On the viability of Dwolla...

[Raize]

I got the following response about chargebacks from one of the Dwolla support guys today:

Nick,

Thank you for your email.

We don't allow users to file chargebacks. Instead we have them file a dispute (http://www.dwolla.org/help/file-a-dispute/). Then we review each dispute manually. Finally a decision is made by a human and both parties are made aware of the final outcome.

.XXXXXXXXXXXXXXXX [Removed his name]

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I had asked specifically about both Paypal-like and ACH chargebacks.

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[Stephen Gornick]

Nice work!

We don't allow users to file chargebacks. Instead we have them file a dispute

So they call it a "dispute" instead of a "chargeback".  Big deal.

Finally a decision is made by a human and both parties are made aware of the final outcome.

Their terms and conditions does mention how using Dwolla means that for disputes with the company you have agreed that it goes to arbitration:

In the event a dispute shall arise between the parties to this [contract, lease, etc.], it is hereby agreed that the dispute shall be referred to USAM Minneapolis, Minnesota St. Paul, MN for arbitration in accordance with the applicable United States Arbitration and Mediation Rules of Arbitration. The arbitrator's decision shall be final and legally binding and judgment may be entered thereon.

 https://www.dwolla.com/dialogs/terms_and_conditions.aspx

What I worry about is the potential he-said, she-said situation.  For instance, say I accept Dwolla and after receiving payment send the bitcoins to the address I was given.  Then afterward, the person claims I was supposed to send to a different address, and that I must have made the mistake of sending to the wrong address.

If I were to follow the Best Practices then such a scenarioi would be both a.) unlikely to happen and b.) unlikely that Dwolla would side against me
  - A gree to the terms of the trade [including instructions for delivering the bitcoins] with signed messages.
  - Use an escrow

 http://en.bitcoin.it/wiki/Secure_Trading#Best_Practices_with_trading

[edited]

[nster]

Dwolla is really US only

[Raize]

sgornick, I suppose maybe we could test the viability by having me do a cancel or file a dispute after trading to you saying I didn't receive the BTC, but I would be worried they'd ask me to first file a criminal charge against you or something (which we obviously couldn't do). It might be one of those situations where we won't know for sure till it actually happens.

[barbarousrelic]

Has anyone explained to them the chargeback problems that paypal has, and asked them if they will be different?

[Ryan]

How can they "not allow" an ACH chargeback? That's not their choice.

[nster]

We do not need BTC to be even more US based than it already is, that would defeat the purpose of BTC

[barbarousrelic]

We do not need BTC to be even more US based than it already is, that would defeat the purpose of BTC

I agree, but the solution to this is to make Bitcoin more accessible to the Euro/GBP/CAD/whathaveyou, not to be concerned about being too accessible to the USD.

[nster]

If you make Dwolla a base, it will severely impact every other non-US currency

[BitterTea]

If you make Dwolla a base, it will severely impact every other non-US currency

Ah, the statist version of equality. Rather than trying to drag everyone down to your level, why not work on raising everyone else up instead?

[ptd]

If you make Dwolla a base, it will severely impact every other non-US currency

No it won't, that argument only makes any sense if it's impossible to convert usd to other currencies. People will sell on one market, convert currencies, buy on another. If the markets are out of sync, you could make a profit doing this.

Look at bitcoin charts. All the markets are roughly in sync, generally never more that 24 hours out from mtgox (which is sometimes a lot pricewise) despite very low liquidity in some cases.

[JoelKatz]

In the event a dispute shall arise between the parties to this [contract, lease, etc.], it is hereby agreed that the dispute shall be referred to USAM Minneapolis, Minnesota St. Paul, MN for arbitration in accordance with the applicable United States Arbitration and Mediation Rules of Arbitration. The arbitrator's decision shall be final and legally binding and judgment may be entered thereon.

 https://www.dwolla.com/dialogs/terms_and_conditions.aspx

That's for a dispute between you and Dwolla, not for a dispute between you and another Dwolla customer. If you have a dispute with another Dwolla customer, that would be governed by your agreement with that customer or the laws in the various jurisdictions if you don't have one.

What I worry about is the potential he-said, she-said situation.  For instance, say I accept Dwolla and after receiving payment send the bitcoins to the address I was given.  Then afterward, the person claims I was supposed to send to a different address, and that I must have made the mistake of sending to the wrong address.

That's between you and the other customer. That's not Dwolla's problem. They told Dwolla to send the money, Dwolla sent the money. You received the money. There is no dispute between you and Dwolla.

However, it now seems that Dwolla is charging back the merchant. This does create a dispute, and it's entirely between the merchant and Dwolla. I can't imagine what Dwolla could say in arbitration. Default of a third party is not a defense to failing to comply with the terms of an agreement. (If you have a contract to provide me with shrimp and you can't supply me with shrimp because your fisherman defaults on you, you owe me damages. The default of the third party explains, but doesn't excuse, your non-compliance. You are still liable for it.)

Dwolla's claim would be default of a third party. That would entitle them to any money back that could be recovered, but not at the expense of the merchant. (For example, if the merchant could minimize their damages to less than the amount that was charged back, the difference would be due back to Dwolla.)

