ANALYSIS: The League has heard of three baffling letters members have sent to their credit unions in Wisconsin recently that have made doubtful assertions. Please be alert for scams.
Each letter presented recently is different, with various claims and arguments. But they all seem like they could be from people who consider themselves to be “sovereign citizens.” We can provide descriptions of the sovereign citizen movement, but we are not claiming that any particular member is part of that movement or shares any particular belief with others described as sovereign citizens. In fact, some members may be duped into paying third parties for questionable ways to eliminate their debts with fanciful means of payment.
Sovereign Citizens
Wikipedia says: “The sovereign citizen movement… is a loose grouping of litigants, activists, tax protesters, financial scheme promoters, and conspiracy theorists who claim to be answerable only to their particular interpretations of the common law and believe that they are therefore not subject to any government statutes or proceedings, unless they consent to them.”
According to Wikipedia: “The sovereign citizen phenomenon is one of the main contemporary sources of pseudolaw: adherents to its ideology believe that courts have no jurisdiction over people and that the use of certain procedures (such as writing specific phrases on bills they do not want to pay) and loopholes can make one immune from government laws and regulations. They also regard most forms of taxation as illegitimate and reject the use of such things as Social Security numbers, driver’s licenses, and vehicle registration. Sovereign citizen arguments have no basis in law and have never been successful in court.”
Recent activity
One credit union recently received a letter claiming it was sending Certified Funds to pay off the member’s loan, but there was no instrument drawn on a financial institution enclosed. Instead, the member claimed:
As one of the Principals and Creditors of the United States, I am among those who constitute an association nationwide of private, unincorporated persons engaged in the business of banking, with full rights and authority to issue Negotiable Instruments against the obligations of the United States that are due said Principals and Creditors.
The document claimed that the “Certified Funds” the member submitted could be “Redeemed in Lawful Money on demand at the Treasury Department of the United Slates in the City of Washington District of Columbia or at any Federal Reserve Bank.”
This week, another member sent their credit union a “CLEAR AND CONSPICUOUS NOTICE” with the salutation, “DEAR BANKING CORPORATION.” At the end of two pages of rambling and legally incoherent theories, it concludes:
Wherefore, this letter is delivered in order to give knowledge and notice of my position being a financial institution, by the term “you,” that shall ensure that intangible right of honest service is given from my ownership service rights to the Department of Health and Human Services, Vital Record Registrar State File Number [number redacted], Individual Social Security Number Account, identified as a legal person consumer to financial asset products and security interest services, provided by the financial institution under the term ‘you” and “your” on the application of the bank that is an TRANSFER AGENT on behalf of the authorized representative customer.
Such letters are not new, although we may be seeing an uptick. In the 1990s, many Wisconsin credit unions were presented with bogus “Certified Money Orders” originating in Tigerton, Wisconsin, claimed to be valid under the Coinage Act of 1792.
Considerations
If your credit union receives similarly strange and questionable letters and documentation, please consider the following in deciding on your course of action.
- Carefully evaluate the documentation to determine if any purported monetary instruments are legitimate or a scam. Consult such expertise as may be necessary.
- Avoid arguing or confrontations with the member if at all possible.
- Take care not to slander or libel your member if there are any disagreements.
- Advise the member that their account relationship and transactions with the credit union are governed by the documents that the member has agreed to in writing, and not by any notices that the member delivers to the credit union. Receiving the member’s unilateral notices does not constitute the credit union’s agreement to be bound by them.
- File a Suspicious Activity Report (SAR) if you suspect that the member is attempting a crime, such as attempting to make a deposit or loan payment using a bogus financial instrument. Attempting to defraud a credit union is a crime and must be reported if the suspect is known and the amount aggregates $5,000 or more. See ii Release No. 0109 – BSA: Suspicious Activity Reports.
- Consult your attorney if you need legal advice or representation.
- Please share a copy of letters and notices with the Legal Affairs Department at The League, with personal identifiable information redacted. We would like to be aware of trends in such letters.
Compliance Traps
If you receive letters similar to those described, don’t dismiss them too lightly. You might be caught off-guard and overlook serious compliance issues.
Review the letters and notices carefully. Be alert for contents that trigger a compliance requirement or a legal response from the credit union. It is very possible that a letter could trigger a required response by the credit union without the member citing or even being aware of the applicable law.
- Accord and satisfaction. A claim that a debt is paid in full by the credit union’s acceptance of a partial payment. Accord and satisfaction is a legitimate legal concept, but it only applies under certain conditions. A careful evaluation is needed. Accord and satisfaction by a true negotiable instrument is governed in this state by Wis Stats. §403.311 — Accord and satisfaction by use of instrument.
