Humboldt Merchant Services will pay $12 million and accept a permanent ban from processing payments for shell companies after the Federal Trade Commission accused the payment processor of knowingly running transactions for more than 1,000 merchants that were fronts for fraudulent billing operations. The FTC filed its complaint Sept. 8, 2026, in federal court in Michigan, and a judge entered the settlement three days later, with Humboldt neither admitting nor denying the allegations. The agency says the shell merchants generated chargebacks at nearly 10 times the rate credit card networks treat as excessive — a red flag the complaint says Humboldt saw and processed through anyway.
Payment processors sit at a choke point in online fraud: no card charge reaches a scam merchant’s bank account without one approving the transaction first. The FTC’s case against Humboldt argues the company was that choke point for a network of shell entities for years, moving money for merchants it knew, or consciously avoided knowing, were fraudulent fronts rather than legitimate businesses. Shell merchants exist because card networks and banks are supposed to screen out obvious fraud before money moves; a processor willing to look past the warning signs becomes the single point of failure that lets an entire scam operation keep collecting payments.
More than 1,000 shell merchants running through one processor
The FTC’s complaint says Humboldt processed payments for more than 1,000 merchants that functioned as fronts or pass-throughs for fraudulent companies engaged in unauthorized billing scams, according to the agency’s own case file. Katherine White, deputy director of the FTC’s Bureau of Consumer Protection, said “Humboldt was processing payments for companies despite red flags indicating they were scamming consumers.”
Those shell accounts moved real money at scale. Legal analysts who reviewed the complaint found Humboldt processed more than $100 million through sham merchant accounts between 2021 and 2023, and at least $139 million through identified shell accounts from January 2021 to January 2024, ignoring warning signs that included card-sharing and load-balancing spread across thousands of accounts to obscure the fraud.
A chargeback rate ten times the industry’s danger line
Card networks typically flag a merchant once its chargeback rate — the share of transactions customers dispute after being billed — crosses roughly 1%. The FTC’s complaint says Humboldt’s shell merchants generated chargebacks at levels almost 10 times higher than that threshold, and that instead of cutting the accounts off, Humboldt moved some of the riskiest merchants onto a different bank identification number to keep their transactions getting approved by card networks that would otherwise have blocked them. A chargeback rate that high is normally treated as an automatic warning sign in the payments industry, not a problem to be routed around, which is why the FTC’s complaint frames the BIN switching as evidence of intent rather than an oversight.
The FTC’s Bureau of Consumer Protection voted 2-0 to approve the settlement, which a federal judge in the Eastern District of Michigan then entered as a stipulated order. Humboldt did not admit wrongdoing, and the order names no individual executive as a defendant; the $12 million payment and the permanent restrictions apply to the company itself.
The Legion Media connection the FTC already knew about
One of the operations Humboldt processed payments for was Legion Media, which the FTC had already shut down in 2024 as part of a broader crackdown on unauthorized billing schemes the agency said had taken in more than $200 million from consumers through offers advertised as free that turned into recurring, unauthorized charges. The overlap is exactly the kind of pattern regulators point to afterward: the same processor kept moving money for a merchant the FTC would later shut down outright.
Sloan Health Products, the fulfillment operation behind some of Legion Media’s shipments, identified itself to consumers only through a generic “Fulfillment Center” label and a Tennessee post office box, according to the FTC’s account of that earlier case. Humboldt’s role, as the agency describes it now, was to keep approving the charges those operations generated without asking who was actually behind them.
New screening rules replace the old warning signs
Under the settlement, Humboldt must verify a merchant’s business details, ownership, address and marketing materials before opening an account, and conduct a documented phone call to confirm the identity of anyone applying to become a new merchant. It must track chargebacks and complaints monthly, and any merchant whose chargeback rate tops 1% while generating more than 50 disputes triggers a mandatory investigation — a numeric tripwire the FTC says never existed the first time around.
The order permanently bars Humboldt from processing for straw companies, merchants on Mastercard’s fraud-monitoring list, businesses already facing law enforcement action, or online sellers using only a third-party mailbox as their address. It also requires Humboldt’s sales agents to be screened against the same fraud-monitoring list and against criminal-history checks before they can sign up a new merchant, with agent-level risk metrics reviewed monthly and reported to company officers every quarter. Whether those rules catch the next shell-merchant network before it reaches 1,000 accounts, rather than after, is the question the FTC’s order does not answer.
This article was produced with the assistance of AI and reviewed by Morning Overview editors prior to publication.
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