TradeHill - Dwolla is being scammed and reversing transactions

[makomk]

For the ones that hate all legal terminology, can you explain the difference between a chargeback and reversing a transaction.

Not sure there is a legal definition of "chargeback" at all, but in common use it generally refers to the rather expensive process by which credit and debit card payments reversals are carried out by the major providers. If memory serves me correctly at least one industry with high chargeback rates (the porn industry) is more worried about the nasty penalties associated with chargebacks than the transactions being reversed - they can eat the loss of income because their marginal costs are fairly small, but the fees really bite.

I would think somebody would have to have proper credentials in order to goto their bank and claim a transaction is fraudulent.

In which case they would be using their real name and information.  Isn't this traceable back to their bank?  Hard to use TOR and proxies at a physical bank location.

You're assuming the transaction was actually carried out by the account holder. There's a large chance the transactions in question genuinely were carried out fraudulently for exactly this reason: false claims of fraud would be risky and easy to trace.

[cypherdoc]

Dwolla just has to do a better job ensuring ACH tx's to them are legit before releasing funds to merchants.  i know my acct with them had to go thru all sorts of hoops to get credentialed before i could ACH to them which is why i fail to relate to what happened here.

edit:  all the pressure we've been putting on them to make the clearance of funds faster probably contributed to errors.

[error]

Dwolla just has to do a better job ensuring ACH tx's to them are legit before releasing funds to merchants.  i know my acct with them had to go thru all sorts of hoops to get credentialed before i could ACH to them which is why i fail to relate to what happened here.

edit:  all the pressure we've been putting on them to make the clearance of funds faster probably contributed to errors.

Now suppose someone swipes your Dwolla password. There are STILL people out there who haven't changed their passwords since the MtGox incident and are STILL getting their accounts broken into and their money stolen.

[cypherdoc]

you can tell Dwolla is still a rookie organization based on my conversations with their telephone contact person Ben.

[indio007]

You guys aren't considering the fiduciary duties. When you hold someone else's property in trust there are strict liabilities. Dwolla gave out material false information publicly and privately (in the case of Tradehill) that was acted upon. There is no excuse for that.

I have seen this work real world with a Bank and fake postal money orders. The bank released the funds and they had no recourse against the person that deposited them.

[bitcoinminer]

Now suppose someone swipes your Dwolla password. There are STILL people out there who haven't changed their passwords since the MtGox incident and are STILL getting their accounts broken into and their money stolen.

Good!  Expensive lessons are not soon forgotten.

[sequence]

you can tell Dwolla is still a rookie organization based on my conversations with their telephone contact person Ben

I too spoke to Ben when I contacted dwolla for my issue. He was nice over the phone not so much on email. More than likely if you have a customer issue he is the only guy you will be able to talk to. I suspect they are short staffed and in over their heads!

[Litt]

i don't give a damn as long as mtgox and dwolla is fine. LOL

[EricJ2190]

i don't give a damn as long as mtgox and dwolla is fine. LOL

This is still unclear. MtGox hasn't reported having any Dwolla issues, but is could become a problem now that it is known that transactions can be reversed.

[Jered Kenna (TradeHill)]

i don't give a damn as long as mtgox and dwolla is fine. LOL

This is still unclear. MtGos hasn't reported having any Dwolla issues, but is could become a problem now that it is known that transactions can be reversed.

It's been confirmed at exchangebitcoins.com and Mt Gox in IRC  but "not at the same level as TradeHill"

Jered

[Smalleyster]

My guess is that Dwolla is gone. This is their non-response they sent this afternoon:

Dwolla Support support@dwolla.org to me
   
show details 1:27 PM (3 hours ago)
   
__________________________________
Please type your reply at the top of the email...
Charise
JUL 26, 2011  |  12:27PM CDT
David,

We'd be happy to walk you through our processess.

Dwolla has a return and dispute process which is pretty straight forward but in the past has been fairly manual.

Is there any specific question I could possibly answer? I'd be happy to do so.

+++++++++++++++++++++

David
JUL 26, 2011  |  08:46PM CDT
Original message
Please make me feel you are "doing the right thing" in reference to the following line of discussion in the bitcoin community.

http://forum.bitcoin.org/index.php?topic=31712.0

I am a relatively new client of yours and I used your services to interact with TradeHill, among others. I am at this moment extremely nervous about using your services unless and until this matter is cleared up.

Thank you

+++++++++++++++++++++

This screams of avoiding the subject. I am not sure what my response to their non-response will be.

I think the ever astute JoelKatz has nailed it on the head, they have no reserve on hand nor any plan in place to solve this type of problem.

[jwzguy]

I don't see how what Dwolla did by editing statements retroactively to HIDE their reversed transactions is different than fraud.

By forcing you guys to go public to get a response (if you do) they've already destroyed any trust I could have given them.

The question now is only how can we quickly and cheaply transfer money to TH? 10$ per transfer is out of the question for me personally.

I heard you guys mention ING p2p transfers on Bruce's show. I already have an ING account, and ING is fantastic! If TH takes a step to verify account holders in some way so we can avoid 60-day or 180-day transfer holds, I'm totally fine with that.

[sonba]

It's possible Mt. Gox had the same thing happen and didn't notice. As I understand what they're saying, Dwolla just changed the status back to unpaid and took the money without any notification. If you weren't looking for something like that, you might not notice until some time later when you tried to balance the books.

