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Beware of Misleading Debt Elimination Schemes

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The promise to wipe out your debt may seem like a dream come true as living debt free is the goal of many consumers. But the debt relief industry is like all other industries; there are some good players and some bad players.

Beware of schemes that claim your debt can be eliminated, you could end up adding to financial woes. While many debt relief companies can actually help you, there are some firms that are nothing but scams looking to take advantage of your vulnerable situation.

In September 2015, the Consumer Financial Protection Bureau obtained a preliminary injunction against World Law Group for running a debt-relief scheme that charged consumers exorbitant, illegal upfront fees. The Bureau alleges the debt-relief scheme falsely promised consumers a team of attorneys to help negotiate debt settlements with creditors, failed to provide legal representation, and rarely settled consumers’ debts. World Law is alleged to have taken $67 million from at least 21,000 consumers before providing any debt-relief services. The case is currently pending.

A more recent case involved a lawsuit filed by the CFPB against Morgan Drexen, a debt relief company that allegedly charged illegal upfront fees and deceived consumers. The court found that the company violated federal law, prohibited Morgan Drexen from collecting any further fees from its customers, and ordered it to pay $132,882,488 in restitution and a $40 million civil penalty.

Here are ways to detect a debt elimination scam.

Bankers’ Acceptance Certificate

Fraudulent Certificates. For a fee an unscrupulous firm may offer you a certificate to present to your bank, claiming that this will eliminate your obligation to repay your mortgage, credit cards, or other debt. The certificates look real and often resemble bankers’ acceptance certificates. A real bankers’ acceptance certificate is a method of payment between banks which is used as a promised future payment. It is accepted and guaranteed by a bank and drawn on a deposit at the bank. Unfortunately any debt elimination plan based on certificates to present to your bank are just a bunch of smoke and mirrors and don’t actually help you discharge any of your debt.

Propaganda and Lies

False Documents. Scam debt elimination companies sometimes falsify documents to make you think creditors have agreed to eliminate your debt. And, they may present you with official looking documents that question the authority of the Federal Reserve and the legitimacy of the United States dollar claiming the “Declaration of Independence” validates their approach.

False Procedures. Scam companies may present consumers with false documents that question the authenticity of financial obligations owed by the consumer. Consumers are duped into believing creditors will either forgive debt or reduce the debt significantly. There are no procedures through the Federal Reserve that eliminate debt for consumers. The Federal Reserve is not involved in any program aimed at eliminating consumer debt obligations.

False Claims. Another scheme is to tell you that your debts are not collectible because only the government is allowed to create money. When it comes to credit cards they may tell you the card issuer created money when they granted you a credit line. Their logic is since only the government can create money, when you used your credit card, no debt was incurred. They claim the debt is between the credit card company and merchant. They may even tell you that you do not have to pay the IRS.

Do not fall for any of this nonsense or you may end up with a bad credit score, a tax lien, a foreclosure and a debt collection company at your heels.

Upfront Fees

For an upfront fee a debt elimination company may fictitiously settle your debts. You may even be encouraged to take out a second mortgage to cover the fee for wiping out your first mortgage and other debts. Do not pay a debt elimination company any upfront money.

How to Avoid and Report Scam Companies

If you think you have been a victim of a debt elimination scam, you can file complaints with:

Federal Trade Commission
Consumer Financial Protection Bureau
Attorneys General by State
Better Business Bureau

Current Internet Schemes identified by the Internet Crime Complaint Center:
Internet Crime Schemes

For Scam Proposals received via the U.S. Postal Service, file a complaint here:
U.S. Postal Inspector Service Mail Fraud

Information on Mail Fraud Scams and Most-Wanted can be found at:
Postal Inspection Service website

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