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Street Smarts:
Top Ten List of MLS Fraud

By Ed Freedman

There is so much fraud in the merchant acquiring business that, frankly, most companies are scared of entering the business. Think about all the different ways an organization taking liability for losses is exposed on a daily, even hourly basis: merchant fraud, consumer fraud, identity theft, risk from merchants going out of business, chargeback liability, future service delivery issues... are you starting to get the picture?

MLS fraud-when the salesperson is the source of the fraud-scares me the most. Bad actions from MLSs can produce some of the biggest losses and problems in the industry.

There are things you can do to prevent identity theft; there are steps you can take when dealing with risk associated with a certain type of merchant processing activity (e.g. checking financial statements, previous processing track records, establishing reserves, etc.); and from a risk management standpoint, you can even manage the transaction processing activity of your merchant portfolio.

But MLS fraud? Good luck trying to minimize losses when a real fraudster starts sending you merchant applications. You can get your butt kicked, and it's going to hurt. It also may be the quickest and worst beating you've ever taken-I'm talking hundreds of thousands of dollars.

Most of the horror stories-those dealing with losses of $100K, $200K, $500K or even $1 million from either a single merchant or a few merchants-usually start with a bad sales rep who was involved in a scheme.

But there are also those small omissions that so-called "honest" MLSs are engaged in- such as fudging an average ticket or not fully disclosing all facts on the applications. The industry is taking hits from these MLSs, too. Don't kid yourself. Your ISO partners are taking huge losses because of these actions. This is fraud, and these MLSs are the problem.

My goal is to show you what's going on out there and further explain why everyone's a little scared of doing business with you.

By giving you examples of what you should not do, I hope you come away from this with more information about how to be the most ethical and honest MLSs in the business. If you run your business with strict ethical standards, your long-term success, pride and happiness in your profession will be assured.

We recently discussed fraud on The Green Sheet's MLS Forum. Someone even suggested putting out a post entitled "Top Ten List" of MLS Fraud. Responses were numerous. Here's what you had to say:

"Telling merchants they can cancel in 30 days. Telling merchants that they only have to pay 'X' amount per month, no swipe, etc. Telling merchants there is only a discount rate. We have dealt with this when we try to be honest and other companies tell these lies that merchants choose to believe." -John

"One of the main things I have [heard] merchants tell me is they didn't realize they were locked in on the 48 month lease. Sad thing is, they have read the 48 months on the contract but were told various lies by the rep. I've heard them say the rep told me I didn't have to pay until 1/3 of the volume was on credit cards.

"The most common lie is the rep tells them to ignore the 48 months because he will just let them out if they decide they no longer want it! The majority of the lies are told by reps that don't see or service the merchants anyway." -Neil

"Reps don't have a bad [rap], bad reps do. Just like any other industry, the customer (MLSs in this industry) pays for the damages that bad reps incur. I don't think we hit 10 yet. But just what you see should be enough to explain why sometimes when ISOs don't know you from a hole in the wall, they remain guarded without a long-term established relationship. Again, the probation period could help. -Q

"As for those who blatantly lie...well they utilize that which is not truthful to sway and steal. If your local bankers did it, they would go to jail-period. Is there anything else that needs to be said? How do these people continue to succeed in the business? Typically these types of individuals write high margins-for both themselves and the acquiring company. The almighty buck is to be blamed for that-Greed." -Brett Mandsdorf

"The philosophy we all should live by is 'No deal is so great that you will be able to retire on it!'-Plastic World

From reading your posts and from my own personal experience, here is my Top Ten List of MLS Fraud in no particular order:

