The FDIC has published guidance clarifying that account relationships with third-party payment processors (“TPPPs”) which facilitate payment transactions for certain types of merchant clients are neither prohibited nor discouraged. The July 28 guidance published as Financial Institution Letter no. FIL-41-2014 addresses a misperception that the FDIC said arose from earlier FDIC guidance and an informational article on TPPPs which contained lists of examples of types of merchants that had been associated with higher-risk activity when the guidance and article were released. According to the new guidance, it is the FDIC's policy that banks that properly manage customer relationships are neither prohibited nor discouraged from providing services to any customer operating in compliance with applicable law. The FDIC announced that, as part of the clarification of its supervisory policy with respect to account relationships with TPPPs, the FDIC has removed the lists of examples of merchants associated with higher-risk activity from its prior guidance and informational article. The focus of the FDIC’s supervisory approach, according to the new guidance, is to ensure that banks have adequate procedures for conducting due diligence, underwriting and ongoing monitoring of account relationships with TPPPS. The FDIC said that banks that follow the prior guidance will not be criticized for establishing and maintaining relationships with TPPPs.
Nutter Notes: According to the new guidance, banks that establish accounts for TPPPs should assess their risk tolerance for this type of activity and develop an appropriate risk management framework, including policies and procedures that address customer due diligence, underwriting and ongoing monitoring. The lists of examples of merchant categories associated with higher risk activities in the FDIC’s prior guidance and the article illustrated trends identified by the payments industry at the time. Those examples included activities that could be subject to complex or varying legal and regulatory environments, activities that may be prohibited for certain consumers, such as minors, and activities that may result in higher levels of complaints, returns, or chargebacks. Account relationships with TPPPs involved in the listed activities are not prohibited or discouraged according to the new guidance, provided that banks manage such account relationships in accordance with the prior guidance. The FDIC said that it will review and assess the extent to which a bank with TPPP accounts follows the prior guidance as part of the FDIC’s regular safety and soundness examinations.