Card credit debt elimination legal

One of unfortunate outcomes of increased communication via the Internet has been an increase in the dissemination of tax protestor and consumer credit scams. The tax protestor movement has been characterized by outlandish arguments put forth by individuals who deny an obligation to pay taxes. For example, members of this movement claim that a person is exempt from federal income taxes if they are a citizen of a state, United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991) ("Mr. Sloan's proposition that he is not subject to the jurisdiction of United States [because he is a free born, natural citizen of Indiana] is simply wrong"); or that a state's department of revenue may only accept gold or silver for taxation. Peth v. Breitzmann, 611 F.Supp. 50 ("The short answer to this silly argument is that Article I, ?¡ì10, does not limit Congress's power under Article I, ?¡ì8, to declare what shall be legal tender for all debts"). Internet scams that purport to entitle a consumer to not pay a creditor on grounds similar to those cited by the tax protestors are increasingly being made in consumer credit collection matters and are a growing burden to creditors. The intent of this article is to outline several of the Internet scams commonly used in consumer credit collection cases and demonstrate their fraudulent nature.

The credit industry has various names for individuals and groups who use these Internet scams: Posse Comitatus, Freeman, Monetary Protestor, and Militia, among others. As used in this article, the term "Internet scam" denotes consumer credit scams promoted by these groups and individuals over the Internet. Internet scam arguments come in many different forms and embrace various theories. These arguments usually "cut and paste" elements of various laws and common law theories to conclude that a person is magically freed from debt and does not have to pay their creditors. These scam arguments are intended to delay collection action as long as possible.

Many Internet sites and chat groups have been created to advise people on how to avoid payment of debt. These operations usually charge a fee for the "legal pleadings" they provide and should be investigated for the unlicensed practice of law. The domain names of these organizations give insight into their intent: www.eliminatecreditcarddebt.ee, www.debtaid.org; www.debtdispute.com; and www.dlkconsultants.org/D_E_P_Debt_Elimination.html.

The Anti-Discrimination League has a watchdog Web site that tracks similar organizations that have a political message.1

"No Money Lent"

The "flavor of the month" in Internet scam circles is the "No Money Lent" argument. The short version of this argument is that because the bank lent credit to the debtor, and not money, the debtor can repay the creditor in credit. By executing an alleged promissory note, via the credit application, the debtor has paid the creditor and thus is not indebted. The argument is widely disseminated over the Internet and is typified by the passage below:

"Consumers with the right information can force creditors and debt collectors into 'nonpayment' settlement agreements. Why? Because it can be proven by the bank's own accounting records that it lent nothing to the customer, but created money from the customer's promise to pay. This makes the customer the lender, according to the Federal Reserve Bank of Chicago, and entitled to have his 'unpaid debt' reduced by the value of the greatest credit limit.

"The best-kept secret in the banking and credit card business is that banks do not lend anything. When interviewed, several certified public accountants agreed that, 'In a typical checking account, the check writer's account is debited and the seller's account is credited, but in a loan or credit account, no accounts are debited but the customer's account is credited in the amount of the approved credit limit. The bank creates the money from nothing, making the customer the lender.'"2

According to the "No Money Lent" argument, when a debtor defaults on credit, the debtor does not owe any money. In addition, the debtor is entitled to the largest amount of credit extended by the creditor, because the debtor executed a promissory note for this amount. For example, in the dreamland in which these fraudulent people live, if you have a credit card with a $5,000 credit limit, and you default owing $4,000, you not only do not owe the $4,000, you are actually entitled to $5,000. The intention of this mind-boggling argument is to delay collection action by confusing creditors and courts.

The passage below is taken from a typical Internet scam answer to a summons and complaint.

"The credit card company accepted the alleged credit card application as money and deposited the money/credit card application into an account with the respondent's name on the account. This means that the credit card company recorded the credit card application as a loan from the respondent to the credit card company and the credit card company became the borrower. The credit card company never lent one penny to purchase the credit. When the credit card company deposited the funds of newly issued credit into an account, the credit card company credited new money. The credit card company received funds from the respondent. And, GAAP requires that the credit card company record a liability account, crediting the respondent's account, showing that the credit card company owes the respondent the deposited funds just as if the respondent had deposited cash or a payroll check into the respondent's account."

The "No Money Lent" argument was used by debtors in the case of Alcorn and Allen v. Washington Mutual Bank, F.A., 2003 Tex. App. Lexis 5656, (Texas Court of Appeals, 6th District). In its decision, the court stated, "Alcorn and Allen take the position that, when they executed and delivered the home equity note to Long Beach Mortgage Company, the note did not evidence a debt from them to the mortgage company, but instead 'created' money belonging to them that they do not owe to anyone. This is a legally erroneous concept... ." Internet scams frequently cite Federal Reserve publications entitled, "Modern Money Mechanics" and "The Two Faces of Debt."3 Both articles were published by the Chicago branch of the Federal Reserve Bank years ago and are no longer in publication. Internet scams reach ridiculous conclusions from these publications by misinterpreting the articles and ignoring other relevant laws.

Internet scams often rephrase the "No Money Lent" argument by stating there was no consideration given by the credit grantor to create a contract. The argument is that if only credit was lent to the debtor via the debtor's promissory note, then the credit grantor did not risk any of its own funds and there was no consideration to form a contract. The absurdity of the "no consideration" argument is obvious. Federal law defines a loan and extension of credit as all direct or indirect advances of funds to a person made on the basis of any obligation of thai person to repay the funds.4 The fact a creditor lent credit and not money directly to the consumer does not affect the liability of the debtor. By paying merchants for purchases made by a cardholder, creditors provide the necessary consideration to create an enforceable contract.

Truth in Lending

The over-achieving members of the Internet scam movement have spun the "No Money Lent" argument into a Truth in Lending Act violation or a violation of other consumer protection laws. According to this argument, if the "No Money Lent" argument is held as the truth, then the creditor has failed to disclose a material fact. The material fact being that the creditor risked none of its own assets because it lent credit via the borrower's note. This argument is gibberish on top of gibberish. A creditor does not have to lend money directly to a debtor in order to create a liability. The issuance and use of credit are sufficient to create the liability. Under Regulation Z, 12 C.F.R. 226.12, footnote 1, a contract and binding obligation are formed through the use of the credit. By using the credit, the debtor agreed to the terms and conditions of the credit agreement.

An effective technique, when a debtor alleges a Truth in Lending Act violation, is to demand the person state specifically what portion of the Act has been violated. Debtors using these Internet scams claim broad sweeping allegations of fraud and misrepresentation in order to create doubt as to their liability. Once these individuals are forced to lay out the specifics of lheir arguments, the baseless nature of their ludicrous claims becomes obvious.

The FCBA Scam