FDIC withdraws “Merchant Hit List”

The Federal Deposit Insurance Corp. (FDIC) is withdrawing its list of fraudulent oriented merchant categories, also known as the “Hit

The Federal Deposit Insurance Corp. (FDIC) is withdrawing its list of fraudulent oriented merchant categories, also known as the “Hit List”.

3 years ago the FDIC created a list of merchant categories which according to them warranted heightened attention to processing banks. Some of the categories included are, payday loans, debt consolidation companies, adult entertainment firms and more.

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Over the past 3 years in the US, banks and other financial institutions have severed relations with what have been proven to be legitimate companies as a result of the Hit List. A letter from the FDIC was recently sent to financial institutions stating the list has been misinterpreted, in case the severing of ties, and has now been taken back.

“The lists of examples of merchant categories have led to misunderstandings regarding the FDIC’s supervisory approach to institutions’ relationships with [third-party payment processors], resulting in the misperception that the listed examples of merchant categories were prohibited or discouraged. In fact, it is the FDIC’s policy that insured institutions that properly manage customer relationships are neither prohibited nor discouraged from providing services to customers operating in compliance with applicable federal and state law,” stated the FDIC’s letter.

The move is part of the FDIC’S and federal authorities’ ongoing battle to prevent fraudulent merchants and certain business practices from being affiliated with the US payment system.

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Since the list’s conception in 2011 the FDIC had not ordered banks to cease relations with high risk firms, but rather scrutinize these firms to prevent fraudulent activities from taking place. It was the US Justice Department which copied the list and issues subpoenas to over 50 banks and PSPs as part of an operation coined “Operation Choke Point”.

A recent hearing held 2 weeks ago on the subject had Rep. Patrick McHenry, R-N.C. lash out at the FDIC in regards to the hit list. While not stating to end relations with these merchant types, it served as a catalyst resulting in legitimate businesses not being able to accept payments.

“You’ve put out this list and it says, ‘Don’t do business,'” McHenry said. “That’s what the banks have heard.”

 

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