Press Release - TradeHill, Inc. Files Suit Against Dwolla, Inc.

[triplehelix]

ars weighs in:

http://arstechnica.com/tech-policy/news/2012/03/lawsuit-illustrates-bitcoins-chargeback-problem.ars

[Raoul Duke]

ars weighs in:

http://arstechnica.com/tech-policy/news/2012/03/lawsuit-illustrates-bitcoins-chargeback-problem.ars

"Bitcoin's chargeback problem" - oh, the irony.

I think they meant "Bitcoin's NO chargeback problem"... idiots!

[Matthew N. Wright]

ars weighs in:

http://arstechnica.com/tech-policy/news/2012/03/lawsuit-illustrates-bitcoins-chargeback-problem.ars

"Bitcoin's chargeback problem" - oh, the irony.

I think they meant "Bitcoin's NO chargeback problem"... idiots!

Infidels!

[check_status]

Why didn't Dwolla go to Tradehill right when they realized they had incurred losses that would directly affect Tradehill and work out some arrangement?
If a company is a significant portion of your business and you throw them under the bus to save your own assets what does that say about you?

It should have never reached this point. Tradehill would still be around if Dwolla approached them early and we would've been less aware of how incompetent Dwolla really is.

[btc_artist]

Watching.

[Phinnaeus Gage]

My prediction is that Dwolla will settle for somewhere between 100k and 500k, because it seems like there is a valid argument that they did not pass liability of chargebacks onto their customers in their original TOS.

Afterwards, they can contact a Meze Grill customer on how to get out from paying the settlement.

[Matthew N. Wright]

My prediction is that Dwolla will settle for somewhere between 100k and 500k, because it seems like there is a valid argument that they did not pass liability of chargebacks onto their customers in their original TOS.

Afterwards, they can contact a Meze Grill customer on how to get out from paying the settlement.

I hear it involves moving to another state and latching on to a group of greedy people obsessed with anonymity and selling them promises.

[triplehelix]

maybe dwolla will "find" a hair in their settlement.

[Aggro]

ars weighs in:

http://arstechnica.com/tech-policy/news/2012/03/lawsuit-illustrates-bitcoins-chargeback-problem.ars

"Bitcoin's chargeback problem" - oh, the irony.

I think they meant "Bitcoin's NO chargeback problem"... idiots!

Yep, and that would still be a moronic statement from them. There are no problems with a "no chargeback" irrevocable policy. Ask any merchant that has to deal with Visa and MasterCards, and assholes getting free services and goods from them.

Case in point: Some years ago some scammer put a buy order on our website (for liberty reserve, irrevocable). Some idiot bought a supposed car on ebay, from a dude he never seen. The car "seller" of course gave the wire instructions for the LR order to the victim. The victim sent a wire transfer to fullfil the order the scammer put through on our site. Later of course, the moron realized that there was no car, and that he sent an international wire transfer to an unknown party from an auction site. Wire recall ensued of course. At this point we already had delivered the LR.

Question is: Why do I have to pay for some retarded idiot that purchases a vehicle online from some nigerian scammer? Why do I have to absorb this loss? Nowadays, we have better procedures and detection tools for these types of scams, but are still very possible.

To me, the money lost from the victim should be viewed as a tax on his idiocy, period.

[Aggro]

Chargebacks don't protect the consumer, it protects the morons and the crooks. Back in the day when you had to pay with coins, cash or tade, people did their math before forking over the money to somebody. Another dent on darwinism. Let's keep the idiot's money safe! Learn how to secure your wealth and how to spend it, because if you don't somebody (the merchant) will have to pay for your sorry ass! Sorry I am getting all riled up here

[JoelKatz]

Chargebacks don't protect the consumer, it protects the morons and the crooks.

If you mean ACH chargebacks, 100% agree. If you mean credit card chargebacks, 100% disagree. (The big difference is that an ACH transfer is an actual payment. A credit card is an extension of credit.)

