On September 6, 2011, an Illinois class action case was filed by Karen Manczak against Global Client Solutions and Global Holdings. This case is related to another class action suit filed by the same person against First Financial Network.
In this case, it is alleged Global Client Solutions is not a registered Illinois registered debt settlement provider but provides services identified in the Illinois statute as a “debt settlement provider” and “debt settlement services.”
The suit alleges:
GCS is a for-profit limited liability company whose principal business is receiving and holding funds of consumer debtors for the purpose of distributing said funds among consumer debtor’s creditors in partial payment of obligations of those consumer debtors.
GCS provides services related to or providing services assisting a consumer to accumulate funds for the primary purpose of obtaining a settlement, adjustment, of satisfaction of the consumer’s unsecured debt to a creditor in an amount less than the full balance of the debt.
GCS acts in concert with for-profit debt settlement companies (“DSC”) by carrying out activities integral to debt settlement programs marketed to consumer debtors.
Since 2007, Global has been the parent company of and principal owner of GCS. Through its officers, Robert Merrick, Michael Hendrix, and others, Global has exercised actual control and management responsibilities over GCS’s business activities.
Robert Merrick is the co-founder of GCS, the co-founder of Global, the chairman of the board of director of GCS, and chairman of the board of directors of Global.
Michael Hendrix, as the chief executive officer of GCS and the chief executive officer of Global, is responsible for the business development and corporate strategies including sales, marketing, regulatory compliance, and operations. Hendrix directs GCS’s account management activities as they are related to consumer debtors and debt settlement companies.
In these individual capacities, Merrick, Hendrix, and potentially other officers directly participated, instigated, authorized, and approved the wrongful debt settlement activities as alleged in this Complaint.
Global and GCS share a common board of directors, common officers, and common ownership and interests such that they constitute the same single company such that a failure to disregard their separate entities would result in fraud and injustice.
Global was created for the sole purpose of shielding its assets from creditors and the wrongful activities engaged by its subsidiaries, including those by GCS.
GCS, along with other subsidiaries—DebtTrak and DebtManager, engaged or undertook activities, including but not limited to debt settlement activities, that Global would normally undertake otherwise
Pursuant to its business strategy, GCS marketed and promoted to the debt management industry of its use of denominated “special purpose accounts” (the “Special Purpose Accounts”) as an integral part of a debt settlement program.
GCS’s website touted this business strategy and stated:
Global Client Solutions (Global) is one [sic] the largest account management companies in the United States. Global has earned a reputation for supplying some of the highest quality products and best customer service in the industry. Consumers and companies alike have benefited greatly from Global’s modern account management products. Global has developed and implemented its account management services specifically for the purpose of debt resolution, seeking to set the stage for consumer success in these activities.
In 2003 Global introduced its revolutionary Special Purpose Account (SPA) savings solution to the debt resolution industry, as it creates total separation between the consumer’s funds and the debt resolution companies. Global works with the consumer to help administrate payments in and disbursements out of their SPA and has no legal affiliation with any debt settlement company. Global enables consumers to accumulate and control their own funds within their SPA that is then used to disburse funds to the consumer’s creditors. Competing service models, such as trust and self-held accounts, either significantly limit a consumer’s control over the funds or do not effectively help consumers control their spending patterns. In addition, the SPA model creates transparency for a debt resolution company by providing view only access to the account balance to ensure that sufficient funds exist before attempting to execute a settlement.
In its website, Global, along with its subsidiaries—GCS, DebtTrak, and DebtManager, boasted that it serves over 500,000 consumers nationwide and hundreds and thousands of special purpose accounts.
Special purpose accounts are sub-accounts managed by GCS within its custodial account at a financial institution.
GCS financially benefits from the creation of such sub-accounts in that it charges debt settlement companies’ clients, i.e., consumer debtors, additional fees and charges, beyond those already charged by the debt settlement company.
Pursuant to an agreement between GCS and debt settlement companies, debt settlement companies such as First Financial Network, Inc. solicited Illinois consumers’ participation in debt settlement programs using GCS’s special purpose accounts.
GCS used a standardized debt settlement contract and standardized “special purpose account application” for Plaintiff and all other Illinois consumers when they enrolled in a debt settlement program with debt settlement companies.
