FTC Takes Action Against Payment Processor Humboldt Merchant Services for Knowingly Facilitating Payment Processing for Sham Merchants

Payment processing company Humboldt Merchant Services will pay $12 million and be permanently banned from processing payments for merchants with a heightened risk of potential fraud to settle allegations that Humboldt processed payments for merchants that defrauded consumers.

According to the FTC’s complaint, Humboldt processed payments for more than 1,000 merchants that were shell entities that served as fronts or pass-throughs for fraudulent companies engaged in unauthorized billing scams, including Legion Media, which the FTC shut down in 2024. 

“Humboldt was processing payments for companies despite red flags indicating they were scamming consumers,” said Katherine White, Deputy Director of the FTC’s Bureau of Consumer Protection. “This case underscores the FTC’s commitment to holding companies accountable for knowingly supporting fraudulent businesses.”

The FTC’s complaint alleges that Humboldt:

• Opened and processed payments for merchants it knew, or consciously avoided knowing, were shell companies used by undisclosed third parties engaged in fraud;
• Opened these sham accounts despite red flags indicating the merchants were shells and typically incurred chargebacks at rates that were almost 10 times higher than what credit card brands view as excessive; and
• Attempted to increase the volume of transactions processed through these sham accounts by placing them on a lower-risk bank “BIN” (a bank identification number licensed by the credit card networks), used by an affiliated entity, to improve the likelihood that attempted transactions would be approved by cardholders’ banks.

In addition to paying $12 million for consumer redress, the proposed order will prohibit Humboldt from:

• engaging in or assisting others who are engaged in credit card laundering;
• payment processing for four categories of merchants:
  • straw companies;
  • merchants on the Mastercard Alert to Control High-Risk (MATCH) list for reasons including excessive chargebacks, laundering and fraud;
  • merchants that have been subject to law enforcement action; and
  • e-commerce entities that use third-party mailbox providers, such as UPS stores, as their only business location and either use negative option billing, are new or do not have past processing history.
• making or assisting others in providing false or misleading information to obtain payment processing, such as misleading information about merchants in applications for merchant accounts; and
• engaging in, or assisting those engaged in, tactics to avoid fraud and risk monitoring, including load balancing.

The Commission vote approving the filing of the proposed order was 2-0. The FTC filed the proposed order in the U.S. District Court for the Eastern District of Michigan.

NOTE: Stipulated final orders or injunctions have the force of law when approved and signed by the District Court judge.