[notme]

Chargebacks don't protect the consumer, it protects the morons and the crooks. Back in the day when you had to pay with coins, cash or tade, people did their math before forking over the money to somebody. Another dent on darwinism. Let's keep the idiot's money safe! Learn how to secure your wealth and how to spend it, because if you don't somebody (the merchant) will have to pay for your sorry ass! Sorry I am getting all riled up here

+1

[Aggro]

Chargebacks don't protect the consumer, it protects the morons and the crooks.

If you mean ACH chargebacks, 100% agree. If you mean credit card chargebacks, 100% disagree. (The big difference is that an ACH transfer is an actual payment. A credit card is an extension of credit.)

It is an extension of credit on the customer, not the merchant. If the customer does something dumb with the line of credit, it should be their responsibility, not the merchant's. At most, it should be a problem shared by the customer and the bank that extended the credit. This is akin to a mortgage in a house: if you bought a 400K 1 bdr appartment in LA before the bubble bursted, you and the bank are stuck with the debt, and you pay the price, not the seller of the property.

While I do understand there should be some merchantability protection for the consumer, it seems to me that the merchant ALWAYS ends up paying for the broken dishes, not the banks, and almost never the consumer. This is by the way, after the merchant has already been pounded by some irrational "processing fee" by the credit card companies.

[notme]

Chargebacks don't protect the consumer, it protects the morons and the crooks.

If you mean ACH chargebacks, 100% agree. If you mean credit card chargebacks, 100% disagree. (The big difference is that an ACH transfer is an actual payment. A credit card is an extension of credit.)

It is an extension of credit on the customer, not the merchant. If the customer does something dumb with the line of credit, it should be their responsibility, not the merchant's. At most, it should be a problem shared by the customer and the bank that extended the credit. This is akin to a mortgage in a house: if you bought a 400K 1 bdr appartment in LA before the bubble bursted, you and the bank are stuck with the debt, and you pay the price, not the seller of the property.

While I do understand there should be some merchantability protection for the consumer, it seems to me that the merchant ALWAYS ends up paying for the broken dishes, not the banks, and almost never the consumer. This is by the way, after the merchant has already been pounded by some irrational "processing fee" by the credit card companies.

Yep.

And credit cards are broken by design:
"Can I buy that candy bar?"
"Sure, just give me enough personal information to charge you up to your credit limit so I can store it within reach all my of employees."

[Aggro]

Yep.

And credit cards are broken by design:
"Can I buy that candy bar?"
"Sure, just give me enough personal information to charge you up to your credit limit so I can store it within reach all my of employees."
[/quote]

LOL true. You should watch that stand up of George Carlin bitching about dumb people paying for a pack of cigarrettes with a credit card instead of carrying cash.

[JoelKatz]

It is an extension of credit on the customer, not the merchant.

Yes, but it is an extension of credit (to some extent) *by* the merchant.

If the customer does something dumb with the line of credit, it should be their responsibility, not the merchant's.

It is. And one of the things a customer might do when someone who extended them credit fails to comply with the terms of the agreement is not pay them.

At most, it should be a problem shared by the customer and the bank that extended the credit.

The bank didn't extend the credit until and unless the service is completed and accepted by the customer. Until then, the merchant has extended the credit.

This is akin to a mortgage in a house: if you bought a 400K 1 bdr appartment in LA before the bubble bursted, you and the bank are stuck with the debt, and you pay the price, not the seller of the property.

Right, that's because mortgages are not like credit cards. In the case of a mortgage, the bank is extending credit directly to the mortgagee.

While I do understand there should be some merchantability protection for the consumer, it seems to me that the merchant ALWAYS ends up paying for the broken dishes, not the banks, and almost never the consumer. This is by the way, after the merchant has already been pounded by some irrational "processing fee" by the credit card companies.

The merchant does have to pay a chargeback fee. But they are still absolutely free to collect directly from the consumer. If the chargeback was legitimate, the merchant *should* be out the money. If it's illegitimate, the consumer still owes them the money and they can still demand payment or sue the customer. That's the risk when you extend credit -- the recipient may not pay you and you might have to sue them.