Participation in a debt settlement program with GCS and debt settlement companies universally has the following material elements:
- Illinois consumer debtors agree to use standardized agreement to engage GCS, debt settlement companies, and a bank for purposes of settling scheduled unsecured debts;
- Illinois consumer debtors agree to make monthly debt settlement payments, through an automatic debit transaction from the consumer’s bank account in an amount specified by the debt settlement company;
- Illinois consumer debtors agree to pay up-front fees and all other fees to the debt settlement companies, which unbeknown to the consumer debtors were illegal because they exceeded the maximum amount permitted by
law; - Illinois consumers must execute and return the “special purpose account” application to GCS and agree to pay all fees associated with the special purpose account;
- For purpose of securing funds to pay the illegal fees and to potentially accumulate funds to be used in settling debts, GCS was given authority to maintain and manage the special purpose account and to make automatic electronic withdrawals from the consumers’ bank accounts into its special purpose accounts.
If meaningful positive funds ever accumulate in the debt settlement account, the debt settlement company may attempt settlement of the enrolled debt in exchange for additional
fees.
The agreements drafted by Defendants and debt settlement companies are illegal.
Faced with the long history of predatory fee practices by the debt settlement industry, many states, including Illinois, adopted statutes prohibiting predatory fees and other abusive debt settlement practices.
At all times relevant to this Complaint, Defendants were mindful of the debt settlement industry’s predatory fee history and of state laws, including those of Illinois, prohibiting abusive debt settlement practices.
Illinois Attorney General’s Office warns Illinois consumers of potential scams perpetrated by debt settlement companies.
In the case of Plaintiff, Plaintiff was enrolled in a settlement program and opened a special purpose account managed by GCS from September 2010 through August 2011.
Over the ten months period Plaintiff was in the debt settlement program, GCS collected and paid fees between 30-32 percent of each monthly settlement payment, or $1,582.50 in fees out of $4,017.85 in settlement fund payment that Plaintiff paid.
Pursuant to 225 ILCS 429/125(b), a debt settlement provider “shall not charge or receive from a consumer any enrollment fee, set up fee, up front fee of any kind, or any maintenance fee, except for a one-time enrollment fee of no more than $50.”
In the first month of Plaintiff’s debt settlement program, GCS charged and collected from Plaintiff’s special purpose account her entire first month’s payment of $415.
From the second month through the tenth month, GCS charged and collected from Plaintiff’s special purpose account various fees totaling between $97.87-124.85 each month, or approximately 30 percent of the monthly payments.
Pursuant to 225 ILCS 429/125(c), a debt settlement provider may not retain a settlement fee in excess of 15 percent of savings.
GCS and debt settlement companies undertook no action to settle Plaintiff’s debts, resulting in no savings.
GCS knew that the subject fees exceeded 15 percent of the savings.
Pursuant to 225 ILCS 429/125(d), a debt settlement provider “shall not collect any settlement fee from the consumer” until a creditor has agreed to settle the debt for a lesser amount.
GCS collected and paid settlement fees from Plaintiff’s special purpose account without ever obtaining a legally enforceable agreement with Plaintiff’s creditors to settle her debt.
Pursuant to 225 ILCS 429/80(a), “any person who operates as a debt settlement provider without a license shall be guilty of a Class 4 felony.”
GCS is an unlicensed and unregistered debt settlement provider in Illinois.
On information and belief, the state of Illinois has not issued any businesses a debt settlement provider license under Debt Settlement Act at this time.
You can read the full complaint, here.
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Global was also just named in yet another case. This time in California. See GHS Solutions and Global Client Solutions Named in California Lawsuit
New similar case filed in Oklahoma, Just posted it. See Bank of Oklahoma Now Named in Global Client Solution Class Action Case.
And the hits just keep coming.
The plaintiff’s attorney is pretty stupid. The court took the extraordinary step of forcing plaintiff to prove jurisdiction.
Here is the EXACT wording from PACER:
MINUTE entry before Honorable Gary Feinerman: On the court’s own motion, Plaintiff is ordered to show cause, by 9/21/2011, why this case should not be dismissed for want of subject matter jurisdiction. The complaint 1 premises subject matter jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d), but does not properly allege the citizenship of either Defendant or allege a basis for believing that the matter in controversy exceeds $5 million. Plaintiff may discharge the order by filing a pleading styled “Jurisdictional Addendum to the Complaint.” The addendum must properly allege the citizenship of Defendants, both of which are LLCs; to do so, the addendum must identify each member of each LLC and the citizenship of each member. In addition, the addendum must explain plausibly how the stakes in this case exceed $5,000,000; to do so, the addendum must plausibly estimate the number of putative class members and the average damages recoverable by each such putative class member. Initial status hearing set for 11/16/2011 at 9:00 a.m. Initial Status Report shall be filed by 11/9/2011. Please see Judge Feinerman’s web page (http://www.ilnd.uscourts.gov, to “District Judges,” to “Judge Gary Feinerman,” to “Initial Status Hearings” under Case Management Procedures) for details on the initial status hearing and Initial Status Report.Mailed notice. (jlj) (Entered: 09/07/2011)
Not sure where you are coming from with the “The court took the extraordinary step of forcing plaintiff to prove jurisdiction” comment. Venue and jurisdiction are ordinary. Nothing extra about that.
