The Federal Trade Commission (FTC) has entered into a stipulated order for permanent injunction against 5967 Ventures, LLC, doing business as Humboldt Merchant Services, resolving allegations that the payment processor facilitated fraud by opening and maintaining payment processing accounts for shell companies and merchants engaged in deceptive practices. The order, filed on September 8 in the U.S. District Court for the Eastern District of Michigan, carries significant implications for the payment processing industry.
The Allegations
The FTC’s complaint charged that Humboldt Merchant Services violated § 5 of the FTC Act by engaging in unfair acts or practices. Specifically, the complaint alleged that the processor onboarded merchants that were either shell companies or actively engaged in fraud. The case highlights the FTC’s continued focus on upstream payment processors as enforcement targets, not just the fraudulent merchants themselves.
Notably, Humboldt Merchant Services neither admits nor denies the allegations but has agreed to the terms of the order to resolve the matter.
Key Terms of the Order
- $12 Million Monetary Judgment. The defendant is required to pay $12,000,000 to the FTC within seven days of the order’s entry. Funds may be used for consumer redress and related relief.
- Permanent Prohibition on Credit Card Laundering. The order permanently bars the defendant from engaging in or assisting with credit card laundering, including processing transactions through merchant accounts held by entities other than the actual merchant.
- Merchant Account Restrictions. Humboldt Merchant Services is permanently prohibited from providing payment processing to:
- Merchants whose only addresses are P.O. boxes, UPS/FedEx stores, virtual offices, or registered agent offices;
- Straw companies;
- Merchants listed on the Mastercard Alert to Control High-Risk (MATCH) list for reasons including excessive chargebacks, fraud, or laundering; and
- Any merchant previously named as a defendant in a consumer fraud action brought by the FTC, another federal agency, or a state attorney general.
- Enhanced Merchant Screening Requirements. For “covered clients,” defined as e-commerce-only merchants offering negative option products, merchants with no prior processing history, or recently formed entities, the defendant must implement rigorous pre-onboarding screening. This includes collecting marketing materials and website URLs, verifying business addresses, reviewing six months of prior processing statements and chargeback rates, and conducting Principal Verification Calls for new or recently formed entities.
- Ongoing Monitoring Obligations. The order imposes robust ongoing monitoring requirements, including:
- Regular website reviews conducted from IP addresses not associated with the defendant;
- Monthly chargeback rate calculations for all covered clients;
- Mandatory investigation and potential account termination when a client’s chargeback rate exceeds 1% in two of the past six months with more than 50 chargebacks in a month;
- Detection of indicators of credit card laundering or fraud monitoring evasion
- Sales Agent Oversight Program. The defendant must maintain a formal oversight program for all sales agents, including monthly risk metric reviews, background checks, MATCH list screening, and Office of Foreign Assets Control checks. Sales agents whose referred clients generate chargeback rates above 0.75% face mandatory investigation and potential termination.
- Long-Term Compliance Obligations. The order imposes a ten-year recordkeeping obligation and five-year compliance reporting requirements, including sworn annual compliance reports and notice of any material changes in business structure.
Our Thoughts
This settlement reinforces a clear message from the FTC: payment processors have an affirmative duty to know their merchants. The agency has increasingly pursued enforcement actions not only against the fraudulent end-merchants, but against the processors that enable them.
The detailed compliance requirements embedded in this order effectively serve as a roadmap for what the FTC expects from compliant payment processors operating in high-risk merchant categories.
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