FDIC Shifts Ground on its Controversial “High-Risk” Merchant Category List

Aug 05, 2019

A few months ago— the Wall Street Journal featured news that the court had made a decision on a lawsuit fined by Lenders against the FDIC. It meant than banks must not rely anymore on a list of “high-risk” categories released by the FDIC— among them coin-trading merchants.

And now, it seems like the Federal Deposit Insurance Corporation has backpedaled on this list of retail categories it said are prone to payment fraud.

Back in June 2014, the Industry Council for Tangible Assets (ICTA) notified companies registered under it that the Department of Justice had instigated a crackdown on fraudulent payments, and will scrutinize payment processors and their sponsor banks.

The cleanup dabbed Operation Choke Point was launched to crack down on fraud in the payment system by investigating banks and payment processors. US’s Justice Department used the FDIC’s list, which featured in a post titled “Managing Risks in Third-Party Payment Processor Relationships.” The controversial list included business types from risky industries.

A month later, American Banker announced that the FDIC had switched grounds and dropped the list of categories it had misunderstood, and banks had begun onboarding perfectly legal businesses as a result.

Notwithstanding the withdrawal, however, some banks were still said to be referring to the list while assessing third-party payment processor risk levels.

In the meantime, payday lenders filed a case against the FDIC for shutting down their bank accounts or refusing to offer them services.

Here’s what the May 29 posting on Wall Street’s said;

“The two parties managed to come to an agreement last week, and the letter by FDIC letter says its rules have since been revised. They no longer have a ‘risky’ or ‘high-risk’ list of merchants. If the FDIC must shut down an account, the proposal can’t come from ‘informal suggestions’; it must an official report that ‘highlights any specific regulations or rules that the watchdog believes the account owner is violating.”

In the simplest terms, the fact that a merchant is in a category on the list, which now out of use is not sufficient ground to close a retailer’s bank account.

Closing Up

Merchants in high-risk niches, as well as entrepreneurs looking to explore these spaces, can now relax knowing their accounts won’t be closed down all over sudden.

Let us help you get a high risk merchant account today!

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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