Merchant Processor Fined $12 Million for Processing for Fraudulent Companies

On Tuesday, September 8th, the FTC announced a major enforcement action against payment processor Humboldt Merchant Services, requiring the company to pay $12 million to resolve the allegations that it facilitated widespread payment processing for fraudulent operations.

According to the FTC's federal complaint, Humboldt opened merchant accounts and processed card transactions for more than 1,000 shell companies. These entities acted as corporate pass-throughs for deceptive billing operations including Legion Media, an unauthorized billing ring previously dismantled by federal regulators in 2024.

The Core Allegations

The complaint highlights several severe compliance and underwriting failures:

• Processing for Known Shell Entities: Humboldt allegedly boarded merchants it know, or deliberately ignored the signs, were dummy corporations concealing unauthorized third-party operators.
• Ignoring Extreme Chargeback Ratios: The processor continued running transactions for accounts exhibiting chargeback rates nearly 10 times higher than card network excessive thresholds.
• Deceptive BIN Routing: To bypass issuing bank fraud filters and artificially boost authorization rates, Humboldt allegedly funneled transactions through lower-risk Bank Identification Numbers (BINs) registered under an affiliated entity.

Industry Restriction

Under the stipulated order filed in the U.S. District Court for the Eastern District of Michigan, Humboldt agreed to extensive, permanent operational restrictions. The processor is banned from:

1. Handling transactions for straw corporations, entities with undisclosed principal owners, or businesses relying solely on commercial mailbox addresses (like UPS Stores) while utilizing negative-option billing.
2. Boarding merchants currently flagged on Mastercard's MATCH list (Member Alert to Control High-Risk) for fraud, laundering, or excessive chargebacks.
3. Working with any business or executive subject to previous law enforcement actions.
4. Facilitating credit card laundering, falsifying merchant underwriting applications, or employing load balancing schemes designed to skirt card brand risk-monitoring thresholds.

Because this is a stipulated agreement consented to by Humboldt, the terms will carry the full force of law once formally signed by the presiding federal judge.

Full case details and legal filings are available via the Federal Trade Commission.