Global Client Solutions and Rocky Mountain Bank & Trust were named in a case that had been filed back in May of 2010. The two entities have tried to get out by enforcing an arbitration clause, but the judge didn’t agree.
On February 17, 2010 Judge Heyburn issued an opinion regarding the requests to dismiss GCS and Rocky on the grounds that neither was a debt adjuster according to the statute. The judge did not agree again.
Defendants, Global and RMBT, have made strong motions to dismiss, primarily on the grounds that neither is a debt adjuster within the meaning of the statute. Essentially, Defendants argue that while they may act as the bank for and agent of one, such as GHS, which is a debt adjuster, neither of them may be so identified.
The Amended Complaint quite clearly alleges that Global, GHS and RMBT have collectively entered the “Debt Adjusting Business” within the meaning of the Kentucky statutes. It sets out a variety of individual acts by each and alleges that Defendants essentially purposefully coordinated their debt collection efforts. Defendants’ responses suggest that they both deny some of these factual allegations or disagree with the legal conclusions which Plaintiffs draw from them. Nevertheless, this Court concludes that the allegations are sufficient at this point in time to assert plausible grounds for causes of action under both Kentucky’s Debt Adjustment Act and its Consumer Protection Act. Whether the claims under these two statutes are ultimately viable must await discovery and the application of legal principles to the established facts. The Court does not see that it would be helpful or reasonable to identify the parameters of the statute prior to knowing more about the precise role which Global and RMBT may have played. The Court concludes that dismissal is premature. – Source
The Amended Complaint alleges that “Defendants are engaged in a continuing class-wide predatory business scheme to financially enrich themselves and deceive and defraud Kentucky Class members by violating Kentucky’s Debt Adjusting Act (“DAA”); by the commission of unfair and deceptive practices in violation of Kentucky’s Consumer Protection Act (“CPA”); and, by aiding and abetting in and conspiring to violate the DAA and CPA.”
While this Kentucky class action case also involves GHS Solutions out of Florida, the more interesting component are the claims that Global and Rocky aided and abetted GHS Solutions and therefore should remain a part of the claims made by consumers.
The Amended Complaint states:
- All named defendants are engaged in “debt adjusting” within the meaning of the DAA.
- GHS adjusts, compromises, and settles debts for consumers, offers debt elimination and debt management programs, and actually or constructively receives funds and disburses them to the consumers’ creditors.
- GHS offers debt settlement programs to Kentuckians who want to reduce or eliminate their debt. GHS uses standardized debt settlement program materials that include agreements with Global and RMBT.
- Global is in the business of receiving funds for the purpose of distributing those funds among creditors in payment or partial payment of obligations of debtors, including Plaintiffs and Class members.
- Global, in partnership with RMBT, maintains and manages debt settlement accounts that are a component part of, and integral to the operation of, debt settlement programs offered by hundreds of companies, including GHS, engaged in the business of settling, adjusting, prorating, or liquidating the indebtedness of debtors, including Class members.
- Global was formed to open “special purpose accounts” for consumers entering into debt settlement programs.
- Global – both currently and in the past – holds itself out as providing services to debtors in the elimination and management of their debts.
- By way of example, and without limitation, Global has held itself out as providing the following services to debtors like Plaintiffs and Class members:
- Despite claiming that it acts solely as an electronic processing agent for financial institutions, Global represents that it “is a dedicated service provider to consumers and their debt settlement companies, providing account management services that enhance the integrity and efficiency of their debt reduction process.” (emphasis added).
- Global touts that it can help people “get out of debt.”
- Global markets its services to consumers entering into debt settlement programs.
- Global claims that its “progrram [sic] was built specifically for the debt management industry to create a positive environment of success for both the consumer and the debt management company.”
- Global touts its “recent acquisition of a debt negotiation software company.” [Debt Manager software, see below.]
- Global markets its services to consumers by describing the “Global System” as helping the consumer “to start saving the funds to pay off your debts;” and, to help “you save money by automatically withdrawing your monthly payment from your designated bank account and depositing them into your Special Purpose Account;” and, that Global can “disburse your approved settlement payments to your creditors;” and, Global will “remit any fees you agreed to pay to your debt settlement company.”
- Despite Global’s claim that it acts solely as an electronic processing agent for financial institutions, Global acknowledges that its customers are the debtors – that is, Plaintiffs and Class members. Nevertheless, Global willingly deducts the illegal fees described below from its customers’ accounts and sends them to GHS, an unlicensed and unregistered debt settlement company.
- Global and RMBT are both obligated to comply with consumer protection laws applicable to the consumer accounts and their business practices.
- Global and RMBT formed a business enterprise in 2004, the central activity of which was to aid and assist debt settlement companies with whom Global partnered in the promotion and carrying out of debt settlement programs directed at consumers in debt.
- RMBT knew the purpose of the funds being deposited into and moved out of the custodial account it opened in Global’s name. Specifically, RMBT knew that the funds were being deposited and moved out of Global’s account for debt settlement plans with debt settlement companies.
- RMBT was subject to an Order to Cease and Desist (“C&D”) by the Federal Deposit Insurance Corporation (“FDIC”) effective April 2, 2009. The C&D ordered that RMBT cease and desist from engaging in “unsafe or unsound banking practices” including, maintaining appropriate safeguards for compliance with consumer protection laws. This occurred at the very time Plaintiffs were convinced to enter into Defendants’ debt settlement program.
- The C&D was directed specifically at RMBT’s relationship with Global. The C&D orders changes to RMBT’s relationship with “Debt Settlement Companies” and ordered it to cease and desist “[o]perating the Bank with a large concentration of deposits to one entity.” That one entity was Global. In fact, Global’s custodial account at RMBT represented 40%-50% of RMBT’s total deposits.
