Payment Processor Agrees to Pay $12 Million After FTC Says It Helped More Than 1,000 Sham Merchants

A payment processing company has agreed to pay $12 million and accept sweeping restrictions on its business after the Federal Trade Commission accused it of helping more than 1,000 sham merchants process unauthorized charges on consumers’ credit and debit cards.

The FTC sued 5967 Ventures LLC, which does business as Humboldt Merchant Services, in federal court in Michigan on Tuesday, September 8. The agency says Humboldt opened and maintained merchant accounts for shell companies that served as fronts for businesses engaged in fraudulent online billing schemes. The proposed settlement was filed with the lawsuit and still requires approval from a federal judge.

Humboldt neither admits nor denies the allegations under the stipulated order, except for facts necessary to establish the court’s jurisdiction. If approved, the agreement would require the company to pay $12 million for consumer relief and permanently restrict the types of merchants it may process payments for.

From 2021 through 2023 alone, Humboldt processed more than $100 million through accounts the FTC describes as sham merchant accounts. Regulators say the company knew, or consciously avoided knowing, that many of those accounts were shells being used by undisclosed third parties.

Payment processors occupy an important position between online businesses, banks, and credit card networks. A merchant generally needs a processing account to accept credit or debit cards. Companies such as Humboldt help merchants obtain those accounts and transmit transactions through the financial system.

The arrangement also puts processors in a position to see warning signs when customers repeatedly dispute charges or when merchants appear to be hiding the businesses actually generating transactions.

Humboldt specialized in merchants other processors considered difficult or “high risk.” A substantial portion of that business involved companies selling nutritional supplements and other products through online trial offers that could convert into recurring subscriptions.

The company’s profits rose substantially as that segment expanded, from approximately $7.5 million in 2014 to more than $80 million in 2017, according to the FTC. By that year, the business Humboldt called “Performance Marketing” accounted for about 80% of its profits.

Federal regulators say the warning signs were difficult to miss.

A major indicator is a chargeback, which occurs when a cardholder disputes a transaction and the issuing bank reverses the charge. A high chargeback rate can indicate that consumers did not authorize transactions or did not receive what they believed they purchased.

Visa and Mastercard operate monitoring programs for merchants whose chargebacks reach specified levels. Some Humboldt accounts collectively reached chargeback rates above 7% in 2021, compared with card-network monitoring thresholds of approximately 0.9% to 1.5%, according to the complaint. The rate was nearly 100 times higher than the overall chargeback rate associated with the bank identification number on which the accounts were placed.

Even with those figures, regulators say Humboldt continued opening thousands of accounts. Accounts referred through two of its principal sales channels had overall chargeback rates exceeding 12% between December 2020 and December 2023.

The FTC also says Humboldt helped merchants avoid systems designed to detect risky transactions.

One method involved “load balancing,” in which merchants divide transaction volume among multiple accounts. Spreading transactions can keep an individual account from reaching the number of disputed charges that would trigger heightened scrutiny by a credit card network.

Fraudulent merchants can pair that tactic with shell companies, opening multiple accounts under different business names while transactions actually originate from the same underlying operation.

Regulators also say Humboldt placed some high-risk merchants on a bank identification number, or BIN, associated with an affiliated entity and classified the accounts under lower-risk merchant categories. The company believed doing so would increase the percentage of attempted transactions approved by consumers’ banks, according to the FTC.

The case connects Humboldt to an earlier FTC enforcement action involving Legion Media.

In 2024, the agency accused Legion Media and related defendants of participating in online impersonation schemes in which consumers received messages that appeared to come from familiar businesses and were offered supposedly free gifts after paying a small shipping charge.

Consumers who entered their card information were later billed recurring charges they had not authorized, according to that case. Shell companies allegedly obtained merchant accounts that allowed those charges to be processed. A federal court later froze the defendants’ assets, and stipulated orders permanently shut down their operations.

The new case says Humboldt processed transactions for shell entities tied to those types of schemes.

The FTC is bringing the case under Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices affecting commerce. The agency contends Humboldt engaged in unfair payment processing by opening or maintaining accounts for merchants it knew or should have known were shells or involved in fraud, processing their transactions, failing to terminate them promptly, and ignoring evidence of fraudulent activity.

The proposed settlement would change how Humboldt is permitted to operate.

The company would be permanently prohibited from engaging in or assisting credit card laundering. It also could not process payments for straw companies, certain merchants listed by Mastercard as high risk because of fraud or excessive chargebacks, merchants subject to specified law enforcement actions, and certain e-commerce businesses that use third-party mailbox services as their only business locations.

Humboldt would also be prohibited from providing false or misleading information to obtain merchant processing services and from helping businesses use techniques designed to avoid fraud-monitoring systems.

The order goes beyond prohibitions and would require more extensive screening and continuing oversight of higher-risk customers.

Humboldt would have to review merchant websites, online complaints, prior payment-processing statements, and marketing materials. For certain new businesses, it would also be required to conduct calls with company principals to verify who controls the business, what it sells, and how customers are billed.

Once an account is operating, Humboldt would have to monitor chargebacks, transaction patterns, consumer complaints, and other warning signs. Accounts exceeding specified chargeback levels would trigger an investigation.

The $12 million judgment would be paid to the FTC within seven days after the court enters the order. The agency may use the money for refunds and other consumer relief related to the practices described in the complaint. Any funds that cannot practicably be distributed for consumer relief may ultimately be deposited in the U.S. Treasury.

The action is the FTC’s second major payment-processing settlement within days. On September 4, the agency announced a separate $4.85 million settlement with global processor Nuvei over allegations that it maintained accounts for merchants involved in deceptive practices.

The cases reflect the agency’s focus on companies that provide the financial infrastructure that allows alleged scams to operate, rather than limiting enforcement to the businesses that communicate directly with consumers.

For consumers, the payment processor may be invisible. The name appearing on a credit card statement may belong to a merchant or shell company, while another company handles the transaction behind the scenes.

The Humboldt case argues that companies performing that role can face liability when warning signs of fraud accumulate, and the processor continues providing access to the payment system.

The proposed order is pending before the U.S. District Court for the Eastern District of Michigan. It will have the force of law if approved and signed by the judge.