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
- 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
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.
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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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