Bitcoin Exchange Circle Changes User Agreements

Circle is an online company focused on providing secure, simple and cost efficient technology for the storage and use of money. They are able to provide their services with the use of both the US dollar and bitcoin.  “Circle is building on open Internet standards and protocols, including digital currency technologies such as Bitcoin. We believe that the world can have an Internet of Value Exchange just as we have an Internet of Media and an Internet of Information Exchange that are similarly built on open platforms and networks.”

A FinCEN registered Money Service Business (MSB) individual going by Krellis on reddit claims to have recently received an email from Circle questioning his account activity. “Two days ago I got an email from Circle support asking me the source of the funds, what I was transferring for, and my occupation, for ‘regulatory reasons’. I didn’t love the questions but had nothing to hide so I shrugged and answered – they’re my own funds, coins from [LocalBitcoins] and Coinbase, and I’m doing arbitrage and cashing out from my [LocalBitcoins] sales at times.”

Circle is also regulated by FinCEN and registered as an MSB. An MSB in legal terms describes businesses or individuals who transmit or convert currency. It is not just restricted to banks, taking into consideration exchanges and other companies which do not fall into the ‘banking’ category. Over the past few weeks Krellis has been arbitraging between Circle and Coinbase to take advantage of a 1 percent return.

“Several hours later, they replied with a form notice that they had detected activity against their user agreement in my account and would no longer accept my business – I was free to ‘withdraw’ aka sell my BTC to a linked fiat account and then my account would be terminated.”
— – Krellis

When Krellis signed up with Circle he/she read through the User Agreement and was sure he/she was not in breach. However, upon returning to Circle’s User Agreement the following paragraph was found in Section 18, Prohibited Payments:

"Due to regulatory restrictions, we cannot allow you to use Circle as a source of liquidity to sell bitcoins to third parties or as a method of withdrawing the profits of third party bitcoin sales to your bank account."
— – Circle User Agreement, dated 11th August 2015

The broad language of the statement concerned Krellis, “as I can figure you’re not allowed to use Circle to do anything with Bitcoin from any other source, because any source could be considered third party.”

Krellis contacted Circle directly asking for an explanation as to when this paragraph was added. Using the Way Back Machine website, BNC was able to recover older versions of the User Agreement. In the prior version said to have been updated on the 22nd October 2014, but saved 13th February 2015, it can be seen that this paragraph was not present in section 18.

However, Circle did advise that changes can be made to the agreement at anytime. “The changes will become effective, and shall be deemed accepted by you, the first time you use the Services after the initial posting of the revised User Agreement and shall apply on a going-forward basis with respect to transactions initiated after the posting date. However, Circle outlines that they may amend any portion of the agreement at any time and post the revised information with an updated revision date,” states the Circle User Agreement, 22nd October 214 Section 23, Amendments.

This may not be enough to protect Circle should Krellis wish to proceed further with the issue. In 2007, a similar case was brought before the Federal Court by Joe Douglas. Joe Douglas signed up for a long-distance calling contract with America Online.

However, AOL was bought by Talk America, and in the process Talk America made amendments to their User Agreement without notifying their customers directly. They placed a message on their website, which they deemed to be appropriate.

Douglas believed it to be business as usual when the company was taken over by Talk America. For four years Douglas continued to use the service without realizing there were additional charges involved.

“Douglas alleges that Talk America changed his service contract without notifying him. He could only have become aware of the new terms if he had visited Talk America’s website and examined the contract for possible changes. The district court seems to have assumed Douglas had visited the website when it noted that the contract was available on ‘the web site on which Plaintiff paid his bills.’ However, Douglas claims that he authorized AOL to charge his credit card automatically and Talk America continued this practice, so he had no occasion to visit Talk America’s website to pay his bills. Even if Douglas had visited the website, he would have had no reason to look at the contract posted there.”

The District Court found that Douglas was bound by the amendments. Douglas then went to the Court of Appeals, and it found that Talk America could not change the contract without advising Douglas directly.  "a party can’t unilaterally change the terms of a contract; it must obtain the other party’s consent before doing so." said the judgment, from Judges Kozinski, Gould and Callahan.

“Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side.”
— – United States Court of Appeals

The court ruling states that a revised contract is an offer, and does not bind all parties until it is accepted. "Without notice, an examination would be fairly cumbersome, as Douglas would have had to compare every word of the posted contract with his existing contract in order to detect whether it had changed."

The Court of Appeals also said that the court which granted the arbitration order to Talk America had made a mistake. "The district court thus erred in holding that Douglas was bound by the terms of the revised contract when he was not notified of the changes."

"The error reflects fundamental misapplications of contract law and goes to the heart of petitioner’s claim."
— – United States Court of Appeals

Although the Talk America documents advise that class action lawsuits are prohibited, under the new rulings Joe Douglas was granted the power to file one against Talk America.

In Circle’s case they advise in their User Agreement that they will only advise their users if there is a “material” change. “If the revised Agreement includes a material change we will provide you with prior notice via our website and/or email before the material change becomes effective. For this purpose a ‘material change’ means a significant change other than changes that (i) are to your benefit, (ii) are required to be made to comply with applicable laws and/or regulations or as otherwise required by one of our regulators, (iii) relates to a new product or service made available to you, or (iv) to otherwise clarify an existing term.”

“Circle has not answered my request for an explanation of when this was added, and why notice was not sent out as is required for material changes, which this certainly is.”
— – Krellis

At the time of writing this article, Krellis had not stated any further action. However, the individual is making a sure effort to warn the public regarding their circumstance. “So, if you’re a Localbitcoins trader or thinking about arbitrage through another exchange, beware – Circle will cut you off.”