The FDIC recently issued Financial Institution Letter FIL-43-2013 entitled “FDIC Supervisory Approach to Payment Processing Relationships with Merchant Customers that Engage in Higher-Risk Activities.” In the letter, the FDIC clarifies its policy and supervisory approach related to facilitating payment processing services directly, or indirectly through a third party, for merchant customers engaged in higher-risk activities.

The FDIC states that facilitating payment processing for merchant customers engaged in higher-risk activities can pose risks to financial institutions and requires a financial institution to perform proper risk assessments, conduct due diligence sufficient to ascertain that the merchants are operating in accordance with applicable law, and maintain appropriate systems to monitor these relationships over time. The FDIC states further that financial institutions need to assure themselves that they are not facilitating fraudulent or other illegal activity and warns that financial institutions could be exposed to financial or legal risk should the legality of activities be challenged.

FDIC’S MERCHANT NAUGHTY LIST:

  • online short-term lenders
  • credit repair service companies
  • telemarketers
  • debt consolidation companies
  • online gaming companies
  • online tobacco and firearms sales companies
  • online pharmaceutical sales companies
  • sweepstakes and magazine subscriptions companies

A copy of the Financial Institution Letter may be found here.

A copy of the FDIC guidance may be found here.

A copy of the FDIC Chairman’s letter may be found here.