"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!
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 people become debt-free without bankruptcy since 1997.
A former executive in the debt settlement industry, he teaches the do-it-yourself method
of debt negotiation. Audio-CD material plus expert personal coaching helps consumers achieve
professional results at a fraction of the cost.