The Federal Deposit Insurance Corp (FDIC) announced recently that it has withdrawn its list of merchant types that should be handled with caution, which included businesses they labeled as “high risk.” These businesses included payday lenders, adult entertainment businesses, debt consolidation firms, and others. The FDIC released the list in 2011, stating that these types of businesses required heightened scrutiny by banks before processing their transactions. Republicans have accused the FDIC of issuing a hit list of high risk merchant accounts that encourages banks to decline to do business with these merchant categories, even if they are legitimate businesses. The FDIC now claims that the list may have been misinterpreted by financial institutions.
The Justice Department has subpoenaed more than 50 payment processors and banks as a part of “Operation Choke Point,” an initiative dedicated to keeping fraudulent merchants from exploiting the FDIC system. This move by the FDIC is the latest development in the state and national war to keep certain businesses away from the payment system. Even though the FDIC has withdrawn its list, the organization still encourages banks and payment processors to still weigh their risks when dealing with third-party payment processors.
Although the FDIC has removed its list of merchants it classified as “high risk,” banks still have the right to scrutinize high risk merchant accounts the same as before. While this may open the door for a few more merchant accounts to access bank payment processing, the majority of legitimate businesses listed will still be met with apprehension, and strict guidelines, by banks and traditional payment processors. Owners of high risk businesses should stick with reputable third-party payment processors that know how to navigate the high risk industry, protect their client transactions, and increase their revenue through strategic payment processing.
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