If default of a third party were a defense to non-performance, anyone could get away with not performing what a contract requires simply by laundering the contract through a third party. Say I want to have a sure market for my shrimp. So I enter into an agreement to sell you a certain amount of shrimp at a certain price. I get a sure market, you get a sure seller, so it's good for both of us. But if I can't provide you the shrimp, I'm liable.

No problem, I just get an intermediary to make the contract with you. If I don't provide the shrimp now, the intermediary simply says "sorry, my shrimp supplier fell through, not my fault". Obviously that can't be right. You cannot excuse your own failure to perform by pointing to a third party's failure to perform for you. (You can explain your failure, but you cannot excuse it. Obviously, you cannot be required to provide shrimp you don't have. But you are liable for the damages you cause by your non-performance.)

The situation is special for credit cards because of consumer protection laws, but so far as I know, no special laws excuse Dwolla's non-performance. An arbitrator can change things like the rules of evidence, but an arbitrator must follow the law especially where, as here, the parties have not agreed to some other set of rules to govern their transactions.

[JoelKatz]

How can they "not allow" an ACH chargeback? That's not their choice.

They can pursue the person charging them back civilly and criminally and collect their losses from their insurance carrier (or self-insure and consider it a cost of doing business). They can also ask the recipient to freeze the funds if it's not too late.

I suspect, however, Dwolla is going to learn that their chosen business model is simply impossible. You cannot make ACH like cash for $0.25 per transaction. One fraudulent transaction in 5,000 will bankrupt you. And if you force your customers to deal with cases where you are defrauded, you're not at all like cash.

[notme]

I suspect, however, Dwolla is going to learn that their chosen business model is simply impossible. You cannot make ACH like cash for $0.25 per transaction. One fraudulent transaction in 5,000 will bankrupt you. And if you force your customers to deal with cases where you are defrauded, you're not at all like cash.

This, or they will lower the transaction limits until it is feasible.

[Transisto]

So MtGox has one dwolla account ?

So they must have a pretty solid reputation on dwolla's side.
That would solve my problem was I judging a Dwolla dispute.

End of the story ?

It must be hard to do worst than PayPal anyway.

[JoelKatz]

So they must have a pretty solid reputation on dwolla's side.
That would solve my problem was I judging a Dwolla dispute.

I think you're missing that the real dispute would be between TradeHill and Dwolla, not between TradeHill and the scammer or the account holder.

The person who reversed the transaction will ignore the dispute since they're not a party to it -- they have no agreement with Dwolla or TradeHill. The scammer, if anyone can find him, won't show up at arbitration. Dwolla will win against the scammer and have a judgment they can never collect.

The remaining issue will be who eats the loss, TradeHill or Dwolla.

And the only way to solve that issue will be to have agreed on that ahead of time. That's what they did, and they agreed that it would be Dwolla.

Unless Dwolla changes that going forward, Dwolla is not viable.

[Oldminer]

Unless Dwolla changes that going forward, Dwolla is not viable.

Who cares? If Dwolla goes extinct because of this scandal, the 'law of the jungle' will prevail and someone else will drop into the scene that offers an as good as or better service to replace them.

From what I have read about this we dont want companies like Dwolla in the Bitcoin community anyway. They sound a lot like Paypal....

[Raize]

Katz, you are incorrectly attributing that quote to me, above. I think that was something sgornick posted.

I just cut/pasted what was originally sent to me when I asked about ACH chargebacks. The recent issue with Tradehill seems to have shown Dwolla is going back on what they told me. I asked specifically about ACH chargebacks and I specifically asked them about Paypal like scams being done with Dwolla as the medium.

IMHO, Dwolla screwed up here, but it's their funeral. They can shoot themselves in the foot if they want. MtGox is still using them, but I don't know for how long.

[JoelKatz]

Katz, you are incorrectly attributing that quote to me, above. I think that was something sgornick posted.

I think I correctly indicated that I was quoting you quoting someone. But I removed the attribution just in case it was confusing.

I just cut/pasted what was originally sent to me when I asked about ACH chargebacks. The recent issue with Tradehill seems to have shown Dwolla is going back on what they told me. I asked specifically about ACH chargebacks and I specifically asked them about Paypal like scams being done with Dwolla as the medium.

They're going back on what they told everyone. Apparently, they never really considered how they would handle ACH chargebacks, even weeks after they started getting them!

IMHO, Dwolla screwed up here, but it's their funeral. They can shoot themselves in the foot if they want. MtGox is still using them, but I don't know for how long.

No question they screwed up. There is no imaginable defense for silently deleting transactions or "unconfirming" transactions with no notice other than "We screwed up, we're sorry, and we'll make it good".

[Raize]

I think I correctly indicated that I was quoting you quoting someone. But I removed the attribution just in case it was confusing.

Okay I see what happened. I used quote tags for my explanation of Dwolla's policy. You are right. Just wanted to clarify. I feel bad for any part that I might have played in Tradehill using Dwolla, I'm upset myself at their action and response to this.