Dwolla's New Terms: "receiving party may be subject to chargebacks"

Information revealed by the second largest Bitcoin exchange, TradeHill, points out what appears to be a change to Dwolla’s Terms and Conditions agreement.  The agreement now reads:

The receiving party of a transaction may be subject to chargebacks occurring within the account if claims are made by the sending party or by the financial institution. In the event fraud occurs, funds may be reversed and arbitration will begin with both parties.

Prior to this, Dwolla has promoted themselves as as being a cash transaction system allowing the merchant to “rid themselves of chargeback fees”.  This clause in the agreement likely will cause merchants to reassess their risk exposure when accepting Dwolla as payment.

At this time, there does not appear to have been any communication from Dwolla to its customers regarding this change.

TradeHill went live on Internet television channel OnlyOneTV to share their frustration in obtaining information from Dwolla relating to several issues.  The exhange reported that funds from customers had at first been credited as “credited” but then had either reverted to an “pending_credit” status, or in several instances the transactions had disappeared from later runs of the transaction register — as if the transactions had never occurred.  The exchange claims to have tried to receive clarification from Dwolla for two weeks and was not getting a response from the payment company explaining why this was happening.

The exchange claims that it was just today that new Terms & Conditions were posted.  A TradeHill staffer has stated that more details will be posted regarding this issue on TradeHill’s blog shortly. [Update: The Tradehill blog shares more details from the exchange.]

Because the exchange can no longer trust that deposits made from Dwolla transactions are secure, they have decided to stop accepting funds from Dwolla customers.  Withdrawals by customers to Dwolla are still being processed.

The exchange’s customers are hoping that this is temporary. However if transactions will be subject to chargebacks it is unlikely that the exchange will be able to resume accepting funds from Dwolla.

A second exchange, ExchangeBitcoins.com, has also stopped accepting deposits from Dwolla customers until the situation can be further assessed.

Three other exchanges, Mt. Gox, Camp BX, and Intersango.us each reported that they had reconciled transaction statements for prior periods and did not discover any activity matching what TradeHill was reporting, though both Camp BX and Intersango.us are new exchanges and wouldn’t have activity from June.  Another exchange, Bitcoin7 had stopped accepting funds from Dwolla customers previously though the reason for that exchange taking that action is not known.

Just last week Dwolla has announced that it was processing $1 million dollars of transactions each day.  It has been estimated that Bitcoin-related transactions account for nearly 20% of Dwolla’s transaction volume.

This post will be updated with additional information from TradeHill’s expected release shortly.  [Update: Tradehill blog]

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