FDIC Explains Supervisory Approach To Payment Processing Relationships

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On September 27, the FDIC issued Financial Institution Letter FIL-43-2013, which is intended to clarify the FDIC’s policy and supervisory approach related to financial institutions that facilitate payment processing services—directly or through a third party—for merchant customers engaged in “higher-risk activities.”  The letter states that banks that perform these services for merchants engaged in activities that “tend to display a higher incidence of consumer fraud or potentially illegal activities” are expected to perform proper risk assessments, conduct due diligence to determine the merchants are operating in accordance with applicable law, and maintain systems to monitor the relationships with payment processors and merchants. Institutions that properly manage payment processing relationships and risks are not prohibited or discouraged from providing such services to businesses operating in compliance with applicable law. The FDIC intends to assess whether institutions are adequately overseeing these activities and addressing related risks. The FDIC’s statement follows concerns raised by certain banks, their representatives in Congress, and third-party payment processors about the scope of the governmental scrutiny of online lenders, payment processors, and their relationships with banks.


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