Circular
Debt Elimination Scams
February 9, 2004
Circular No. 11575

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

The Federal Reserve Board 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 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. 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.

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.

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, the institution is expected to file a Suspicious Activity Report (SAR) in accordance with the Board's suspicious activity reporting rules.

The Board issued a supervisory letter (SR 04-3) dated January 28, 2004 providing more details related to the scam.

SR letter (04-03) OFFSITE
SAR rules OFFSITE PDF
3 pages / 49 kb

Contact:
John Ricketti
Vice President
Legal and Compliance Risk Department
John.Ricketti@ny.frb.org