Regular readers of the ZipDebt Blog know that I routinely warn consumers about the notorious “debt elimination scam.” This is the type of program where the promoters claim that you never actually borrowed any money on those credit cards, because … wait for it … your signature on the credit card application is worth exactly as much money as the credit limit extended to you.
Essentially, the core of the argument made by these people is that credit card debt is not *real* money. Yet they are usually more than happy to accept payment of their huge fee ($2,500 minimum, and usually a *lot* more) by having you take a big cash advance against one of your credit cards with no plan to repay it. That’s fraud, of course, but they don’t seem to mind one little bit.
I write today about a “new” variation on this debt elimination scam. I put “new” in quotes because this latest crop of con-artists are promoting it as such, yet it’s really been around for a very long time. The twist on the debt elimination scam is one where the company *takes over the debt obligation itself*! They make the claim that through contractual law procedure, they can use the banks’ own contracts to assume your debt liability and then deploy their arsenal of secret legal tactics to force the bank to discharge the obligation. Presto! Like magic, your debt is erased.
It’s all still based on the bogus “no money lent” argument that has been rejected repeatedly by the courts, and warned against by the Office of the Comptroller of Currency. Let’s see. Who should you believe? The “network marketing” sales agent trying to make a buck off you, or an agency that is part of the Federal Government? Tough call, right?
Anyway, this new variant on the debt elimination scam is all wrapped up in legal-sounding jargon and packaged into a very convincing sales pitch. But the notion of altering the terms of the contract is not new at all. It’s been around for years and it’s called “novation.” Novation is nothing more than the substitution of a new contract for an old contract, often involving a change of parties to the transaction. Another relevant legal term is “assignment,” where contractual rights are transferred outright from one party to another.
The problem for the scammers is that novation requires that all parties to the contract must consent to the novation. And the banks have language in their agreements that precludes “assignment” of the debt to another party in the way that the debt elimination folks want. So how do they get the bank to agree to such a change? By using a technique called “accord and satisfaction.”
The way it works (in theory) is that you send the bank a payment with “restricted endorsement” language. That’s where you write a bunch of legal mumbo-jumbo on the back of the check, which basically says, “If you cash this, you agree to all these modified terms.” The theory is that this creates a brand new contract. The thinking is that the bank will not catch this, since they process so many thousands of checks every day. So the idea is to “fool” the bank into accepting the new terms. Supposedly, you can build into the “new contract” all kinds of clauses that work in your favor.
Accord & satisfaction, of and by itself, is not actually a scam. It is a legitimate legal concept often used to settle contractual disputes between parties. But the way it’s employed by “debt elimination” scammers is definitely bogus. Most states have their own version of legislation that protects creditors from such nonsense. In California, for example, you have to send such a notice in the form of a letter, and it must be sent to the corporate correspondence address, and NOT to a regular high-volume payment center. Further, the creditor has up to 90 days to reject such a payment and return it due to an unacceptable restriction on the endorsement. So you cannot legitimately smoke this by a creditor and expect any success thereby. Here is a link to the relevant California Code on accord and satisfaction.
There was a debt company called Briggs & Baker that got shut down by regulatory authorities for routinely practicing this type of scam. Here is the FTC press release that discusses official action against this pair of thieves. It reads a lot like some of the complaints against debt settlement companies, but this outfit was basically practicing the “accord and satisfaction” trick, obviously with very little success. It’s only a matter of time before the outfit peddling this latest incarnation of the debt elimination scam gets a visit from their friendly state Attorney General’s office or a legal team from the Federal Trade Commission. Let’s hope it happens sooner rather than later!