The filing can be ammended, and given what you say is an exact qoute, the judge is friendly enough to give plaintiff’s attorney instruction on how to what to.
The amount in question can be stated to easily exceed 5 million if it is given class status. If the quote in the article about global boasting to serve 500k concumers is accurate you have 7 million in revenue in just one month of charging those 500k consumers a $14 monthly service fee.
There are issues with the filing and establishing the case to be sure. I think the case would fair better by going at it from the “substantial assistance” angle found in the recently amended TSR’s. Global is certianly providing substantial assistance to debt settlement companies. Did gloabl vet each company in a manner necessary to establish compliance in every state consumers are enrolled in by each debt settlement company? How about each company following federal laws? Does global have a system in place to evaluate and audit the debt settlement companies it works with? If so, what is the effectiveness of that system?
Does Global administer escrow accounts for companies who enroll consumers in CT, NH, GA, VA, WV, and all UDMSA states who are not properly licensed and operated? Other states?
Lotsa questions…
This is reaching…. GCS gets an enrollment fee (into their account) of $10 and a monthly fee of the same for their service. Just going after the deep pockets here- They obviously are not in the debt settlement or adjusting business as those functions are entirely up to the settlement company.
Interesting to see how these cases come out but I cant believe GCS or NoteWorld will be found liable for much.
Steve- what do you think?
I suspect it will reach farther than you think. It certainly appears they provided substantial assistance for companies that were not compliant.
But isnt the “substantial assistance rule” from 10-27-10 and forward? Suit says Plaintiff enrolled Sept 2010- If it were before the FTC Rule, then no foul… no?
DATES: These final amendments are effective on September 27, 2010, except for § 310.4(a)(5),Advance fee ban which is effective on October 27, 2010. – http://www.ftc.gov/os/2010/07/R411001finalrule.pdf
Scott- Right but Sept 27… leaves 26 days (Steve- sorry I keep replying above comments! )
Do you believe a company like GCS should be included in complaints were companies are following the rules (hate using complaint twice!)
BTW, GCS just named in Oklahoma class action suit. Again, the same issue, aiding DSCs to violate state statutes. See Bank of Oklahoma Now Named in Global Client Solution Class Action Case
Not reaching in the slightest. If not for the independent escrow, what would a DSC do?
GCS is a link in the chain of the whole DS process. They have a responsibility to know the companies they link up with are operating in a compliant fashion. If they arent doing that, they are on the hook equally.
They have also been established by the Wash Sup’s to be more than an escrow service.
I have heard, but cannot confirm they may be paying kick backs to the DSC that drive escrow accounts their way. That would sure pick up some regulatory adrenaline.
They are not simply doing escrow.
Q- While I don’t disagree that they are link in the chain, settlement companies before GCS would use (supposed) trust accounts, where funds were commingled and often poorly accounted for or simply stolen.
Please don’t misunderstand, my background in debt settlement was working for one of about 5 settlement companies that were always performance based. I’m no apologist for any of the shenanagins that went on- or still do for that matter. However, I read the suit as claiming that GCS is a settlement company, collected huge fees, etc…
Here: “In the first month of Plaintiff’s debt settlement program, GCS charged and collected from Plaintiff’s special purpose account her entire first month’s payment of $415.”- Obviously, aside from probably $10, that all went to the debt settlement company, but it reads that it went to GCS.
Here: “From the second month through the tenth month, GCS charged and collected from Plaintiff’s special purpose account various fees totaling between $97.87-124.85 each month, or approximately 30 percent of the monthly payments.” Again, reads as though GCS received those fees, in truth, the funds are sent to the savings account for the client and the fees are immediately sent to the DS company’s account.
Here: “GCS is an unlicensed and unregistered debt settlement provider in Illinois.” As they perform no settlement services, I don’t buy it.
Here: “GCS used a standardized debt settlement contract and standardized “special purpose account application” for Plaintiff and all other Illinois consumers when they enrolled in a debt settlement program with debt settlement companies.” I’m certain the contract for debt settlement was from and delivered by the DS company.
While GCS may have been a link in the chain, I still it’s reaching based on what I read there. Further, now that DS companies can no longer charge interstate up front fees, services like those provided by GCS are needed. I AM a proponent for “Performance Based” DS companies, and without companies like GCS DS co’s may well revert back to so-called trust accounts- which is a BAD idea!
I’m no lawyer, and that may obvious from my post, but it appears some of the claims being made in the suit are either out of ignorance or purposely misleading. Anyone in debt settlement will confirm that GCS is not a DS company!
