Rocky Mountain Bank & Trust / Global Client Solutions – FDIC SHOCKER!

Here is an event I totally missed but thanks to a recent suit against debt settlement company GHS Solutions the FDIC action against Rocky Mountain Bank & Trust which operates in conjunction with Global Client Solutions can be reveled.

Apparently the Federal Deposit Insurance Corporation (FDIC) felt the relationship between Rocky Mountain National Bank & Trust and their debt settlement clients created an “unsafe and unsound banking practice.” – Source

As part of the cease & desist order from the FDIC, Rocky Mountain Bank & Trust, which handles a large number of escrow accounts for debt settlement companies, was ordered to:

13. (a) As of the effective date this ORDER, the Bank’s board of directors shall provide adequate and effective oversight over the Bank’s third-party relationships, specifically focusing on monitoring the activities of third-party payment processors and their customers, who are referred to herein as Debt Settlement Companies (“DSC”).

(b) Within 60 days after the effective date of this ORDER, the Bank shall review, revise, and implement its third-party policies and practices to ensure their effectiveness. At a minimum, the policies and practices shall:

(1) Ensure the Bank’s compliance with Federal and state consumer protection laws, regulations, and policies;

(2) Ensure the appropriate assessment, measuring, monitoring, and controlling of third-party risk as set forth in Financial Institution Letter 44-2008 (Guidance for Managing Third-Party Risk);

(3) Require the development of internal monitoring procedures to:
(i) Ensure ongoing review of each payment processor, ACH originator, and DSC;
(ii) Maintain documentation demonstrating that each payment processor, ACH Originator, and DSC’s activities are beneficial to consumers;
(iii) Ensure that payment processors, ACH originators, and DSCs rectify harmful consumer activity or the Bank shall cease operations with the payment processor, ACH originator, and/or DSC;
(iv) Ensure that disclosures provided to consumers accurately reflect the obligations by and among the Bank, payment processors, ACH originator(s), and consumers,
(v) Ensure that marketing materials of payment processors, ACH originator(s), and DSCs comply with consumer protection laws and regulations; and
(vi) Ensure that payment processors, ACH originators, and DSCs address consumer complaints and take all necessary corrective actions in a timely manner.

I think the sections I bolded are the most interesting in light of the intense regulatory pressure the debt settlement industry is under and the fact the debt settlement industry is not able to demonstrate the services overall are beneficial to consumers and many of the debt settlement companies, including some I have written about, engage in advertising that misrepresents the services offered.

I wonder how much exposure Global Client Solutions and Rocky Mountain Bank & Trust have in light of what appears a failure to comply with the FDIC order. Interesting.

What makes this matter even more intriguing is the recent appeal that Global Client Solutions and Rocky Mountain Bank & Trust filed to attempt to avoid being included in a class action lawsuit against Freedom Financial Network, and Freedom Debt Relief. – Source

In that request to be kicked out of the suit Rocky Mountain Bank & Trust makes the allegation they should not be included in the suit since Freedom Debt Relief is a different company from them and they provide “certain Account management services” and not debt settlement. But I’m curious how Rocky Mountain Bank & Trust could have continued to offer services to Freedom Debt Relief with the problems they have faced and still be in compliance with the desires of the FDIC.

“Moreover, neither GCS nor RMBT have any involvement in the settlement or negotiation of debts and no communication with creditors,” the appeal says.

What’s interesting is the law firm Global Client Solutions and Rocky Mountain Bank & Trust are represented by are Greenspoon Marder, P.A. which employs Robby Birnbaum, Esq. who is also the president of The Association of Settlement Companies (TASC). – Source

You would think if RMBT wanted to distance themselves from their debt settlement partners they would have picked a different firm.

Here is the underlying opinion by the judge granting the class action case against Freedom Debt Relief, Andrew Houser, Bradform Stroh, Global Client Solutions and Rocky Mountain Bank & Trust.

“The subject of this litigation is the legality of a debt reduction program offered by defendants. On December 29, 2008, this lawsuit was initiated in the Orange County Superior Court. It was removed to the Central District of California based on federal question and supplemental jurisdiction, 28 U.S.C. §§ 1331 & 1367(a), and was, on defendants’ motion, transferred to this Court pursuant to 28 U.S.C. § 1404(a) on July 9, 2009. The operative version of plaintiffs’ complaint is the Second Amended Complaint (“SAC”), filed January 6, 2010. Named plaintiffs Haidee Estrella (“Ms. Estrella”) and Angelica Arita (“Ms. Arita”) seek redress on behalf of themselves and “all consumers nationwide who paid defendants for debt reduction services during the four years preceding the filing of the complaint.” SAC ¶ 47.

