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!
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
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
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
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 management firms, he is the author of the Debt Elimination
Success Seminar™, which provides
comprehensive instruction in do-it-yourself debt settlement that
saves $1,000s in fees.
Click Here to Learn More