- The C&D, among other things, directed that RMBT
- Ensure RMBT’s compliance with state consumer protection laws and regulations as they relate to debt settlement companies;
- Ensure ongoing review of debt settlement companies and payment processors such as Global and ACH originators such as Global;
- Ensure that payment processors, such as Global, and ACH originators, such as Global, rectify harmful consumer activities, or RMBT shall cease operations with such payment processors, ACH originators, or debt settlement companies, such as those with whom Global contracted pursuant to RMBT and Global’s business enterprise;
- Ensure that disclosures provided to consumers accurately reflect the obligations by and among RMBT, payment processors, such as Global, ACH processors, such as Global, and consumers;
- Ensure that marketing materials of payment processors, such as Global, ACH originators, such as Global, and debt settlement companies, such as those with whom Global had contracted, comply with consumer protection laws and regulations; and
- Ensure that payment processors, such as Global, ACH originators, such as Global, and debt settlement companies, such as those with whom Global has contracted, take all necessary corrective actions in a timely manner.
- RMBT also benefited financially from the business enterprise with Global in that RMBT held interest-free tens – if not hundreds – of millions of dollars of aggregated funds deposited by Global.
- At one point, RMBT even paid Global a “marketing fee” because Global had deposited so much money into its custodial account that RMBT did not need to spend its own assets to seek deposits into the bank.
- The relationship between Global and RMBT was far from a normal, run- of-the-mill third-party processing relationship or even banking relationship.
- RMBT was ordered by the FDIC to ensure its compliance with “state consumer protection laws, regulations, and policies” and that its clients “rectify harmful consumer activity.”
The complaint also makes some interesting statements made by GHS to the consumers.
- GHS marketed a “Debt Elimination program” describing itself as “the premier debt negotiation company in the industry.” In fact, GHS represented that it could settle $25,000 of debt for Plaintiffs with a total cost under its program of only $13,750.
- GHS wrote to Plaintiffs representing that it charged “one of the lowest fees in the industry.”
- GHS also emphasized that it was 1 of only 20 debt settlement companies accredited by The Association of Settlement Companies (“TASC”). GHS represented TASC to be “the closest thing we have to regulation in this industry.”
- During the 11 months that Plaintiffs depended on Defendants to resolve their debt:
- Nothing ($0.00) was paid to Plaintiffs’ creditors;
- Not one letter was sent by Defendants to Plaintiffs’ creditors;
- Plaintiffs’ creditors continued to hound them for the collection of their debt;
- Defendants undertook no action to settle Plaintiffs’ debts; and,
- Plaintiffs were left with the same creditors, owing more to each.
- Global was a fiduciary of Plaintiffs’ and Class members’ funds deposited into its custodial account.
- Despite this fiduciary status, Global disbursed funds of Plaintiffs and Class members for fees while it knew – or should have known – that the amount and timing of those payments were illegal and even criminal.
- In April 2009, just days after Plaintiffs’ funds were first deposited into Global’s custodial account, Global moved funds owned by Plaintiffs and other Class members without their consent or even their prior knowledge to another location.
- Then again, in August 2009, without prior notice to Plaintiffs or Class members, Global moved Plaintiffs’ and Class members’ funds into a custodial account in the name of Global held at Bank of Oklahoma, in Tulsa, Oklahoma.
- In fact, Global unilaterally moved Plaintiffs’ funds as a consequence of the FDIC Cease and Desist Order.
- To conceal the circumstances of its transfer, Global issued materially false letters to Plaintiffs and Class members that deceptively represented that “This change is part of Global’s ongoing process of expanding our banking partnerships, improving our services and efficiencies, and continuing to protect the interests of our customers.”
- Defendants failed to advise Plaintiffs or Class members of the C&D, failed to advise Plaintiffs or Class members that the marketing materials did not comply with consumer protection laws and regulations, failed to advise Plaintiffs or Class members that the disclosures did not accurately reflect the relationships between RMBT, Global, and debt settlement companies, failed to advise Plaintiffs or Class members that Kentucky consumers had been subjected to harmful consumer activities by debt settlement companies with whom Global had contracted, and failed to advise Plaintiffs or Class members that corrective actions had been ordered by the FDIC and that Global’s transfers were made as a result of those ordered corrective actions.
- Beginning in August 2009, and without prior notice to Plaintiffs or Class members, Global began making electronic transfers of monthly payments from Plaintiffs’ and Class members’ Kentucky bank accounts into the custodial account of Global at Bank of Oklahoma. – Source
Debt Manager Software
The complaint touches briefly on one issue about the Global acquisition of the Debt Manager software program and it appears they are the sole owner of that company after taking it over. Robert Hunter and the address listed on the corporate ownership documents are both related to Global. – Source
One argument is that the software is simply a computational conduit to manage client accounts with Global. If that’s the case then there would be no need for sales functions like measuring “closes” or to provide “Sales Module including lead monitoring, task management and appointment calendar.” – Source
The software owned by Global Client Solutions even promotes playing an integral and important role in the selling of debt settlement services.
Sales and Sales Management
Debt Manager will handle many aspects of sales, including remote offices, from a central location. Distribution of leads can be controlled by a sales or marketing Manager who can assign leads with Debt Manager’s user-friendly point-and-click interface.
Sales leads can be tracked in real time using sales and sales management reports. Sales reps will enjoy self-management reports that track the progress of their work, and managers have access to aggregate reports for monitoring of the steps leading to a close for all sales reps individually as well as for the entire sales force. – Source
This case and the issues surrounding the interconnectivity of all of the named entities will be one to keep an eye on.
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