Plaintiffs describe defendants’ conduct as follows. Defendants Freedom Financial Network, LLC, Freedom Debt Relief, Inc., and Freedom Debt Relief, LLC (collectively “FDR”), along with FDR’s Chief Executive Officers Andrew Housser and Bradford Stroh, offer a debt reduction service. FDR’s advertisements describe its service as “an innovative solution for consumers struggling with large debt burdens and who need debt relief.” SAC ¶ 27. FDR also advertises to consumers that they can be “debt free in as little as 12-36 months,” that FDR can “lower debts down to as low as 50% of what you owe” and that FDR offers a “service fee money back guarantee.” Id. Upon enrolling in the program, the consumer signs a contract and authorizes an automatic monthly transfer of funds from the consumer’s existing bank account to a new Special Purpose Account (“SPA”). After sufficient funds have accumulated in the client’s SPA, FDR contacts the client’s creditors and attempts to negotiate a settlement of the client’s debt for less than what is owed. SAC ¶ 10. Part of the FDR contractual agreement also provides that clients will pay FDR a retainer fee and service fee equal to approximately 15% of their existing debt with the breakdown being approximately 10% for the service fee and 5% for the retainer fee.2 SAC ¶ 13. These fees are paid directly from the client’s SPA; the retainer fees are deducted over the first four months and the service fees are deducted over the following fifteen months. SAC ¶ 13; FDR Ex. C, D.

The evidence shows that approximately 95% of consumers who enrolled in FDR’s program opened their SPA with defendant Rocky Mountain Bank and Trust (“RMBT”). Plaints’ Ex. 42 (“Staley Depo.”), 51:5-53:12. Defendant Global Client Services (“GCS”) acts as an agent for RMBT and is the party that facilitates the release of the clients’ funds to both the creditors and to FDR itself. Mot. Class Cert., 5-6.

At the outset of the agreement, the clients sign authorization forms that allow defendants to
transfer money from clients’ SPAs to pay creditors and FDR. Id. 7, 11-13. Prior to 2008, GCS and FDR allegedly did not require express authorization from the client prior to disbursing the client’s funds to creditors in settlement of their debt. Beginning in early to mid-2008, however, a new policy was implemented for clients residing in California, such that express authorization was required before the settlement could be paid.

Plaintiffs also allege that FDR represents to its clients that when it settles the client’s debt it will “request that [the consumer’s] creditors report to the credit rating bureaus that [the consumer’s] accounts are ‘settled in full,’ ‘settled,’ ‘paid,’ or ‘settled for less than the full amount.” SAC ¶ 39. Plaintiffs allege that such representations give the consumer the idea that FDR “will attempt to alter the consumer’s credit report” as part of its services. Id.

Plaintiffs Ms. Arita and Ms. Estrella are residents of California, both of whom contracted with FDR in 2008 for debt reduction services and contractually agreed to pay retainer fees and service fees equal to approximately 15% of their debt as described above. Ms. Estrella canceled her contract with FDR after two months, and though she was offered a partial refund of her money, she refused. Estrella Depo. 43:2-45:15. Ms. Arita cancelled her contract with FDR on August 11, 2009. Houser Decl. ¶ 78. The complaint alleges that Ms. Arita never received any debt relief; however, evidence now shows FDR was able to negotiate a settlement with one of her creditors for an amount equal to almost half of what she owed. SAC ¶ 30; Arita Depo. 58:5-20. Ms. Arita was allegedly offered a full refund of the fees she paid but refused to accept the offer. Houser Decl. ¶ 79.

The FDR contract contains a provision stating that “[t]his Agreement is governed by the laws of the State of California, without regard to the conflict of law rules of that state.” See Epstein Decl. Ex. A, FFN 006562; Ex. B, FFN 048974. Moreover, FDR is headquartered in California and plaintiffs aver that FDR’s conduct occurs in California as well. Plaintiffs thus claim that California laws apply to FDR in its relation with not only California consumers, but also consumers in other states. Moreover, plaintiffs contend that because California law applies to FDR, it also applies to RMBT and GCS, who allegedly acted as co-conspirators in FDR’s plan. Presently before the Court is plaintiffs’ motion to certify a nationwide class. – Source”

And I guess that who co-consirator link was exactly what the FDIC was concerned about.

Sincerely,


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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