FTC order targets payment processor over alleged sham merchants
A federal court entered a $12 million stipulated order against Humboldt Merchant Services after the Federal Trade Commission alleged that the payment processor helped shell merchants process payments tied to unauthorized billing schemes.
The Eastern District of Michigan entered the order Sept. 11, 2026, resolving the FTC‘s case against 5967 Ventures LLC, which does business as Humboldt Merchant Services. The FTC filed its complaint on Sept. 8.
What the court order requires
The order imposes a $12 million monetary judgment. Under the order’s terms, the money may be used for consumer redress through FTC administration; it does not mean every consumer affected by the alleged schemes will automatically receive a refund.
The order permanently bars Humboldt from credit-card laundering and from assisting others engaged in that conduct. It also restricts payment processing for specified categories of merchants, including straw companies; certain merchants listed on Mastercard’s MATCH system; merchants previously named in specified consumer-protection matters; and certain covered e-commerce clients whose only business or mailing addresses are third-party mailboxes, mail-forwarding services, post-office boxes, registered-agent offices or virtual offices.
The order also bars false or misleading information used to obtain payment-processing services and tactics intended to evade fraud or risk-monitoring programs. Examples include distributing transaction volume across multiple merchant accounts or billing descriptors, opening accounts in other companies’ names to conceal a merchant’s identity and misrepresenting the use of negative-option billing.
The order does not cancel consumers’ cards or subscriptions. Consumers who believe they were charged without authorization should continue using their card issuer’s dispute process and retain billing records.
What the FTC alleged
According to the FTC complaint, Humboldt processed payments for more than 1,000 shell merchants that acted as fronts or pass-throughs for companies involved in unauthorized billing scams. The complaint alleged that more than $100 million was processed through the sham merchant accounts from 2021 through 2023.
The complaint also alleged that some accounts had chargeback rates above 7%. The FTC compared those rates with card-network monitoring thresholds cited in the complaint of roughly 0.9% to 1.5%. A chargeback occurs when a cardholder disputes a transaction through the card issuer; a high rate can signal problems with sales practices, billing disclosures or customer service, but a chargeback rate alone does not establish fraud.
The FTC further alleged that the operation used shell entities, multiple merchant accounts, lower-risk merchant-category coding and load-balancing tactics to avoid fraud or risk monitoring. The complaint also alleged that sales agents and undisclosed third parties helped obtain or manage processing accounts.
Those claims come from the FTC’s complaint. The stipulated order resolves the case but does not adopt every complaint allegation as an adjudicated finding. Humboldt neither admitted nor denied the allegations, except for facts necessary to establish the court’s jurisdiction.
New screening and monitoring duties
For prospective covered clients, the order requires reasonable screening by trained personnel before Humboldt or related sales agents provide payment-processing services. The defined category includes certain e-commerce businesses that use negative-option billing, have no previous credit-card processing history or are newly organized entities.
The required review includes the client’s business, products and services, advertising and marketing, websites, controlling people and owners, physical and mailing addresses, prior processors, processing statements, chargeback history and prior involvement in fraud or risk-monitoring programs.
The order also requires ongoing monitoring. It calls for reviews of consumer complaints, chargeback reasons, marketing and public enforcement records, and permits test shopping where possible. Humboldt must stop processing and close accounts within five business days when it knows or should know that a covered client is using tactics such as shell companies, straw owners, transaction splitting or multiple accounts to avoid monitoring.
Why the case matters
The case puts added pressure on payment processors and independent sales organizations to identify shell companies before onboarding them and to respond when chargeback patterns or other warning signs emerge. Online businesses using recurring charges, trial-to-paid offers or other negative-option billing should expect closer scrutiny of ownership, marketing, addresses, prior processing history and billing practices.
For consumers, the case highlights the payment infrastructure behind disputed online charges. The order does not replace existing card-dispute rights. The next practical questions are how the FTC administers any consumer-redress funds and whether other processors change their underwriting, sales-agent oversight and monitoring practices.
The FTC case page lists the Sept. 8 complaint and the Sept. 11 court-entered order and marks the matter closed. Humboldt’s no-admission position remains part of the resolution, while the order’s permanent restrictions and compliance requirements now govern the company’s covered payment-processing activities.
Sources
- Stipulated Order for Permanent Injunction and Other Relief
- FTC Complaint for Permanent Injunction and Other Relief
- Processor pays $12M to settle sham merchant case
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