Alert 2007-55| September 5, 2007

Debt Elimination Fraud: Fraudulent Debt Elimination Schemes

To

Chief Executive Officers of All National Banks; All State Banking Authorities; Chairman, Board of Governors of the Federal Reserve System; Chairman, Federal Deposit Insurance Corporation; Director, Office of Thrift Supervision; Conference of State Bank Supervisors; Deputy Comptrollers (districts); Assistant Deputy Comptrollers; District Counsel; and All Examining Personnel

The Office of the Comptroller of the Currency (OCC) is aware that the volume and variety of fraudulent schemes supposedly designed to "eliminate" debt is increasing. These schemes are being promoted via the Internet and in seminars throughout the United States. The fraudulent schemes are being marketed to ordinary people, not just the wealthy or sophisticated, including borrowers who are current on their payments and those approaching foreclosure.

The persons perpetrating the fraudulent schemes claim that they can eliminate borrowers’ various types of debt, including mortgages, credit card balances (including balances on cards issued by nonbank companies), student loans, auto loans, and small business loans. The variations on these schemes are endless.

A recent variation includes the fraudulent use of the OCC’s 3-page Customer Complaint Form (form). The form is included in the package of documents provided to the victim, falsely adding another pretense of legitimacy to the worthless program. The victim is told to sign only the third page of the form, not to date it or complete any other information requested on the form. The date, customer, and financial institution information will be completed by the perpetrators. The form is subsequently completed and filed with the OCC falsely stating that the financial institution has acted improperly with regard to the victim’s account.

These schemes are designed to defraud victims of an up-front fee, which typically ranges from $400 to $7,500. As a result of using a fraudulent scheme, victims could lose money and property, and damage their credit record. In addition, the creditor may take additional legal action against a borrower to resolve a fraudulent attempt to eliminate a borrower’s debt.

A second, extremely harmful, potential result of participating in any of these illegal schemes is the theft of a victim’s identity . Based upon the information provided to the perpetrators in a scheme, they may be able to steal a person’s identity and run up substantial new debts before the victim is aware of the theft. Resolving identity theft issues is an extremely difficult and time-consuming matter.

The following are sample variations of the fraudulent processes used to fool borrowers into paying money to "eliminate" debt:

  • A phony arbitration award from an arbitrator not authorized under the debt agreement;
  • The use of a nonexistent "trust account" supposedly held in a person’s name at the United States Department of the Treasury or some other part of the federal government;
  • The substitution of a debt instrument issued by a company, group, trust, or person for the obligor’s original note or account at the creditor;
  • The substitution of a fictitious U. S. government debt instrument, which claims to be payable or authorized by the United States Department of the Treasury or a related person or entity, for the obligor’s original note or account at the creditor;
  • The substitution of a fictitious U. S. government financial instrument, which references an account located at the United States Department of the Treasury or with a related person or entity, for the obligor’s original note or account at the creditor;
  • The substitution of a fictitious U. S. government debt instrument, which requires an official to authorize or refute the authenticity of the instrument, for the obligor’s original note or account at the creditor;
  • A notice to the creditor that the contract or note is illegal and, therefore, the borrower does not have to pay the debt and may even be entitled to a compensatory award; and
  • A notice to the creditor that the creditor does not have authority to “lend its credit” to the obligor and has violated the law, and therefore, the borrower does not have to pay the debt and may even be entitled to a compensatory award.

These schemes have no substance in law or finance. No one can eliminate an obligation to pay a debt, simply by paying someone a small fee, relative to the debt to be eliminated.

In the guise of educating borrowers, these schemes provide inaccurate or distorted information about applicable laws and finance. Some examples of inaccurate information from these schemes include the following:

  • Borrowing is a con game whereby a borrower’s debt is money "created" by and owed to the borrower.
  • A borrower’s debt is an asset of the creditor owed to the borrower.
  • Secret information or laws can be used to eliminate debt.
  • Banks and other creditors do not have the authority to lend money or issue credit.
  • Three or more persons can set up individual arbitration companies, create an arbitration award for a fraction of the debt owed, have the award certified by the two other companies, and submit the award and payment to the creditor in satisfaction of the total debt.

Consumers who receive counterfeit or fictitious items and associated material should file complaints with the following agencies, as appropriate:

  • U.S. Department of the Treasury, Office of Inspector General (OIG): by telephone at (800) 359-3898 or by visiting the OIG website.
  • Federal Trade Commission (FTC): by telephone at (877) FTC-HELP or, for filing a complaint electronically, via the FTC's website.
  • National Consumers League (NCL): by telephone at (202) 835-3323 or by email. To file a fraud complaint, visit the NCL fraud website.
  • Better Business Bureau (BBB): The BBB system serves markets throughout Canada, Puerto Rico, and the United States and is the marketplace leader in advancing trust between businesses and consumers. The website offers contact information for local BBBs, objective reports on more than 2 million businesses, consumer scam alerts, and tips on a wide variety of topics that help consumers find trustworthy businesses and make wise purchasing decisions.
  • Federal Bureau of Investigation Internet Crime Complaint Center (to report scams that may have originated via the internet).
  • If correspondence is received via the U.S. Postal Service, contact the U.S. Postal Inspection Service by telephone at (888) 877-7644; by mail at U.S. Postal Inspection Service, Office of Inspector General, Operations Support Group, 222 S. Riverside Plaza, Suite 1250, Chicago, IL 60606-6100; or via the online complaint form.

Additional information concerning this matter that should be brought to the attention of the Office of the Comptroller of the Currency (OCC) may be forwarded to

Office of the Comptroller of the Currency
Special Supervision Division
400 7th St. SW, Suite 3E-218; MS 8E-12
Washington, DC 20219
Phone: (202) 649-6450
Fax: (571) 293-4925
www.occ.gov
occalertresponses@occ.treas.gov

For additional information regarding other types of financial fraud, please visit the OCC's anti-fraud resources page.


Richard C. Stearns
Director for Enforcement & Compliance