipts.
To resolve these allegations, Coinme and DFPI have entered into a consent order. Under the terms of the order, Coinme will pay a $300,000 penalty, including $51,700 in restitution to California residents to be specified by DFPI. Additionally, Coinme is required to implement measures to address and prevent future violations and must submit periodic reporting on these measures to DFPI.
Why It Matters
In the absence of comprehensive federal regulation for digital assets, states have taken the lead as the primary regulators in this segment of technology. In recent years, state authorities have increasingly concentrated enforcement efforts on acute consumer harms linked to digital assets, particularly their perceived role in facilitating scams and fraudulent activities. Given the concerns raised by state enforcers about the frequent and increasing use of digital asset ATMs in scams, kiosk operators and managers should anticipate heightened regulatory scrutiny. It is imperative that these businesses develop and implement robust compliance plans if they have not already done so, to ensure adherence to state regulations.