It's also possible Mt Gox has had the same thing happen and hasn't talked about it publicly. Based on the reasons they gave for their French bank cancelling their account, we know someone's tried this with Mt Gox SEPA transfers using stolen online banking information, and since SEPA transfers are definitely reversable it's very likely they lost some money from this happening, yet they haven't said anything.

This might be a naive question - but since when are SEPA transfers reversable? (In case that you gave a correct and matching account name + account number.) I never heard nor have seen reversed SEPA transactions so far. Can you maybe elaborate on this?

[sonba]

I really hope that Dwolla refunds TH the frauded money. However, I would guess that Smalleyster has a point - potentially they might have trouble refunding TH as the 0.25$ probably dont include a credit fee
On a seperate note: I think TradeHill really did a great job on playing with open cards and letting the community know about this problem (after Dwolla didn't resolve it). Personally, I highly prefer such open communication over non-informative messages "we stopped x or y" without giving reasons. So, a big thumbs up for the TradeHill communication style!

[JoelKatz]

For the ones that hate all legal terminology, can you explain the difference between a chargeback and reversing a transaction.

Reversing a transaction means that the institution that performed a transaction debits the recipient and credits the sender for the amount of the transaction. A 'chargeback' is a specific case where funds are returned to a consumer by an issuing bank, reversing a credit card or bank account transfer. Generally the specific term 'chargeback' is used to indicate that it's in accord with specific Federal laws that give the consumers additional rights beyond what they'd normally have and prohibiting the financial institution from acting as a mere intermediary by making them responsible to the consumer for merchant fraud.

In this case, Dwolla charged back TradeHill. They had better be prepared to defend that action in arbitration. If they cannot show some fraud on TradeHill's part (or unjust enrichment, or something like that), or some law that exempts them from that requirement, they are fully liable. You can't reverse a transaction to Jack because you were defrauded by Jill.

If you promise to buy a video card from me for $200 and I buy the video card from NewEgg for $195, then give it to you and you don't pay me the $200, I have no right to charge back NewEgg. If I want to charge back my transaction with NewEgg, I have to show some fraud between NewEgg and me. Reserving the right to charge back, as Dwolla's ToU now says, still doesn't permit them to charge back without a sufficient legal justification.

As far as TradeHill is concerned, Dwolla sent them some money and then reversed that transaction. Dwolla initiated that reversal and they have to defend it. "A third party reneged on us" is not a reason to reverse a payment.

[netrin]

I get the whole Dwolla reversing charges after crediting TradeHill's account. But how does the scammer pull this off and how could Dwolla not be aware of it? The scammer transfers funds to Dwolla, transfers to TH, buys bitcoins, and reverses the original transaction from bank to Dwolla. Do I have that right? Is it assumed that the scammer stole access to the bank account?

[JoelKatz]

I get the whole Dwolla reversing charges after crediting TradeHill's account. But how does the scammer pull this off and how could Dwolla not be aware of it?

Dwolla is aware of it. But if they can just reverse their payment, they have no incentive to do anything about it.

The scammer transfers funds to Dwolla, transfers to TH, buys bitcoins, and reverses the original transaction from bank to Dwolla. Do I have that right?

Yes.

Is it assumed that the scammer stole access to the bank account?

Assumed by whom? Most likely, the reversal is the fraudulent part, but TradeHill has no way to know. That's between Dwolla and the person who reversed the ACH payment.

[CubedRoot]

Here is the reply I received from Dwolla today about this "scandal".
It appears there have always been chargebacks available for ACH transfers, but there are no chargebacks if a Merchant uses their POS service to receive credit card payments.

Lynn
Please type your reply at the top of the email...
Dwolla Support
JUL 27, 2011  |  07:13PM CDT
Lynn,

Thank you for your e-mail.

There are no credit card or debit card chargebacks. Our apologies for any miscommunication.

There have always been bank returns and disputes in the Dwolla system. The dispute form and process has been a part of Dwolla since our initial release.

In the meantime we are putting together more information for the web site to ensure merchants are clear on the process that will likely involve updating documentation as well.

Please let us know if we can expand on any particular scenarios you have questions about. We will be happy to assist you. If there is any situation that involves your financial institution please let us know and we will be happy to dive into it!
Lynn
JUL 26, 2011  |  06:29PM CDT
Original message
Hello,
I was a true Dwolla fan until the recent scandal you guys have pulled with Tradehill.com.
You mention there were no worries of chargebacks on this page:
http://www.dwolla.org/blog/retail-merchants-rejoice-web-kiosk-online/
But, on your Help page, you clearly state that you do indeed do chargebacks. Here is that page for reference:
http://help.dwolla.com/customer/portal/articles/99247-why-was-my-transaction-reversed-

Please, can you address this publicly? I was honestly pulling for Dwolla to become the preferred way to pay for transactions on the web, and eventually become competitive with PayPal, but after this recent scandal, I am very disappointed, and I am afraid I no longer find your services valuable.
For your reference this is Case #: 2077
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[99Percent]

Well if all this is true, its only a matter of time before Mt Gox is screwed too and they will no longer accept Dwollas also.

I wonder how financial institutions who have to deal with these types of transactions do it. How do you trade in the stock exchange for example?

[Keyur @ Camp BX]

Now suppose someone swipes your Dwolla password. There are STILL people out there who haven't changed their passwords since the MtGox incident and are STILL getting their accounts broken into and their money stolen.

This is still a big risk Error - we caught couple of stolen-password accounts this morning!  Dwolla is reviewing their activity now.