The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
High-Risk Processing in 2025: Legal Landmines Every Merchant Agent & ISO Should Understand | PEP065
The High-Risk Processing Trap: How Merchants Are Getting Exploited
In the fast-moving world of high-risk payment processing, what looks like a lifeline can quickly turn into a liability. For merchants operating in regulated or fringe industries—think peptides, nootropics, coaching, supplements, adult, or subscription models—finding a processor willing to approve them often feels like a win. But behind that approval, a darker reality is unfolding: frozen funds, surprise fees, and reserve manipulation.
In this episode of The Payments Experts Podcast, Christopher Dryden and James Huber, Managing Partners at Global Legal Law Firm, Join Director of Operations, Jeremy Stock to expose and explain how high-risk classification has evolved—from a basic ecommerce label into a broader, more dangerous category often shaped by regulatory pressure, brand sensitivity, and chargeback profile.
Behind the “Approval”: The Mechanics of Exploitation
We dig into one of the most abusive tactics in high-risk processing: reserve draining. Here's how it works:
- A processor holds back six or even seven figures in reserves under the guise of chargeback protection.
- Then, behind the scenes, they initiate repeated debits to closed accounts, triggering $25–$35 rejection fees per failed attempt—all deducted from the merchant’s reserve.
- Reporting tools are suddenly disabled or restricted, leaving merchants unable to validate charges or defend themselves.
The result? Thousands in manufactured fees, no visibility, and no clear pathway to recourse.
An Industry Shaped by Short-Term Thinking
This isn't just about rogue processors. The entire high-risk ecosystem is suffering from a trust deficit:
- Sales agents chase fast commissions, not long-term merchant relationships.
- Banks have pulled back after being burned by bad portfolios and compliance blowouts.
- Merchants, desperate for approval, often sign without legal review, unaware of the risks embedded in their own agreements.
With Visa’s Acquirer Monitoring Program (VAMP) taking effect, scrutiny is increasing, and high-risk options may narrow even further. The compliance bar is rising, and processors with poor internal controls—or those exploiting risk merchants—will soon face more pressure from upstream acquirers and card brands.
What Merchants Should Demand Now
In this environment, getting approved isn't enough. Merchants must seek out processors and partners who:
- Maintain direct relationships with sponsor banks
- Offer transparent reserves and clear reporting
- Communicate openly when issues arise
- Allow merchants to defend disputes and access logs in real time
Long-term survivability in high-risk processing isn’t about finding any approval—it’s about finding the right one.
If you operate in a high-risk vertical or manage merchants in sensitive industries, this episode delivers hard truths and real strategies for staying protected.
Listen now on The Payments Experts Podcast, hosted by Christopher Dryden and James Huber, and visit globallegallawfirm.com for legal strategies that keep your processing relationships sustainable—and your funds secure.
**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
A payments podcast of Global Legal Law Firm
You're going. You know a lot of these people that work with high-risk merchants, the sales guys. They're going look, if I can get them amid, if I can get them processing, that's a win, because they just need processing. They have more customers, more customers. But then when you send them to the wrong person and they let them process for three, four months and then they take all their money and what do you think that does this guy? He's going. Well, I'm not working with that sales agent anymore because you set me up with these guys. And did you know about?
Speaker 2:that, or they didn't explain the business right. I mean it's like, hey, I need to get a mid and the merchant doesn't understand the pitfalls. And that's the thing. Like, if I'm in a high-risk business, like we find people that come through on match for a single chargeback right, and a lot of times it's not the chargeback it's the business that got underwritten from which the chargeback comes.
Speaker 3:Welcome to the Payments Experts Podcast, a podcast of global legal law firm. We hope you enjoy this episode. Industry in a lot of facets. James, maybe get us started today. What were you guys first seeing when you got into this industry in regards to high risk?
Speaker 1:Yeah well, first, when we talk about high risk processing, we're talking about merchants that have a lot of chargebacks. Is there any other definition of high risk?
Speaker 2:Yeah, I mean stuff that would come under regulatory scrutiny. I mean it's kind of whatever's on the restricted list of a sponsor bank's underwriting guidelines which can fall into a lot of different buckets. But I mean originally like high risk was anybody who does online commerce.
Speaker 1:That was everything online. Yeah, yeah, I mean, that's we there. There are some even government orders that say high risk is online business if it's 10% or more, before the internet really took hold.
Speaker 2:But it's interesting though, because you know over time some of the ISOs that we've actually done agreements for, they've got like three tiers of, or three buckets, like it was low risk and then medium risk, and right, I think medium risk was this uh bucket that evolved after everybody went online with covid and then I, like, high risk really needed a different definition at that point in time, high risk was anything that was susceptible to charge back, like j said, at a distance that anybody could charge you anywhere from 5% to 10% for.
