Crypto Exchange Insolvency - Are Cardholders Protected?

Aug 12, 2022

Platforms to trade, store and exchange Crypto assets became increasingly popular. But also, in this industry, companies are not immune to discontinuing business activities - as recently happened with the German Crypto Exchange "Nuri" (previously called Bitwala). Very often, the users use a debit or credit card to transfer funds into their account with the platforms. We all know that using a credit or debit card comes with “consumer protection” benefits granted by the licence rules of the card schemes, but how do these dispute rights work in the case of stored assets? Let’s have a closer look.

Are there dispute rights for cardholders if the stored monetary value or digital assets are no longer available?

Yes, if a cardholder used a debit or credit card to “purchase” (load) monetary value at a platform (merchant) and her/his account is subsequently made inaccessible by the platform, the cardholder can initiate a dispute with her/his card issuer. Of course, the amount subject to a dispute must not exceed the total amount of the purchase/load transactions carried out with the card.

What are the preconditions for cardholders to have a dispute right?

The main prerequisite for a dispute right is that the platform fails to deliver the available balance in accordance with the terms and conditions disclosed by the platform and agreed to by the cardholder. This can happen by way of, for example, if the cardholder is locked out of the account, the platform is no longer accessible, the platform does not execute the cardholder’s request for withdrawal of the available balance etc. Before raising the dispute, the cardholder has the obligation to try to resolve the dispute directly with the platform. The communication/contact attempt(s) should be recorded (e.g. print screen of online form, keeping the e-mail sent etc.)

What are the restrictions for dispute rights?

In a scenario where the cardholder purchased value at the platform / loaded an account (e.g. loads a FIAT account at the platform) and then did a second transaction within the environment of the platform to, e.g. buy cryptocurrency, which is then stored on a separate account at the platform, there is no dispute right on the second transaction/account (e.g. the cryptocurrency value). The dispute right is limited to the funding transaction and the correlating account at the platform. Moreover, the dispute right is always limited to the purchase transaction amounts, so in a scenario where the cardholder buys cryptocurrencies, they increase in value and then the cardholder is no longer able to access the funds, the dispute right is limited to the amount of the transactions charged on the card and not the actual value of the cryptocurrencies. Of course, the dispute right does not safeguard investment risks for the cardholder, so if the purchased value decreases due to market fluctuations, the dispute right is limited to the available balance at the point in time the platform fails to make it available to the cardholder.

What is required to raise a dispute with the card issuer?

The cardholder must provide a detailed description of the purchased value, in case of purchase of cryptocurrencies, e.g. the cryptocurrency type, amount purchased, a record/print screen of the account balance cost, including date and time, the disbursement request, an explanation on how the merchant’s representations do not match the agreed terms and conditions as well as any other relevant information. Card issuers using the dispute tool Amiko may offer the cardholder to initiate the dispute and provide all required information via a digital self-service in the app or portal of the card issuer. Other issuers usually offer a dispute form on their website.

What is the timeline to raise a dispute?

The card issuer can initiate the dispute 120 calendar days from the latest anticipated delivery or performance date (e.g. from the date the cardholder is no longer able to access the funds) but no later than 540 calendar days from the transaction processing date. Given the fact that the card issuer needs time to process the dispute of the cardholder as well, the dispute should be raised by the cardholder with the card issuer as soon as possible. Some card issuers regulate the timeframe for submitting cardholder disputes in their terms and conditions.

With our product, Kajo, we help card issuers and acquirers stay informed about changes in dispute and other card scheme rules and enable them to manage the processes and risk exposures accurately.

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