At least in the United States, credit card chargebacks are nothing like ACH chargebacks. It's simply the bank electing not to collect the debt on behalf of the merchant because they are not convinced it's legitimate.

[Aggro]

Joel,

When you pay your credit card's interest rate (APY) you pay it to the credit card company, not the merchant. That is because the credit card company is extending credit to you, and not the merchant. The merchant is agreeing to provide you with certain goods or services in exchange of a lump sum payment, in this case disbursed by the credit card company to the merchant on your behalf, just like a bank disburses a sum lump payment to the seller of a house at the closing on your behalf. There is NO credit extended by the merchant, unless you are paying the merchant with a credit card issued by the merchant (i.e. target credit card, etc).

With your logic, the seller of a house will be providing credit "in part" to the buyer, along with the bank when a mortgage is closed. Months later, if the buyer of the house quits paying, the bank will know on the sellers door and ask for the money back.

A "credit card" is an instrument by which the issuing institution extends credit to the customer, and for which collects interests payments, service fees, etc. The whole point for the merchant (in theory) is to delegate the issuing of credit and mitigate risk to a third party.

In any case, chargebacks have nothing to do with who extends credit. Chargebacks (be it ACH or Credit Cards) can occur for two reasons:

• Fraud: The issuing institution determines that fraud has been committed, so takes back the money.
• implied warranty of fitness for a particular purpose (Non performance, etc which is the norm in commerce in the USA and here in Canada) (http://en.wikipedia.org/wiki/Implied_warranty).

Right, that's because mortgages are not like credit cards. In the case of a mortgage, the bank is extending credit directly to the mortgagee.

This really have nothing to do to whom the bank is extending credit to, since in both cases the bank is extending credit to the buyer, not the merchant (or seller).

This has to do with the fact that Real Estate sells fall under Caveat Emptor (http://en.wikipedia.org/wiki/Caveat_emptor) i.e. "Buyer be aware". And this brings me to the next point: Before we created a race of retarded morons that can't seem to be able to educate themselves as consumers, the world's economy traded based on Caveat Emptor all the time. You couldn't go to a fucking Roman merchant and be "Can I like ... have my salt back, I am not really feeling this fur color with my skin ....". Yep we have shat all over darwin, and this is what we now have.

Let me give you an example on Real Estate: When you go buy a house you check it out, you hire a home inspector, you have by law 45 days to withdraw or modify your offer if defects are found, you do your research (most likely pay the title company to do it) on the house title, make sure it is free of liens, etc.. etc..

This is because after closing day, if you want your money back, well, guess what? you are jolly well fucked. This is thanks to Caveat Emptor.

Bitcoin works under the premises of Caveat Emptor. The banking world works under the premises of "I freeze your account whenever the fuck I want" and "I charge you back because the customer complained that the chia pet didn't grow grass" etc ... etc... etc...

Caveat Emptor has its downfalls of course, it is not a panacea, but honestly this situation with chargebacks (I have had chargeback requests for international wire transfers dating 6 months ago) is absolutely getting out of hand.

[Aggro]

Joel,

When you pay your credit card's interest rate (APY) you pay it to the credit card company, not the merchant. That is because the credit card company is extending credit to you, and not the merchant. The merchant is agreeing to provide you with certain goods or services in exchange of a lump sum payment, in this case disbursed by the credit card company to the merchant on your behalf, just like a bank disburses a sum lump payment to the seller of a house at the closing on your behalf. There is NO credit extended by the merchant, unless you are paying the merchant with a credit card issued by the merchant (i.e. target credit card, etc).

With your logic, the seller of a house will be providing credit "in part" to the buyer, along with the bank when a mortgage is closed. Months later, if the buyer of the house quits paying, the bank will know on the sellers door and ask for the money back.