- Bogus payment instrument. Some letters purport to present a coupon or monetary instrument for payment on a loan or for deposit, but where the instrument has no legitimate value. In one recent letter the member asserted that the credit union would be deemed to have agreed that the debt was forgiven if the credit union rejected the phony payment coupon.
- Claim that the credit union is inaccurately reporting a debt to the credit bureau. This may trigger a credit union response under the Fair Credit Reporting Act. See “Duty to Furnish Accurate Information” in ii Release No. 0126 – Fair Credit Reporting Act. The release describes “Duties When Notified by Consumer” of a dispute. But also be aware of the “Duties When Notified by CRA of Consumer’s Dispute.”
If a consumer notifies the credit union that specific information is inaccurate, and the information is in fact inaccurate, the credit union must thereafter report the correct information to consumer reporting agencies. Credit unions may provide consumers with an address to which the consumers may write to notify the credit union that specific information is inaccurate.
If a consumer notifies the credit union that he or she disputes the completeness or accuracy of any information it reported, the credit union may not later report the information to a CRA without providing notice of the dispute.
- RESPA: Error resolution and information requests. 24 CFR §1024.36 sets forth procedures for responding to requests for information regarding a borrower’s mortgage loan covered by RESPA. This includes an exception at §1024.36(f)(1)(iv) that may sometimes apply, for an “Overbroad or unduly burdensome information request.”
- Loan and escrow account inquiries. If the credit union receives loan or escrow payments on behalf of itself or another person must respond to a borrower’s inquiry within 15 days after receiving the inquiry. This law applies to loans secured by a first lien mortgage or equivalent security interest on the borrower’s 1-4 family principal residence. See Wis. Stats. §138.052(7s).
- Wisconsin Consumer Act: Receipts; accounting; evidence of payment. A borrower on a WCA loan may request records of advances and payments on Wisconsin Consumer Act loans/lines. On a family purpose obligation, a non-applicant spouse can also make this request. See Wis. Stats. §422.306.
- The Reg. E – Electronic Funds Transfers Procedures for Resolving Errors at 12 CFR § 1005.11 apply to some disputes and even some mere requests for EFT documentation.
- Reg. Z – Truth in Lending sets forth billing error resolution rules at 12 CFR §1026.13. A billing error notice is a written notice from a consumer that:
- Is received by a creditor at the address disclosed under § 1026.7(a)(9) or (b)(9), as applicable, no later than 60 days after the creditor transmitted the first periodic statement that reflects the alleged billing error;
- Enables the creditor to identify the consumer’s name and account number; and
- To the extent possible, indicates the consumer’s belief and the reasons for the belief that a billing error exists, and the type, date, and amount of the error.
Among other things, the billing error procedures must be followed when a consumer requests additional clarification, including documentary evidence, regarding open-end credit items on a periodic statement.
- UCC Article 9 requires an accurate written response to a debtor’s request for:
– A list of all collateral secured by a given loan.
– A list of all loans/obligations secured by a piece of collateral. (Think cross-collateral, security interests in shares, as well as the primary collateral.)
See “Requests for accounting, list of collateral, or statement of account” in ii Release No. B060 – Overview of Revised Uniform Commercial Code Article 9.
- The Fair Debt Collection Practices Act does not apply to a credit union collecting its own debts in its own name, so will not be addressed here. The Act does apply to a collection agency or attorney acting as the credit union’s debt collector.
League Legal Affairs Attorney’s Conference
Jul 25, 2023 9:00 AM – 3:00 PM, Madison WI – Information and Registration.
The League Legal Affairs Attorney’s Conference brings together attorneys from Wisconsin’s Credit Unions for a day of discussion around Compliance and Legal matters of importance to our members. Please invite your credit union attorney to attend!
Agenda:
9:00 am – 3:00 pm
*More details on sessions coming soon
9:00 am – 9:30 am
Welcome and Coffee
9:30 am – 10:30 am
Paul Guttormsson, Senior Vice President & General Counsel | The League
10:30 am – 12:00 pm
Tom Theune, Director | Office of Credit Unions, DFI
12:00 pm – 12:30 pm
Lunch
12:30 pm – 1:00 pm
John Engel, Director of Legal Affairs | The League
1:00 pm – 2:00 pm
Melissa Caulum Williams | Senior Counsel | Husch Blackwell
Melissa will lead a session on HR Compliance issues
2:00 pm – 2:30 pm
Kim Hoppe, Compliance Resource Analyst | The League
2:30 pm – 3:00 pm
Roundtable Discussion Adjourn
Location:
Credit Union House
1 East Main Street, Suite 101
Madison, WI 53703
Fees:
$179 | Early Bird by July 7
$199 | Regular