“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!
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