The Credit Card Debt Termination Scam
"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 $1,000s for this bogus service. One
victim I spoke with lost more than $15,000! 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!
Charles J. Phelan has been helping consumers become debt-free without
bankruptcy since 1997. A former senior executive with one of the nation's
largest debt settlement firms, he is the author of the Debt Elimination
Success Seminar?, a five-hour audio-CD course that teaches consumers how
to choose between debt program options based on their financial situation.
The course focuses on comprehensive instruction in do-it-yourself debt
negotiation & settlement designed to save $1,000s. Personal coaching and
follow-up support is included. Achieves the same results as professional
firms for a tiny fraction of the cost. http://www.zipdebt.com/article2
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