A "credit card" is an instrument by which the issuing institution extends credit to the customer, and for which collects interests payments, service fees, etc. The whole point for the merchant (in theory) is to delegate the issuing of credit and mitigate risk to a third party.

In any case, chargebacks have nothing to do with who extends credit. Chargebacks (be it ACH or Credit Cards) can occur for two reasons:

• Fraud: The issuing institution determines that fraud has been committed, so takes back the money.
• implied warranty of fitness for a particular purpose (Non performance, etc which is the norm in commerce in the USA and here in Canada) (http://en.wikipedia.org/wiki/Implied_warranty).

Right, that's because mortgages are not like credit cards. In the case of a mortgage, the bank is extending credit directly to the mortgagee.

This really have nothing to do to whom the bank is extending credit to, since in both cases the bank is extending credit to the buyer, not the merchant (or seller).

This has to do with the fact that Real Estate sells fall under Caveat Emptor (http://en.wikipedia.org/wiki/Caveat_emptor) i.e. "Buyer be aware". And this brings me to the next point: Before we created a race of retarded morons that can't seem to be able to educate themselves as consumers, the world's economy traded based on Caveat Emptor all the time. You couldn't go to a fucking Roman merchant and be "Can I like ... have my salt back, I am not really feeling this fur color with my skin ....". Yep we have shat all over darwin, and this is what we now have.

Let me give you an example on Real Estate: When you go buy a house you check it out, you hire a home inspector, you have by law 45 days to withdraw or modify your offer if defects are found, you do your research (most likely pay the title company to do it) on the house title, make sure it is free of liens, etc.. etc..

This is because after closing day, if you want your money back, well, guess what? you are jolly well fucked. This is thanks to Caveat Emptor.

Bitcoin works under the premises of Caveat Emptor. The banking world works under the premises of "I freeze your account whenever the fuck I want" and "I charge you back because the customer complained that the chia pet didn't grow grass" etc ... etc... etc...

Caveat Emptor has its downfalls of course, it is not a panacea, but honestly this situation with chargebacks (I have had chargeback requests for international wire transfers dating 6 months ago) is absolutely getting out of hand.

In a true libertarian free market society there is no room to baby the inept through life.

[JoelKatz]

When you pay your credit card's interest rate (APY) you pay it to the credit card company, not the merchant.

Right, which you start paying in 30 days or so.

That is because the credit card company is extending credit to you, and not the merchant.

Sure, at that point. But that's the non-chargeback case. That's not what happens if you reverse the charge.

The merchant is agreeing to provide you with certain goods or services in exchange of a lump sum payment, in this case disbursed by the credit card company to the merchant on your behalf, just like a bank disburses a sum lump payment to the seller of a house at the closing on your behalf. There is NO credit extended by the merchant, unless you are paying the merchant with a credit card issued by the merchant (i.e. target credit card, etc).

No, one is not "just like" the other. When you buy a house, the seller has *no* agreement with the mortgage company. The mortgage company just pays them. When you buy something with a credit card, there is a contractual arrangement between the merchant and the credit card issuer. These two situations are simply not comparable at all.

With your logic, the seller of a house will be providing credit "in part" to the buyer, along with the bank when a mortgage is closed. Months later, if the buyer of the house quits paying, the bank will know on the sellers door and ask for the money back.

I don't understand what you mean by "with my logic". These are two different factual situations. With a home mortgage, the mortgage company only pays the seller. With a credit card, the merchant has a contract with the bank that sets out a different relationship. This is a factual difference, it's not something you can logic out. You have to read the contracts to understand the relationship. (The contracts are not really freely negotiated though. The credit card issuer tells the merchant to take it or leave it, and Federal law sets out many of the requirements.)

A "credit card" is an instrument by which the issuing institution extends credit to the customer, and for which collects interests payments, service fees, etc. The whole point for the merchant (in theory) is to delegate the issuing of credit and mitigate risk to a third party.

