The "Credit Card Debt Termination" Scam
By: Charles Phelan
"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
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!
About the Author:
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. http://www.zipdebt.com