Speaker 1:Yeah, I know it was a goldmine for our clients. But then there was also the risk. Originally, as you take a high-risk account and Chris, you're right, it's not just chargebacks. If you're selling peptides or something that people are looking at, that's considered high risk, even if you don't have a lot of chargebacks. But somebody selling online, they do have a lot of chargebacks, mostly because consumers are all criminals. They're doing chargebacks whether they're getting it or not.
Speaker 2:Yeah, there's a ton of friendly fraud out there. But you know, for us, what I see as high risk today isn't necessarily stuff with chargebacks, like you said. It's the things that we do opinion letters for that are like super dynamic, like peptides, like we have people that call us for hey, I need an opinion letter about peptides, and it's like peptides is a really broad term, like you know, what precisely are you looking for? Sweepstakes, is the other one right? I mean, it's like people that want to have online properties, that are selling or brokering things that just have a lot of regulatory scrutiny even today around them.
Speaker 2:You know, anything that you put in your body is going to have regulatory scrutiny. Your body is going to have regulatory scrutiny. So if you're selling that online, you better be prepared to A pay a high cost to do those transactions and, b have people come ask you a lot of questions that you don't seem to think are really important but are Like where did you get all of this stuff? And you know, are these actually pharmaceutical drugs that you're passing off as peptides? And I mean there's all sorts of things that go into it.
Speaker 1:Yeah, well, maybe on the high cost is that sometimes merchants get charged a high cost in certain industries. But there are sales organizations out there that know that industry well, they're familiar with it, you know they have us behind them saying you know, here's all the regulations and everything like this. Actually, this isn't high risk. So there are certain merchants who you know oh, I'm high risk, I'm used to paying six, 7% where we're seeing, with some of the people we work with, they're charging regular rates to what some of these high risk merchants are. But I want to go back to what we would see in the beginning is you take a high-risk merchant account and you're making all of this money and then it turns out that it's a fake, it's a burner account, it's a blowout account, and they'd go oh my gosh, in four hours they all of a sudden started charging back $400,000, $600,000. And our clients would go our systems didn't catch it, you know it just was blowout. Or ago. Our systems didn't catch it, you know it just was blowout, or we had no idea, we didn't even have the systems in the beginning. A bunch of them.
Speaker 1:And I remember talking to some of our ISOs and I'm going why aren't you getting some of these high risk accounts? You know these accounts that you have. They're making you six, seven, 20, you know, 300 bucks a month. This high risk account. I'm watching this guy make $200,000 a month in residuals. Why aren't you taking that? They're going. It's too risky, it's too high risk. I don't have that money to pay it back. It's more than I get paid, so I don't want those accounts. But then what we saw is people building the systems to manage these things. Because you're really in this industry, you're worried about the fraudulent merchants. Most of the high-risk chargebacks is not a fraudulent merchant. It's that consumers buy something online and they don't want it or they're going. Why should I have to pay for it? It's too easy to do a chargeback. And then you know, yeah, some companies advertise things that aren't. You know it wasn't endorsed by Oprah, things like that. But then there are also for a long time there was subscription free trial 30 days.
Speaker 2:Most of that's gone. Negative option enrollment the FTC got involved in that.
Speaker 3:So you have to register for that. Where I see it, a lot of guys on the front end uh, coaching a lot of yep. You know where these guys are saying, hey, I'll help. You know, advise your business, I'll get your seo going.
Speaker 2:All those guys are high risk any type of services you know online. It's funny, though, like I was talking to somebody that does primarily high risk a couple guys when we were at wsaa and they were talking about how, as you were just saying, high risk a couple of guys when we were at WSAA and they were talking about how, as you were just saying, high risk has shifted Like it used to be the telehealth or you know some sort of actual prescription meds, like even with legit script, like it used to be that that was a good margin. Now it's like super competitive because there's so much more oversight within the underwriting and the management of it that it doesn't look like high risk anymore. So the merchants that are doing it can command better rates almost because there's less of a chargeback issue.
Speaker 2:So one of the things that we see and we have a couple of clients that we work with if somebody who's hard to place comes to us with another problem and they're looking for processing, sometimes we'll send them off, and the cool thing about the people that we send them to is they look at the merchant holistically and then they get on the phone with the merchant and the bank to see if the bank's willing to take on the risk, because that's usually where your problem is is with the bank, like if the more that you can exchange with the bank about one particular merchant to get them to understand what needs to be done or what, if it's a yes or a no, versus like what I'll see a lot of times and this is like shopify stripe horrible organizations because they just approve you, you can, you fog the mirror, you know, put whatever you need to put on the application and then, three weeks later, after you've run 150 to 200 000 in transactions, they're like oh, what's this person doing here and nothing's changed, right?
Speaker 1:and then they hold all your money and then they hold all your money.
Speaker 1:And so we see I mean we run into it a lot of in high risk processingrisk processing. The processor or the bank they want to, you know, limit their risk. So they'll take a big reserve. It's a percentage or a flat amount to offset those chargebacks if processing shuts down and you can't pay for it. But what we see a lot of processors out there do is they're making money off of this reserve.