To mitigate long-term risk, but not short-term risk. And to avoid having to do credit inquiries and avoid having to meet other requirements. Nevertheless, the bank's agreement with the merchant permits them to refuse to collect from the consumer on behalf of the merchant. A merchant cannot use a credit card issuer to protect themselves from the risks associated with their own non-performance and the consumer need not sue the merchant if they have not yet made payment. That's what the contracts between the merchant and the credit card issuer say.

This really have nothing to do to whom the bank is extending credit to, since in both cases the bank is extending credit to the buyer, not the merchant (or seller).

No, the bank is extending credit to the merchant in the case of a credit card. Why do you think credit card companies bother to investigate merchants or closing down merchant accounts for fraud? The credit card company is collecting the principle on behalf of the merchant and if you do not owe the merchant the principle, you do not owe it to the credit card company. That is the way credit cards work, at least in the United States.

By the way, in the vast majority of cases, this really does benefit the merchants. Very few people would buy a camera from an online store if they had to investigate the camera and the store the way you have to investigate a real estate purchase. And, of course, the credit card issuers don't make much money if consumers are afraid to use their credit cards.

[notme]

When you pay your credit card's interest rate (APY) you pay it to the credit card company, not the merchant.

Right, which you start paying in 30 days or so.

That is because the credit card company is extending credit to you, and not the merchant.

Sure, at that point. But that's the non-chargeback case. That's not what happens if you reverse the charge.

The merchant is agreeing to provide you with certain goods or services in exchange of a lump sum payment, in this case disbursed by the credit card company to the merchant on your behalf, just like a bank disburses a sum lump payment to the seller of a house at the closing on your behalf. There is NO credit extended by the merchant, unless you are paying the merchant with a credit card issued by the merchant (i.e. target credit card, etc).

No, one is not "just like" the other. When you buy a house, the seller has *no* agreement with the mortgage company. The mortgage company just pays them. When you buy something with a credit card, there is a contractual arrangement between the merchant and the credit card issuer. These two situations are simply not comparable at all.

With your logic, the seller of a house will be providing credit "in part" to the buyer, along with the bank when a mortgage is closed. Months later, if the buyer of the house quits paying, the bank will know on the sellers door and ask for the money back.

I don't understand what you mean by "with my logic". These are two different factual situations. With a home mortgage, the mortgage company only pays the seller. With a credit card, the merchant has a contract with the bank that sets out a different relationship. This is a factual difference, it's not something you can logic out. You have to read the contracts to understand the relationship. (The contracts are not really freely negotiated though. The credit card issuer tells the merchant to take it or leave it, and Federal law sets out many of the requirements.)

A "credit card" is an instrument by which the issuing institution extends credit to the customer, and for which collects interests payments, service fees, etc. The whole point for the merchant (in theory) is to delegate the issuing of credit and mitigate risk to a third party.

To mitigate long-term risk, but not short-term risk. And to avoid having to do credit inquiries and avoid having to meet other requirements. Nevertheless, the bank's agreement with the merchant permits them to refuse to collect from the consumer on behalf of the merchant. A merchant cannot use a credit card issuer to protect themselves from the risks associated with their own non-performance and the consumer need not sue the merchant if they have not yet made payment. That's what the contracts between the merchant and the credit card issuer say.

This really have nothing to do to whom the bank is extending credit to, since in both cases the bank is extending credit to the buyer, not the merchant (or seller).

No, the bank is extending credit to the merchant in the case of a credit card. Why do you think credit card companies bother to investigate merchants or closing down merchant accounts for fraud? The credit card company is collecting the principle on behalf of the merchant and if you do not owe the merchant the principle, you do not owe it to the credit card company. That is the way credit cards work, at least in the United States.

By the way, in the vast majority of cases, this really does benefit the merchants. Very few people would buy a camera from an online store if they had to investigate the camera and the store the way you have to investigate a real estate purchase. And, of course, the credit card issuers don't make much money if consumers are afraid to use their credit cards.

Excellent explanation.