A chargeback rate is one of the few numbers in the payment industry that card networks track as an early-warning signal, a rough measure of how many customers are disputing a charge as unauthorized, undelivered or otherwise not what they paid for. On September 8, the Federal Trade Commission said a payment processor, Humboldt Merchant Services, kept processing card transactions for more than 1,000 merchants despite chargeback rates the agency described as almost ten times higher than what card networks treat as excessive. Under a proposed settlement, Humboldt would pay $12 million and be permanently barred from handling payments for entire categories of high-risk merchants. The order still needs a federal judge’s signature before any of it takes effect, and no refund program for the consumers harmed by the underlying scams exists yet.
The Shell Merchants Behind Humboldt’s Chargeback Numbers
According to the FTC’s complaint, Humboldt opened and processed payments for merchants it knew, or consciously avoided knowing, were shell companies acting as fronts or pass-throughs for undisclosed third parties running fraud schemes. One of those pass-throughs, the agency said, funneled money for Legion Media, an unauthorized-billing and credit-card-laundering operation the FTC had already shut down in 2024. The complaint says Humboldt opened these accounts despite red flags pointing to their shell status, and that the accounts typically ran chargeback rates close to ten times what card brands consider excessive, the same number that is supposed to trigger closer scrutiny under a bank’s or processor’s own risk-monitoring rules.
Rather than shutting those accounts down, the FTC alleges Humboldt tried to push more transaction volume through them by moving the sham accounts onto a lower-risk bank identification number, or BIN, licensed to an affiliated entity. A BIN with a cleaner track record makes a cardholder’s bank more likely to approve a charge instead of flagging it, so the switch functioned as a way to keep disputed transactions moving even as the underlying chargeback problem persisted. Deputy Director Katherine White of the FTC’s Bureau of Consumer Protection said in the agency’s announcement that “Humboldt was processing payments for companies despite red flags indicating they were scamming consumers.”
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A Proposed Order Awaiting a Judge’s Signature
The Commission voted 2-0 to approve filing the proposed order, which the FTC lodged in the U.S. District Court for the Eastern District of Michigan rather than resolving through an internal administrative process. That distinction matters for how the case should be read right now: the FTC’s complaint contains allegations that Humboldt has not been found liable for in any final judgment, and the settlement terms themselves are not yet binding.
The release is explicit on that point, stating that “stipulated final orders or injunctions have the force of law when approved and signed by the District Court judge.” Until a judge in the Eastern District of Michigan signs off, the $12 million payment, the permanent bans on high-risk merchant categories and every other term of the deal remain proposed rather than enforceable. Nothing in the case has been publicly reported to suggest the judge will reject the terms, but as a matter of record, this is a settlement awaiting finalization, not a completed one.
The $12 Million Is Earmarked for Redress, With No Claims Process Yet
The proposed order requires Humboldt to pay $12 million for consumer redress, language that describes the money’s intended purpose rather than an active refund program. The FTC’s release names no settlement administrator, no claims deadline and no application process for consumers who believe they were billed through one of the shell merchants Humboldt served, including anyone previously affected by Legion Media’s unauthorized charges. Redress funds in FTC cases are typically distributed only after the order is finalized and a separate administrative process is set up, a step that has not happened here.
That gap matters because scam operations built around shell merchants and fake billing fronts often prompt a second wave of fraud, in which someone posing as a refund administrator contacts past victims asking for personal or account information to “process” a payment. Nothing about the September 8 announcement authorizes anyone to collect money on Humboldt’s behalf, and no consumer should expect a check, a claim form or a distribution date until the FTC or a court-appointed administrator says otherwise.
The Merchant Categories Humboldt Would Be Banned From Serving
Beyond the payment and the pending court signature, the proposed order would permanently prohibit Humboldt from engaging in or assisting credit card laundering, and from processing payments for four specific categories of merchants going forward. Those categories are straw companies used to disguise a business’s real owner or purpose; merchants placed on the Mastercard Alert to Control High-Risk list for reasons that include excessive chargebacks, laundering or fraud; merchants that have already been the subject of a law enforcement action; and e-commerce operations that combine negative-option billing or a lack of prior processing history with a business address that is only a third-party mailbox provider, such as a UPS Store location.
The order would also bar Humboldt from making or assisting others in making false or misleading statements to obtain payment processing, and from engaging in or helping others engage in tactics designed to dodge fraud and risk monitoring, including a practice known as load balancing, in which transaction volume is spread across multiple processing channels specifically to stay under detection thresholds.
Why the Chargeback Number Is the Tell Worth Learning
The FTC’s own framing of the case is a useful lesson independent of how the litigation ends: a chargeback rate running at roughly ten times what a card network treats as normal is not a rounding error, it is the same signal that regulators say Humboldt saw and pushed past anyway. For an individual reviewing a bank or credit card statement, a cluster of unfamiliar recurring charges, a merchant with an address that resolves to a shipping store rather than a real business, or a subscription that proves difficult to cancel are the retail-level version of the same warning pattern described in the FTC’s complaint against Humboldt and the shell merchants it served. “This case underscores the FTC’s commitment to holding companies accountable for knowingly supporting fraudulent businesses,” White said in the agency’s announcement, a statement that applies to the processor’s conduct rather than to any promise about when, or whether, affected consumers will see redress funds distributed.
This article was produced with the assistance of AI and reviewed by The Financial Wire editorial team.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
