NMA Educates

Straw Signing and Payment Processing

NMA Educates

Straw Signing and Payment Processing

At National Merchants Association (NMA), we are deeply committed to advocating for merchants and partners of all types, and providing them with the tools and resources they need to thrive in an ever-evolving payments ecosystem.

The NMA Educates Series is designed to provide helpful, insightful and informative materials to assist the businesses we serve in navigating the world of payments.

Straw signing hides a person’s true identity and can be a nefarious tactic that puts businesses at risk. Preventative measures are in place to uphold standards that protect real merchants.

What is a Straw Signer?

In the merchant processing world, a straw signer acts on behalf of a merchant in order to acquire a merchant account. Straw signers are used when the real merchant is unable to submit legitimate business information or be approved for merchant services due to a variety of reasons (poor credit, history of excessive chargebacks, etc.). The act of signing for merchant services for someone who is unable to acquire them is not only fraudulent – it’s illegal in many cases (the sale of firearms and alcohol for instance), especially when the actual merchant is legally barred from signing a merchant account.

Knowingly Fraudulent

A straw signer can also be the target of complex scams and various fraud schemes. This typically occurs when a merchant dupes a straw signer for illicit gains. A specific example of this might include a scheme that’s based on inventory or assets purchased in the straw signer’s name and then quickly turned at falsely-inflated prices.

Increasingly elaborate schemes involve merchants creating false documents that show inflated sales numbers to secure additional lines of credit or gain extra funding that they normally wouldn’t qualify for.

Learn how NMA protects merchants and customers.

Straw Signers and Payment Processing
Straw signers attempt to fool the acquiring bank by hiding the identity of the real beneficiary.

Straw Signers and Payment Processing

When a merchant breaks rules that dictate legal and responsible merchant service behavior, their information is added to the Terminated Merchant File (TMF) or MATCH (Merchant Alert to Control High Risk) list. These lists are managed by the card brands (VISA, MasterCard, etc.) and are comprised of information about businesses and their owners whose credit card processing privileges have been flagged or terminated. Some of the reasons for being added to these databases include excessive chargebacks, fraudulent activity, and money laundering, among others.

These databases are used by acquiring banks (merchant processing banks) to screen potential applicants in order to ensure that those they do business with have a clean payment processing history.

Straw signers are simply merchants attempting to gain access to the payments system for others whose processing privileges have been revoked. A straw signer will apply for processing services for a business in which they may have no substantial stake or vested interest. In this instance, they are attempting to fool the acquiring bank by hiding the identity of the real beneficiary.

Common Example:

Mr. Sullivan has had his payment processing privileges revoked and was added to the MATCH list. To avoid rejection of his payment processing application, he asks Ms. Diaz to submit the application using Ms. Diaz’s name and business information. When the application is approved, Mr. Sullivan continues to conduct business through Ms. Diaz’s processing relationship despite the fact that he is on the MATCH list.

Consumer Advocacy and Straw Signing
Straw signing makes it easy for merchants to avoid detection by consumers and law enforcement.

Consumer Advocacy and Straw Signing

Beyond NMA’s mission and responsibility to advocate for merchants and the payments industry as a whole, we are also in the business of protecting consumers and the security of their payments.

In common straw signer scenarios, it may be difficult for consumers to identify the true source of the transaction (i.e., the real merchant) simply from the charges that appear on their credit card statements. This confusion makes it easy for merchants to avoid detection by consumers and law enforcement. The real merchants are then able to continue to operate – as long as they can recruit straw signers to provide access to their merchant accounts.

The Federal Trade Commission sees the straw signer/real beneficiary scheme as an unfair and deceptive business practice that violates Section 5 of the FTC Act. This practice harms consumers and banks alike and is very much on the radar screen of the FTC.

In the simplest of terms, straw signing is a means through which a merchant’s identity can – and often – is hidden. Straw signing hurts consumers and merchants alike and NMA works to combat it. While it may seem like a bit of a nuisance, the great lengths in which we go to in order to verify and validate a merchant’s identity is done to protect the cardholder and maintain the integrity of our merchants.

Want to learn more about how NMA protects merchants and the customers they serve?

Contact our Business Development team today.