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"Legally terminate credit card debt! You can be debt-free in 4-6
months!" Advertisements like this are for a new type of program that
has spread via the Internet over the past few years. It's called
"Credit Card Debt Termination," and victims are paying up to $3,500
for this bogus service. In this article, I'll review the principles
behind this program and explain exactly why it's a scam to be
avoided.
First, let's get our definitions straight. The scheme I'm
describing here should not be confused with Debt Consolidation or
Debt Settlement (also known as Debt Negotiation), both of which are
legitimate and ethical methods for debt resolution. The easiest way
to distinguish the Credit Card Debt Termination scam from other
valid programs is based on the central claim that you really don't
owe any money!
With Debt Consolidation, you pay back all of your debt balances.
With Debt Settlement, you pay back a lower amount (usually around
50%) while the creditor agrees to forgive the remaining balance.
However, with the bogus Credit Card Debt Termination program,
promoters claim that you won't need to pay anything at all (except
their outrageous fees, naturally). They make the surprising claim
that you can legally wipe away your debts simply by using their
super-duper magic documents. Based on some legal mumbo-jumbo, the
claim is made that you really didn't borrow any money from your
creditors!
In order to understand this scam, a little background is necessary. Remember the tax protest movement back in the 1970s? People were claiming that the IRS tax collection system was unconstitutional, and based on their misinterpretation of the tax code, they refused to pay taxes. The IRS came down hard on the tax protest movement, and through the court system, they blew holes in all the legal arguments put forth by the protesters. The Credit Card Debt Termination scam is a lot like the tax protest movement. In fact, among collection professionals, it's called the "monetary protest movement."
Just like the tax protest movement,
there is a common theme that runs through all of the promotional
materials issued by the monetary protestors. The basic idea is
that our Federal Reserve monetary system and generally accepted
accounting principles (GAAP) do not permit banks to loan out their
own money. Therefore, according to their interpretation, the
credit card banks are the ones running the scam on the American
public.
Stay with me here, because the logic is pretty strange. If a bank
cannot lend its own money, how does a credit card bank extend
credit? The claim here is that your credit card agreement itself
becomes a form of money (known as a promissory note) the moment
you sign it. The idea is that the bank "deposits" your agreement
as an asset on their books, and then any credit you use is offset
as a liability against that asset. In other words, the core
concept here is that you literally borrowed your own money from
the credit card bank.
So let's say your balance with ABC Credit Card Bank is $10,000,
which you borrowed against the card to make everyday purchases.
The scam promoters say all you need to do is notify the bank that
you want your original "deposit" back. However, you will permit
the bank to offset the amount you borrowed against the amount you
have on "deposit." Presto! You don't owe the balance anymore!
Now, as you can imagine, the banks don't take kindly to such
tactics. Many of the consumers using this technique are getting
sued by their creditors. But the scammers have more tricks
available, as if the "smoke and mirrors" financial nonsense wasn't
enough. One of their techniques is the use of bogus "arbitration"
forums. Arbitration is of course a legitimate system that allows
businesses and individuals to resolve disputes without going to
court. What do the scammers do? They coach people on how to set up
a fake arbitration forum, for the express purpose of making a
dispute against their creditors! Naturally, the creditors will not
send representatives to some non-existent arbitration forum, so
the consumer gets to rubber-stamp their own arbitration award. If
they get sued in a regular court, they present their bogus award
to the judge in the hopes that the creditor's lawsuit will be
dismissed.
There are other techniques used by promoters of this scheme, but
the key point to remember is the central claim that your credit
card debt does not really exist. Of course, it's all nonsense
based on a misinterpretation of our monetary system, and if you
step back and think about for a minute, the truth seems pretty
obvious. What these scammers are saying is that the entire $700
billion credit card industry is operating on an illegal basis!
Even if the legal theory used by the promoters were true (which it
isn't), do you think for a moment the government would allow this
giant industry to go under? That's exactly what would happen if
the promoter's claims were proven true and used on a widespread basis.
The Federal Trade Commission, which has jurisdiction here, hasn't
stomped on these con artists yet, but it's only a matter of time.
Unfortunately, in the meanwhile, consumers are being bilked out of
millions of dollars for a worthless program that will only get
them into deep trouble with their creditors. If you are approached
by someone offering to wipe away your debts using this system, I
strongly recommend you run in the other direction while you hold
on tightly to your wallet or purse.
Remember, you can eliminate your debts if you take a disciplined
approach to your finances, make a budget and stick to it, and
don't use your credit cards unless you can pay off new balances in
full each month.
Good luck in your financial future!