  • When MLSs do not make the effort to obtain real signatures but instead forge them on applications and/or lease documents
  • When MLSs help set up merchants with new merchant account providers using some type of "coaching" to get an approval they'd otherwise not be able to obtain (e.g. helping a person who was just placed on the CTMF file; and knowingly misrepresenting the actual owner, type of business, sales volume or range of tickets to obtain an approval just to make an equipment sale)
  • When MLSs complete a site survey even though they did not actually visit the merchant location. They also may provide inaccurate or fictitious information just to complete the form
  • There are several ways to commit leasing fraud: When MLSs do not properly explain the terms of the lease, or that it's non-cancelable. MLSs instead propose leaving the term blank, or the monthly payment blank, getting signatures and filling it in later. MLSs verify the lease on their own instead of having the merchant verify it with the leasing company. MLSs get two leases on one piece of equipment
  • Regarding credit card processing, when MLSs participate in fraud and set up fake merchants to assist criminals in processing "skimmed" credit cards. MLSs get a piece of the action for assisting the criminals
  • When MLSs use a personal voided check to get merchants' processing money
  • When MLSs tell merchants they can cancel anytime and/or they only have a month-to-month commitment. They never mention a possible termination fee. And, if asked, they explain that they'll waive it
  • In terms of rates and fees, when MLSs do not do a good job of explaining and disclosing in advance rates and fees to the merchant, either verbally or on the merchant application
  • In terms of residual buy-outs, when MLSs sell rights to residual commissions and then, 6 - 12 months later, slowly move merchants from that provider to a new one that will re-start the residual commissions
  • Regarding upfront bonus payments, when MLSs get upfront bonus payments, making sure there are no termination fees, and then move a merchant a few times each year to continue collecting the upfront conversion bonus payments

I never understood why anyone would ever get involved in any of these business practices. Don't they know that this business is so phenomenal they don't need to cheat or cut corners? You will produce better results by running your business honestly and ethically than by being involved with any type of fraud.

In order to improve the future of our industry, let's consider two strong ideas to combat MLS fraud. Although we all realize it's not a great idea to share information on good sales partners, one bad MLS can damage many companies-even the entire industry.

In the same way that risk management groups have come together to report on bad merchants, professionals responsible for recruiting and training new sales reps for ISOs and MSPs need to create a forum where information and experiences can be shared regarding fraudulent MLSs. In order to do so, we will need a strong and savvy group of ISOs and MSPs and a good group of point-of-sale leasing company providers.

Another idea is something that the Electronic Transactions Association (ETA) presently offers and the National Association of Payment Professionals (NAOPP) is also discussing.

ETA University has developed a Certified Electronic Transaction Providers (CETP) program whereby MLSs that go through this program can be acknowledged as having this certification. This concept is a terrific idea, and I'm going on record to say that I will support it. I also encourage other ISOs who are taking liability for merchant losses to embrace such a process that will train MLSs on how to properly represent products and services in the most ethical fashion.

If we all agree to employ only MLSs that have gone through this type of training, then we can help rid the industry of fraudsters. Through these programs, MLSs can also let their merchants know they are certified payment professionals, and if anything is done improperly, merchants can report them to the certifying organization-sort of a Better Business Bureau for our industry.

According to a recent ETA statement, these certification programs are all about ethics, training and service that are "critical to your success." I couldn't agree more. For this reason, I'm calling on my competitors and colleagues to support these initiatives and make these concepts a reality. Please hear me. Let's step up to the plate and support any effort that will mitigate MLS fraud.

Some of you might be thinking, "If I have no liability for merchant credit losses, why should I care about these risk management issues?" My next column will deal with the answer to that question. Look for my post on The Green Sheet's MLS Forum regarding working together to combat fraud and manage risk effectively.

As always, your opinions are important to me and to this column. Please send any feedback on this topic and any other issue to Be sure to include your name and company if you want to be recognized. Your voice needs to be heard.

"Rather fail with honor than succeed by fraud."

- Sophocles

See you next time where the rubber meets the road.

Ed Freedman is founder and President/CEO of Total Merchant Services, one of the fastest-growing credit card merchant account acquirers in the nation. Ed is the driving force behind all business development activity as well as the execution of Total Merchant Services' marketing plan, including recruiting and training independent sales offices and establishing strategic alliance partnerships with leading vendors, so that Total Merchant Services can provide its customers with the highest quality and most reliable services available.

To learn more about Total Merchant Services, visit the website at To learn more about partnering with Total Merchant Services, visit or contact Ed directly at

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