Speaker 1:I hear it over and over and over we run into all the time of they've got a big reserve, they're supposed to hold onto it for six months, or their agreement says they can hold onto it for six months. But what those processors will do is they'll start taxing fees on it. We have, I'll see it all the time of the merchant will get shut down. So they hold the reserve and they're going oh, we're having these chargebacks come in, we're not going to take it from the reserve, we're going to take it from your account. But that account has zero dollars in it now.
Speaker 1:So they'll run two a day trying to ACH it, knowing it's going to reject. But the agreement has an ACH reject fee of 25 bucks or something and the cost that they do they get is two bucks. So they're clocking 23 bucks each time, multiple times a day, for six months, and they're saying oh yeah, we, you know we ate it all up. We were trying to ACH you. You weren't listening. Why would you be ACH me? You have the money here, take it from here and it can be, you know, 400 bucks and they'll eat up hundreds of thousands of dollars.
Speaker 2:So or shutting off RDR or the ISO, or the merchant's ability to even service it and figure out if there is any defense to what's taking place. I mean, that's what makes the chargebacks go exponential. And in addition to the ACH reject fee, every single time that there's a contest and then a chargeback, there's fees associated with that that are profit centers for them. So it actually makes sense when there is a big reserve on file. I mean, the ACH reject fee is one thing, the chargeback fee is like $30. Yeah, they're banking on it.
Speaker 1:So you're going. You know a lot of these people that work with high-risk merchants, the sales guys. They're going look, if I can get them amid, if I can get them processing, that's a win, because they just need processing. They have more customers, more customers. But then when you send them to the wrong person and they let them process for three, four months and then they take all their money and what do you think that does this guy? He's going well, I'm not working with that sales agent anymore because you set me up with these guys. And did you know about that?
Speaker 2:Or they didn't explain the business, right. I mean it's like, hey, I need to get a mid and the merchant doesn't understand the pitfalls. And that's the thing. Like, if I'm in a high-risk business, like we find people that come through on match for a single chargeback, right, and a lot of times it's not the chargeback, it's the business that got underwritten from which the chargeback comes.
Speaker 2:Dude, like that's a problem, you know, because now you've got somebody in there looking at it and it's not just that there was a charge back, that there's a question of what's the legality of this transaction at all. How did this person get through underwriting? And then, to save face, you've got them just getting banged on match for nothing, and that's because the agency dollar signs they don't see. How do I make this last for a long time? It's all short-term vision, right. Like how do I find a relationship where I can prove that what my business model is, though high risk, does have legitimacy and a low chargeback rate? I need to find a partner who's willing to work with me that if there is like some sort of bump in the road, they don't just run for cover or, worse off, try to extort me based on the written agreement that they forced me into right Just to get the processing. So I don't know.
Speaker 1:I mean, that's my take on it. Yeah, I mean, one of the issues is you need these partners to have strong relationships, because what was it five, six years ago when the banks all of a sudden said, wow, high risk. Five, six years ago, when the banks all of a sudden said, wow, high risk. That's where we can actually make some money, because the bank generally doesn't make a lot of money in merchant processing At least they didn't used to. They've gotten a little wiser.
Speaker 1:But what happened is, when the banks saw this high risk, they're going, oh great, bring it in, bring it in, bring it in. And then there's huge blowouts, the banks are getting sued and all of that, and so a bunch of these you know high risk players in the space. They pretty much ruined it for everybody, so that the only, you know, the only few players that still know how to do high risk and to make it so you're not blowing up relationships and getting sued. You know it's it's there's only a few of them right now in the space because, like I said, a couple of bad actors not bad actors, a couple of people ruined it for everybody and there's still some out there that you know Chris and I talk about. We're going. How are they still doing this when we're seeing it? And you know I'm going. I think it's a matter of time. But what does that do if you're the one working with them and it gets shut down and you're scrambling and, with vamp coming, there's only going to be a.
Speaker 2:That's a bigger one with vamp coming. I don't know how much cover they're going to have after that.
Speaker 1:I spoke to somebody today and they said I've got a solution Don't take Visa. It's like that's basically it. You know, for a lot of merchants, yeah, you're going to be just fine if you're not taking Visa.
Speaker 2:Yeah, but that's the interesting part, right. I mean this is kind of off topic, but MasterCard always just sort of acts like little brother and runs parallel. This is actually an opportunity for MasterCard to really take market share.
Speaker 1:Get those cards out there. I was just talking to someone and they're going well, you know how about they run, how about crypto to get around vamp? And he's going what are the likelihoods that somebody has a Bitcoin in their back pocket versus a MasterCard?
Speaker 3:Thank you for listening to this episode of the Payments Experts podcast, a podcast of Global Legal Law Firm. Visit us online today at GlobalLlegallawfirmcom. Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.