The Federal Trade Commission says shell merchants processed by Humboldt Merchant Services typically generated chargebacks at rates almost 10 times higher than what Mastercard and Visa consider excessive, yet the processor kept opening accounts for them until around the end of 2023. The allegation is at the center of a Sept. 8, 2026, FTC case in which Humboldt agreed to a proposed order requiring it to pay $12 million for consumer redress and permanently barring it from processing payments for several kinds of high-risk merchants. The FTC says the sham merchants fronted for unauthorized billing scams that hit consumers’ credit and debit cards.
What the Card Networks Treat as Excessive
A chargeback happens when a cardholder contacts the issuing bank to dispute a charge on a statement. If the bank upholds the dispute, the amount is charged back to the merchant’s account and the consumer does not pay. The FTC’s complaint, filed in the U.S. District Court for the Eastern District of Michigan, calls a high chargeback rate “a major indicator of fraudulent or deceptive conduct on a merchant account.”
The card networks run monitoring programs built around specific thresholds. According to the complaint, merchants have been placed in the Visa Dispute Monitoring Program when they had at least 100 disputed transactions in a month and a dispute ratio of 0.9% or higher. Under Mastercard’s Excessive Chargeback Program, a merchant is designated an Excessive Chargeback Merchant when it has 100 or more chargebacks in a single month and a chargeback-to-transaction ratio of 1.5%. Merchants that stay above those levels can face fines or lose their accounts.
The FTC says the shell accounts Humboldt opened “typically incurred chargebacks at rates that were almost ten times higher than what Mastercard and Visa viewed as excessive.” The agency argues that a processor with that information should have recognized the merchants were not ordinary businesses.
Inside the kit. Every chargeback in this case began with a cardholder who noticed a charge and reported it, and a dated record of each call and dispute makes that process easier to follow through. The first-hour recovery plan, the family code word, the free credit-freeze steps and a fraud evidence and report log are all in The Senior Fraud Defense & First-Hour Recovery Kit.
Rates Above 7% and Warnings That Went Unheeded
The complaint gives more detail on how far the numbers ran. The FTC says that at the end of 2020, Humboldt moved its “Performance Marketing” accounts, largely online sellers of supplements and gadgets that used free-trial and subscription billing, onto a lower-risk bank identification number, or BIN, used by an affiliated company, NorthAB, LLC. By 2021, those accounts collectively had chargebacks above 7% of all sales, far above the 0.9% and 1.5% monitoring thresholds and almost 100 times higher than the NorthAB BIN’s overall chargeback rate.
The pattern was not new, according to the FTC. A 2015 review by an outside consulting firm for Humboldt’s sponsoring bank found that Performance Marketing accounted for only 25% of Humboldt’s processing volume but 66% of its chargeback volume, with an overall chargeback rate of 4.6%. From 2017 to 2019, Mastercard alerted Humboldt that thousands of its accounts appeared to be engaged in “load balancing” and “card sharing,” and in 2019 a senior Humboldt underwriter warned management that the company had for years opened shell accounts with straw signers.
The FTC also alleges that Humboldt protected itself from the losses by holding back a percentage of each Performance Marketing account’s sales in reserve to cover chargebacks. Meanwhile, the complaint says, the shell accounts were often closed within six months, but a steady supply of new ones kept the business profitable and let the scams avoid detection.
How Load Balancing Hides Chargebacks
Load balancing is one reason the FTC says the chargeback numbers mattered so much. The complaint explains that fraudulent merchants spread their sales across many merchant accounts so that no single account crosses the 100-chargeback monthly trigger for the networks’ monitoring programs. Shell companies with straw owners supply the extra accounts. From 2021 through 2023, the FTC says, Humboldt processed more than $100 million through the sham merchant accounts.
A related practice, credit card laundering, runs one company’s transactions through another company’s merchant account. The card networks prohibit it because it lets merchants that were previously flagged for excessive chargebacks or fraud hide their identities from consumers, banks and law enforcement, and slip back into the system under a new name. Merchants terminated for those reasons are typically added to the MATCH list.
“Humboldt was processing payments for companies despite red flags indicating they were scamming consumers,” Katherine White, deputy director of the FTC’s Bureau of Consumer Protection, said in the agency’s announcement.
The proposed order responds directly to that pattern. Humboldt would be barred from processing for straw companies, for merchants on the Mastercard Alert to Control High-Risk (MATCH) list for reasons including excessive chargebacks, laundering and fraud, for merchants subject to law enforcement action, and for certain e-commerce sellers that use a mailbox provider as their only business address. It would also be barred from load balancing and other tactics used to avoid fraud and risk monitoring. The commission voted 2-0 to file the order, which takes on the force of law once a federal judge approves and signs it.
Why Individual Disputes Still Matter
For consumers, the case shows that each dispute filed with a card issuer feeds the numbers banks and card networks use to spot bad merchants. The billing scams tied to Humboldt’s accounts included free-trial offers that rolled into recurring subscriptions and, in the Legion Media scheme the FTC shut down in 2024, fake “free gift” offers that led to repeated unauthorized charges after a small shipping fee.
Older cardholders who pay bills automatically may not notice such charges for months. The FTC’s guidance on disputing credit card charges says a written billing-error dispute should reach the issuer within 60 days after the first statement with the error was sent, and the issuer must acknowledge it in writing within 30 days. Scams can be reported at ReportFraud.ftc.gov. The FTC has not yet announced how the $12 million will be distributed or who will be eligible.
Turning an Unfamiliar Charge Into a Documented Dispute
The Humboldt accounts stayed open because thousands of disputes were spread thin across shell merchants. For a single household, the risk is the opposite problem: a dispute that stalls because the dates, descriptors and reference numbers were never written down.
The Senior Fraud Defense & First-Hour Recovery Kit has a fraud evidence and report log for tracking each dispute and report, along with the first-hour recovery plan for deciding which call comes first.
Keep the paper trail together with The Senior Fraud Defense & First-Hour Recovery Kit.
This article was prepared with AI assistance and reviewed against the linked official sources.
