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Elimination Scams Letter
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
DIVISION OF BANKING
SUPERVISION AND REGULATION
January 28, 2004
TO THE OFFICER IN CHARGE OF SUPERVISION AND APPROPRIATE SUPERVISORY AND EXAMINATION
STAFF AT EACH FEDERAL RESERVE BANK AND DOMESTIC AND FOREIGN BANKING ORGANIZATIONS
SUPERVISED BY THE FEDERAL RESERVE
Debt Elimination Scams
Board staff has become aware of various illegal schemes being offered to the
public that purport to eliminate outstanding debt through the use of specially
prepared documents. The organizers of these schemes concoct specious legal
documents based on the borrower's debt, which are then presented to the borrower's
bank, mortgage company, finance company, or other lending institution in an
attempt to satisfy the debt. The scams are reminiscent of the tax protesters'
tax evasion schemes seen throughout the 1990s.
The purported legal documents used in the current scams include fake financial
instruments that claim to eliminate the borrower's debt obligation. The instruments
usually question the authenticity of financial obligations, and often refer
to a specific government agency (such as the Federal Reserve) in an attempt
to support their claims. Some of the literature seen by Board staff questions
the legitimacy of the Federal Reserve and the validity of United States currency.
The literature may selectively cite from passages of government publications,
statements by politicians, constitutional provisions, court decisions, various
statutes, and private newsletters to support claims and to ultimately conclude
that a specific government agency sanctions these debt elimination programs.
For example, some of the documents specifically refer to the elimination of
debt through the use of a "Federal Reserve approved" procedure.
Debt elimination programs that claim Federal Reserve approval or acquiescence
and the satisfaction of legitimate debts through the presentation of suspicious
documents are totally bogus. The Federal Reserve does not approve and is in
no way involved in any program aimed at eliminating anyone's debt obligations.
These schemes are proliferating on the Internet, and the organizers are charging
borrowers substantial up-front fees and commissions based on the total amount
of debt that can be forgiven. Members of the public are being harmed as borrowers
generally pay significant amounts of money without eliminating or reducing
their overall debt obligations - which of course is not in fact possible through
any of these programs. Also, the cessation of legitimate loan payments increases
the risk of a foreclosure or other legal action being taken against the borrower,
and in addition could negatively affect a borrower's credit rating. Financial
institutions may find that the use of the specious documents complicates the
collection process, and may at least temporarily prevent any final action against
Examiners and banking organizations should be cognizant of these scams, and
the public should avoid becoming involved with them. Bank holding companies
and state member banks should modify their policies and procedures as needed
to ensure that staff involved in any way in a lending function is able to identify
and respond appropriately to these current schemes. If an institution supervised
by the Federal Reserve is presented with fraudulent documents as described
in this SR letter, the institution is expected to file a Suspicious Activity
Report (SAR) in accordance with the Board's suspicious activity reporting rules.
The banking organization must also retain the written materials associated
with the purported debt elimination scheme as supporting documentation to the
SAR, as required by the Board's SAR rules.
Reserve Banks are asked to distribute this SR letter to domestic and foreign
banking organizations supervised by the Federal Reserve in their districts.
Questions regarding apparent fraudulent debt elimination schemes can be directed
to Leonard Zawistowski, Senior Special Investigator, at (202) 452-6488.