High-Risk Merchants List Dropped by FDIC After Complaints

A Federal Deposit Insurance Corp. advisory warning banks to be vigilant about processing payments for fraudulent merchants has been revised after an outcry by Republican lawmakers that it targeted legitimate businesses.

The U.S. regulator said it eliminated from the advisory a list of examples of risky merchant categories that “led to misunderstandings” about how it’s supervising banks’ ties to third-party payment providers. The agency said in a statement today that it never meant to ban banks from doing business with the types of merchants on its list.

“Those that are operating with the appropriate systems and controls will not be criticized for providing payment processing services to businesses operating in compliance with applicable law,” the agency said in its updated industry guidelines, revising a document issued in September.

The FDIC has been aiding a Department of Justice probe known as Operation Choke Point, which is intended to combat fraud by businesses such as payday lenders and online gambling sites by cutting off their access to payment systems. The effort has drawn criticism from Republican lawmakers and industry groups that say the Justice Department and banking regulators are squeezing legitimate businesses.

Richard J. Osterman Jr., the FDIC’s acting general counsel, said in a July 15 hearing that the list was meant to instruct banks on where to focus their due diligence. He said that banks and third-party payment processors obeying the law “have nothing to be concerned about.”

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editors responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net Anthony Gnoffo

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