What California Car Dealers Need to Know About Acceptance of Payment via Cryptocurrency
The Digital Financial Assets Law Governs Cryptocurrency Transactions in California
Dealers in California have raised the issue of accepting cryptocurrency as payment for vehicle sales. The Digital Financial Assets Law of 2023 (“DFAL”)[1] is expected to become the primary authority governing cryptocurrency transactions in California. The DFAL creates a regulatory framework for companies dealing with cryptocurrency transactions and provides legislative guidance on the matter.
The law, which goes into effect on July 1, 2026, imposes a licensing requirement on entities engaged in specific types of cryptocurrency transactions. If the company falls within the definitions of the DFAL, it may require a license to handle cryptocurrency payments. However, this determination is subject to exceptions,[2] exempts certain transactions from licensure.
Important Cryptocurrency Transaction Definitions Under DFAL
The following are helpful definitions for dealers to know in order to engage in acceptance of cryptocurrency in California:
- “Digital financial asset” means a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender.[3]
- “Legal tender” means a medium of exchange or unit of value, including the coin or paper money of the United States, issued by the United States or by another government.[4]
- “Digital financial asset business activity,” means any of the following:
- Exchanging, transferring, or storing a digital financial asset or engaging in digital financial asset administration, whether directly or through an agreement with a digital financial asset control services vendor;
- Holding electronic precious metals or electronic certificates representing interests in precious metals on behalf of another person or issuing shares or electronic certificates representing interests in precious metals; and
- Exchanging one or more digital representations of value used within one or more online games, game platforms, or family of games for either of the following:
- A digital financial asset offered by or on behalf of the same publisher from which the original digital representation of value was received.
- Legal tender or bank or credit union credit outside the online game, game platform, or family of games offered by or on behalf of the same publisher from which the original digital representation of value was received.[5]
- “Exchange” means to assume control of a digital financial asset to sell, trade, or convert:
- A digital financial asset for legal tender, bank or credit union credit, or one or more forms of digital financial assets; and[6]
- Legal tender or bank or credit union credit for one or more forms of digital financial assets.
If a dealer desires to allow customers to make payments in cryptocurrency which will be converted into legal tender to satisfy vehicle purchase obligations, such transactions would likely facially constitute “digital financial asset business activity” under subparagraph (1). Accordingly, licensure would be required unless the dealer’s conduct falls within one of the statutory exceptions set out in Cal. Fin. Code § 3103.
Accepting Cryptocurrency as Payment Falls Under an Exception to DFAL Licensing Requirements
Dealerships may be exempted from licensure through explicit DFAL exceptions.[7] These exceptions permit certain types of unlicensed cryptocurrency transactions. Among these exceptions is one that likely applies to dealers’ limited use of cryptocurrency. Specifically, per Cal. Fin. Code § 3103(b)(17), DFAL does not apply to:
(17) A merchant that accepts a digital financial asset as payment for the purchase or sale of goods or services, which does not include digital financial assets.
Under this exception, merely accepting cryptocurrency as payment in exchange for a dealer’s goods or services is not, on its own, enough to constitute a digital financial asset business activity requiring a license under DFAL. A dealer’s sale of motor vehicles in exchange for payment in cryptocurrency thus will likely fall within this merchant exception. Therefore, this statute does not impede a dealer’s ability to accept cryptocurrency payments.
A Third-Party Payment Processor’s Role Can Further Limit a Dealer’s Regulatory Exposure
In addition to meeting the exception requirements under Cal. Fin. Code § 3103(b)(17), dealers can also likely be insulated from DFAL licensure requirements due to a third-party processor’s role in the transaction process. A key inquiry in a DFAL analysis is whether the dealer itself engages in the exchange or custody of digital financial assets. Use of a third-party payment processor largely removes dealers from that role.
How Madison Law Can Assist
Dealers in California can implement third-party payment processors to handle cryptocurrency as a payment option without obtaining a DFAL license. Although the DFAL is not yet in effect, dealers should monitor future regulations from the California Department of Financial Protection and Innovation (“DFPI”), the agency charged with administering and enforcing the DFAL, and contact us for assistance regarding any questions and updates regarding future regulations or guidance issued by the DFPI.
[1] Cal. Fin. Code §§ 3101 – 3907
