Tuesday, April 26, 2005

Credit card debt illegal? Don't you believe it!

You're paying your bills online one night and those nasty credit card statements are making you ill. If only there was some way to get rid of them, you daydream.

PING. As if the advertisers were reading your mind up pops an e-mail that reads something like this:

Legally cancel your credit card debt! Totally! Terminated! Completely legal! If you are in over your head in DEBT to credit card companies, we can help you. Student loans or tax liens? Discharge these debts quickly, painlessly, legally and without damaging your credit rating!
Naah -- can't be, you think. Or could it? Should you look into it?

Absolutely not, say credit and legal experts. These kinds of spam and Web ads are just the latest versions of a long-running scheme. Companies promise they'll help you fight the legality of your credit card debt (or mortgage, student loan, tax bill or other debt) for a "small fee," which often is several thousand dollars.

The icing on the cake is that some companies even tell you they'll charge their service fee to your credit card, and then wipe out that debt for you, too.

With the proposed new bankruptcy law on the verge of approval, it will become far more difficult for consumers to qualify for bankruptcy protection -- a development that is almost certain to send more and more consumers scurrying for other answers. The notion that through some obscure law there might be a quick and legal way out of debt will no doubt lure people with credit card problems into these scams.

"Quite frankly, many of these ads and Web sites look legitimate and sound very good," says Bill Hodor, staff attorney for the Federal Trade Commission. "But if a promise sounds too good to be true, it usually is. As a consumer, you really have to be skeptical of these ads."

Hodor says the companies behind these schemes use a variety of tactics to convince consumers that it's possible to erase huge amounts of debt. The so-called legal basis for how this mysterious debt-elimination process can work is said to be based on Title 15 United States Code, Section 1692; the Fair Debt Collections Practices Act, Section 1601; the Fair Credit Billing Act; and the Uniform Commercial Code, Section 203. But the ads never say exactly what it is about those laws that render credit card debt illegal.

"Their ads might say that banks are not really lending you their own money or didn't disclose certain details to you when you applied for the credit card, therefore the credit card company's contract with you isn't legal," he explains. "That's just not true."

For a fee, these companies also say they'll show you how to force your credit card company into legal arbitration so you can get your debt fully discharged. "The truth is that if these kinds of loopholes existed, financial institutions would already have figured out how to close them," says consumer advocate Gerri Detweiler of UltimateCredit.com.

If you pick a fight with your credit card company and decide not to pay your debt, you might, indeed, end up in court.

"But your chance of getting your debt dismissed is close to zero," says Detweiller. "Your credit card contract probably includes a mandatory arbitration clause, and the credit card company gets to choose the arbitrator," she explains. "Those financial institutions will haul you into court in a second, and they will almost always win."

Detweiller says she is familiar with many consumers who have paid exorbitant fees to so-called debt elimination companies, along with legal fees for taking the credit card issuer to court -- and still ended owing every cent of their credit card debt. It's usually a no-win situation for the consumer.

Beware, too, says the FTC's Hodor, of companies who argue that you can send your credit card company a legal-sounding document such as a "Bond for Discharge of Debt" of "Bill of Exchange," along with a minimum debt payment. These companies may say that when your credit-card company accepts one of these documents and cashes your check, they've agreed to eliminate your debt. Not true, says Hodor. In fact, the federal Office of the Comptroller of the Currency, the entity that regulates national banks, has sent out several fraud alerts about this issue.

Keep in mind that these companies are markedly different from legitimate firms that offer debt consolidation or credit counseling services. The companies to watch out for, by contrast, often use phrases such as "totally eliminate debt" or argue that "credit card debt is actually illegal."

The bottom line: "Never, ever respond to spam or other unsolicited ads related to your debt," says Detweiller. "Companies who advertise this way are not going to be trusted financial partners."

Hodor agrees. If you receive e-mail promoting a debt-elimination program -- or if you have unknowingly been taken in by one of these schemes -- you should contact the FTC at its Web site, www.FTC.gov, or by calling 1-877-FTCHELP, he says. While the FTC can't help you get your money back, the agency may use your information in its law-enforcement efforts against suspicious companies. Hodor also counsels you to file a report with your local Better Business Bureau and your state's Attorney General's office.

This and other great debt help articles found at Bankrate.com


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