I did hear the rumors of kickbacks as well. I have never seen any but it would not surprise me. I’m not sure that it’s illegal to offer money or things of value to lure new business in that industry, as it is in others.
Not looking for a fight- just my 2 cents!
I agree 100%…
“aside from probably $10, that all went to the debt settlement company, but it reads that it went to GCS” – x 500k
“reads as though GCS received those fees, in truth, the funds are sent to the savings account for the client and the fees are immediately sent to the DS company’s account” – this is and has been part of the problem. For those who do not see it that way, I wont try to convinve you of anything.
“GCS is an unlicensed and unregistered debt settlement provider in Illinois.” “As they perform no settlement services, I don’t buy it.” – They were shown to be unlicensed in WA. I am sure many did not buy that until the ruling came out.
“Anyone in debt settlement will confirm that GCS is not a DS company!” – Anyone in the DS industry does not really matter as relates to this topic that will ultimately play out in several courts. I believe the argument that they are will win out more than it will lose out.
“I’m not sure that it’s illegal to offer money or things of value to lure new business in that industry, as it is in others” – Actually, it is in several jurisdictions, not least of which is at the federal level.
Unfortunately the State of Washington Supreme Court didn’t agree and labeled them as a debt adjuster according to their statues. It seems the same argument that was successful in Washington is being applied in other states.
Comparing ILL to Washington may not be fair- The Washington ruling is based on a State law saying “the debt adjusting statute explicitly makes it a wrongful, criminal act to aid and abet violations of the statute’s primary requirements for debt adjusters”.
Is there a similar law in Ill?
The Il statute is available on line. While it may not pair well with the plaintiff in the instant case, the IL statute would be a great place to show parties acting in concert at the detriment of their customers and in direct circumvention of the Il stats. Tieing it in under the private right of action found in the TSR’s would be effective. How many accounts does global and noteworld have in IL that were opened after its statute went live? Some attorney model ones to be sure, but I bet there are more. Why is that allowed to occur if my suspicion is correct? No vetting policy would be my guess. Take the case to the level that the attorney model is done in a blatant attempt to skirt federal laws and you have been providing escrow anyway spells a whole different scenario. Take that scenario with the FDIC position on Rocky Mt bank and apply it to the Bank of Oklahoma now dragged into the mess and show BOK how global may have failed to vet its DS partners and this gets ugly.
It is fair to draw some comparisons to the WA sup’s for this IL case. It would be better if it were done on the substantial assistance angle. It is probably more fair to draw comparisons to the OK case for its established pooling laws the owner of this site just shared.
I want to raise a serious question. Most cases brought forward in the courts through private right are all timeline stamped pre federal law changes from about a year back. The cases that will bring in all the players under the substantial assistance angle of that federal rule have not even begun. The actual gateway banks that are behind the escrow companies, like BOK for GCS can be drawn into the litigation. BOK, I have to assume, wants none of that. I have to also assume they arent really aware of their liability. If they were, they would drop GCS. Same thing for whoever is the gateway and fiduciary for noteworld. The banks have the deepest pockets in any of this. They are providing substantial assistance to loopholers and companies not following state statutes through the escrow companies. The banks cannot claim ignorance of a known duty.
There is certainly more skilled legal talent out there than the counsel who is the topic of this threads case. They gotta eat. The WA case and the FDIC issue with ROcky combined with the substantial assistance aspect found in federal rules lays some faily good foundation to find a client and establish a case. I predict the large banks will drop the escrow providers inside of the next 3 to 6 months.
The question is, what then?
I am serious.
Q- Cant reply to u below u…
Agree 100% per atty model- They, if they are real, should be using their own Trust accounts… That does not pass the smell test. There are other providers, one I met recently who use Chase!- Post TSR tho… I guess I just hope that this will not be the end of such companies, because the settlement companies who are compliant (and their clients) need them!
Thanks for your thoughts below- Well done.
It’s not too often that a court moves sua sponte. Very sloppy work by plaintiff’s counsel – they can’t even get jurisdiction right! I mean, c’mon guys, and you think you’re qualified to represent a class?!!
Listen, I have no problem with class actions as they serve an important purpose (see the RAND Corporation’s excellent study titled, “Revisiting the Monster: New Myths and Realities of Class Action and Other Large Scale Litigation”), but plaintiff class action attorney hacks do no one any good. And, make no mistake, making bush league mistakes, like not getting jurisdiction right, is grounds to contest adequacy of counsel.
No argument. Not fully setting forth jurisdiction in intial filing is sloppy. Maybe the firm was in a hurry because they wanted to be first ahead of another filing they heard was coming from a different firm or regulator. Who can say….