California Regulates Crypto Kiosks with $300,000 Coinme Penalty

The California Department of Financial Protection and Innovation (DFPI) has taken a significant step in regulating the digital financial assets sector by entering into a consent order with Coinme, Inc., a Seattle-based company. This action marks the first enforcement under the state’s Digital Financial Assets Law (DFAL).

Coinme operates crypto kiosks in grocery and convenience stores across California. The DFPI's investigation found that Coinme violated the DFAL by allowing customers to exchange or withdraw more than $1,000 per day, exceeding the daily transaction limit set by the law. Additionally, the company failed to provide the required disclosures on customer receipts, further compounding the violations.

As part of the consent order, Coinme has agreed to pay a $300,000 penalty. This includes $51,700 in restitution to an elderly California resident who was impacted by the violations. The company is also required to implement compliance measures to prevent future infractions, ensuring that it adheres to the regulations set forth by the DFAL.

DFPI Commissioner KC Mohseni emphasized the importance of this enforcement action, stating that it sends a strong message to kiosk operators that California is serious about enforcing rules that protect consumers from scams. This action is part of a broader effort to prevent digital asset companies from taking advantage of unsuspecting individuals, particularly the elderly.

Fraud losses linked to crypto kiosks have surged significantly in recent years. Between 2020 and 2023, these losses increased nearly tenfold, highlighting the growing risk associated with these kiosks. The Federal Trade Commission (FTC) and the Federal Bureau of Investigation (FBI) have both reported substantial increases in complaints and losses related to crypto kiosk scams. The FTC noted that older Americans are disproportionately affected, with those aged 60 and above being over three times more likely to report losses through these kiosks compared to younger adults.

In response to these concerns, California enacted the DFAL in 2023 to regulate kiosk operators and reduce the risks associated with these transactions. Other states have also taken action to address the issue. Illinois lawmakers sent a bill to Governor JB Pritzker in early June, advocating for similar measures. Vermont enacted regulations in May that set daily transaction limits on crypto kiosks, while Nebraska implemented a law in March requiring crypto ATM operators to obtain licenses.