Some 87,000 credit card customers were locked out of their cryptocurrency assets after crypto firm BlockFi filed for bankruptcy in one of the latest aftershocks from the FTX collapse.
Earlier this month BlockFi froze withdrawals,citing heavy asset exposure to FTX.
Among the funds frozen were millions earned by customers as part of a credit card rewards program that gave BitcoinBTC/USD back for every purchase made with a BlockFi-issued credit card.
Unable to withdraw their funds, angry customers are now refusing to pay their credit card debts, and in doing so, they could end up hurting themselves and other involved parties.BlockFis Rewards Card Sparks Anger
On Tuesday, BlockFi described itself before a bankruptcy judge as "the antithesis of FTX" and said its searching to reactivate access to its customers funds as soon as possible.
According to BlockFis Chapter 11 filings, the company has over 100,000 creditors andestimated assets and liabilities of between $1 billion and $10 billion.
The company is owed $250 million by FTX, which committed a $400-million loan to BlockFi in June.
Related: After FTX Collapse, 'Crypto Is Dead' And Coinbase 'A Waste Of Time:' Mizuho Analyst
Among thousands of angry BlockFi customers are 87,000 holders of the BlockFi Rewards Visa Signature Credit Card, a credit card issued by BlockFi thatgave customers 1.5% of their purchases back in crypto assets (including Bitcoin), which accumulated into their BlockFi wallets.
Customers spending over $30,000 would qualify for 2% crypto rewards.
The card was announced in October 2021 and was issued in partnership with Deserve Inc., which acted as underwriting partner and lender, and Evolve Bank & Trust as the bank extending the line of credit.
On Nov.11, after freezing itscustomers funds including assets gathered through the credit cards rewards program BlockFis credit cards stopped working.
Yet the following day, the company sent emails to all of its credit card holders reminding them that all terms and conditions of their cardholder agreements still apply.
Your repayment activity and account status will continue to be reported to the credit bureaus, said the email.
The company reiterated its email after issuing an official bankruptcy announcement on Wednesday.
The BlockFi Cardholder Reaction:Many angry BlockFi customers took to Twitter to say that as long as theyre not getting access to their rewards, they wont pay their credit card debt.
Whatever I lost in credit card rewards I gain back by not paying my bill. It's a win win, wrote user Jimmy Ricciardi.
Why is this a one way street? we should at least be allowed to offset our credit card balance with the reward balance!, said a user by the name of I_believe_in_link.
User John Ennis said: Since you owe me $100 in credit card rewards, and I owe you about $2k for my credit card bill this month, am I right that I can pay everything but the $100 you owe me and you can figure out the rest?
The list of angry posts goes on, and those on Twitter are likely but a small share of the many BlockFi credit card holders who are following the same line of thought.The Consequences Of Not Paying BlockFis Credit Card Debt
The customers are right to complain about not receiving the rewards they were promised.
Yet most are missing that failing to pay their credit card bills is not directly hurting BlockFi finances, but its underwriting partner, Deserve Inc.
While BlockFi is the entity issuing rewards for the credit card usage, Deserve is the entity thatloaned the money to pay for the purchases that these customers made.
A source familiar with the matter told Benzinga that Deserve has about $125 million to collect from BlockFi credit card customers, much of which could go unpaid.
Deserve didn't reply to a request from Benzinga to comment.
Yet not paying their credit card bills could also hurt the customers themselves. While BlockFi has filed for bankruptcy, credit card debt to Deserve is still active.
That means that if users fail to pay, they face the same consequences as they would by not paying any other credit card. These include a negative impact on their credit score, late fees, higher interest rates, harassment by debt collectors and a potential lawsuit by the entity owning that debt.
Benzingas Take: A Chapter 11 filing is usually seen as a better prospect than as Chapter 7, as it shows an intention to reorganize the business debt in order to re-emerge as a successful and operational company.
While the bankruptcy period could take long to settle, BlockFi is making an effort to publicly appear as trying to clean up the mess.
This is no guarantee of being able to access user funds soon, but failing to settle credit card debt would most likely be worse for clients in the long run.
Shutterstock image edited by Benzinga with assets from Flaticon and Unsplash.
