More credit-card issuers are ditching bitcoin.
Three of the largest banks in the U.S. said Friday that they would no longer permit credit-card customers to buy bitcoin with their credit cards. The decisions were announced after a brutal week for bitcoin prices, which have plummeted more than 50% from their peak in December.
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Citigroup Inc. said late Friday that it has decided to no longer permit its credit card customers to buy bitcoin with their Citi credit cards. The bank is in the process of implementing the block, which will apply to Citi credit-card holders globally. "We will continue to review our policy as this market evolves," said a bank spokeswoman.
The bank joins JPMorgan Chase & Co. and Bank of America Corp., which earlier Friday also said they won't allow credit-card customers to use credit cards to buy bitcoin.
The Wall Street Journal reported on Jan. 25 that banks were becoming concerned about the risks associated with credit cards being used to purchase bitcoin. Capital One Financial Corp. prohibited credit-card purchases of bitcoin in January and Discover Financial Services banned them in 2015.
With the latest announcements, most top credit-card issuers by volume won't allow bitcoin purchases. One of the biggest concerns for banks is that bitcoin purchases will push up their card losses. That includes cardholders who don't pay their bills when the price of bitcoin falls below what they paid to buy it with the card.
The price of bitcoin rose to about $9,300 in weekend trading after falling about 20% for the week ended Friday.
Overall credit-card charge-offs are on the rise because of several factors, including looser underwriting standards in recent years. That has investors concerned because losses are up during a relatively strong economy when unemployment is low. Some banks have taken steps to slow down the pace at which losses are rising -- but bitcoin card purchases could complicate those efforts.
Fraud losses are also a top concern for card issuers. Credit-card holders typically aren't responsible for fraudulent purchases on their cards. Those costs are often shouldered by the issuer or the merchant where the transaction occurred. But as more exchanges emerge that sell cryptocurrencies, some card issuers say there is a higher risk of card holders buying bitcoin from a fraudulent merchant. Cardholders would then contest the purchase with the issuer, which could likely result in the card issuer writing off that purchase as a loss.
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