Which place’s debt rules apply—and who can help?

S_MT PASS-04 — Montana consumer-money custody, trust-account, and refund architecture

Actual fresh-access date: October 25, 2026, Pacific Mode: GPT-5.6 Sol Pro, regular Chat Relationship to prior work: Distinct funds/custody component. The preserved P1–P3 provider-access, fee, historical-rule, federal-timing, and provenance work is not regenerated. This is not an independent review.

Component status: PARTIAL. Montana’s affirmative Part 20 trust-account architecture and the Part 21 noncustodial boundary are established from the official 2025 code. Third-party, affiliate, processor, external-account, cessation, and several account-operation details remain fact- or source-dependent.

Core determination

Within Montana’s two debt-services statutes:

1. Part 20 is the verified custodial pathway. A debt management plan is a written arrangement under which a credit counseling service receives consumer money for distribution to creditors. A covered service must maintain a specially designated trust account at a federally insured financial institution. Montana Code Annotated+1
2. Part 21 is expressly noncustodial. A Part 21 debt settlement provider ordinarily does not hold, receive, or disburse debtor funds in connection with settlement services, and its precontract disclosure must state that it will not use a debtor payment to pay a creditor. Montana Code Annotated+1
3. For the same entity, Part 20 textually displaces Part 21. Part 21 excludes any for-profit or nonprofit entity subject to Part 20. But a settlement company that begins handling money does not automatically become a lawful Part 20 provider: the actual arrangement must independently satisfy the Part 20 DMP definition and licensing requirements. Montana Code Annotated+2
4. A debtor-owned external account, “independent administrator,” affiliate, processor, or escrow label does not by itself prove Part 21 status, Part 20 exemption, or legal custody. Actual control, agency, contractual authority, signatory rights, fee pulls, and creditor-payment instructions remain decisive factual gaps.
5. No Montana statutory basis was found for importing the federal TSR’s seven-business-day dedicated-account return period into Montana law. The federal provision remains the previously preserved conditional overlay, not a Montana deadline.

A. Substantive findings

1. Custody entry point and hybrid arrangements

Part 20 custody

Part 20 applies to persons providing or offering DMPs to Montana residents. Its central custody trigger is a written agreement under which a credit counseling service is to receive consumer money to distribute to one or more creditors as full or partial payment. The definition of “person” expressly includes qualifying nonprofit entities, so nonprofit status does not remove the custodial model from the statute. Remote headquarters also do not remove a provider serving Montana residents from the textual scope. Montana Code Annotated+1

The attorney and CPA exclusions are conditional: the professional must be Montana-licensed, and credit counseling must be incidental rather than the professional’s principal business. Debt collectors are excluded only when they do not advertise or hold themselves out as credit counseling services. An account, law-firm relationship, or nonprofit label cannot substitute for those elements. Montana Code Annotated

Part 21 noncustody

Part 21 defines both the provider and the service by the absence of ordinary-course custody. The provider must not, in its usual and regular course, hold, receive, or disburse debtor funds in connection with the settlement service. Its disclosure must say that the provider will not use a debtor payment to pay a creditor. Montana Code Annotated+1

Part 21 separately regulates the provider’s compensation. The coherent statutory distinction is therefore between:

• Receiving provider compensation under the fee provisions; and
• Holding or moving the debtor’s settlement principal for creditor payment.

No controlling Montana interpretation was recovered that defines the exact boundary when a provider pulls a fee from the same external account that accumulates settlement savings.

Same-entity displacement versus unresolved hybrid

Section 30-14-2101(1)(b)(vi) excludes an entity subject to Part 20 from Part 21. That resolves the prior overlap question for an entity that actually meets Part 20: it is not simultaneously a Part 21 provider merely because it also negotiates concessions. Montana Code Annotated

The statute does not fully resolve:

• A nominal Part 21 provider whose affiliate owns or controls the account administrator.
• A processor acting as the provider’s agent.
• A provider with contractual authority to direct creditor payments but no formal bank signatory right.
• A provider that receives consumer money briefly before forwarding it to an external administrator.
• A settlement arrangement involving custody that does not satisfy the Part 20 DMP definition.

In those settings, loss of Part 21’s noncustodial classification does not itself create Part 20 permission. It may instead reveal an unclassified or unlawfully structured model until Part 20, another licensing statute, and the contracts are applied.

Account/model matrix

Claims: S_MT-P4-C001–C009, C027–C030.

2. Part 20 account duties

Verified account architecture

The Part 20 trust account must be:

• Established by the credit counseling service.
• At a federally insured financial institution.
• Designated as a trust account, or with another designation indicating that the funds are not funds of the service or its directors, officers, employees, or agents.
• Used exclusively for funds consumers pay to the service for disbursement to their creditors.
• Unavailable to creditors of the credit counseling service. Montana Code Annotated

A license applicant must provide evidence that it maintains that trust account. It must also contract, at its own expense, for an independent CPA audit every year, conducted within six months after fiscal-year close. The audit clause is provider-wide; the statute does not expressly prescribe a trust-account reconciliation procedure within the audit. Montana Code Annotated

Account-duty matrix

The statute’s use of “an account” and “a separate trust account” does not affirmatively require a separate bank account for every consumer. Conversely, it does not by itself certify every pooled-account arrangement. Consumer-specific transaction records must at least be sufficient to produce the required quarterly reports, but no statutory ledger format or reconciliation interval was identified. Montana Code Annotated+2

Provider fees and combined receipts

Because the trust account is for consumer funds destined for creditors, no verified Montana authority allows the provider to treat the account as an operating or fee account. A separately paid lawful fee need not enter that trust account. If the consumer sends one combined payment containing creditor funds and a provider fee, the statute does not specify:

• Where the combined payment must initially land.
• How quickly the two components must be separated.
• Whether a processor may split them before deposit.
• Whether any bank or processing charge may be deducted from creditor principal.

No deduction from trust principal is treated as lawful in the examples below unless the source expressly authorizes it.

3. Statements, records, oversight, closure, and payment-processing gateway

Consumer reporting and account access

A Part 20 provider must give each DMP consumer a report showing:

1. Funds received from that consumer since the prior report; and
2. Disbursements made to each creditor.

The report must be provided at least quarterly. The statute does not require consumer online bank access, real-time balance access, monthly statements, or direct access to the underlying pooled account. Montana Code Annotated

Records and audit

Part 20 expressly requires annual independent CPA audits within six months after fiscal-year close. It also authorizes a penalty of up to $5,000 per violation for failing to maintain a separate trust account or records required by Part 20 or department rule. No numeric records-retention period appears in the freshly read statutory sections. Montana Code Annotated+1

Part 21 separately requires GAAP books and records and an annual financial statement. The attorney general may require an independent CPA audit or review of that statement. Because Part 21 is noncustodial, those provisions do not create a debtor-savings trust-account regime. Montana Code Annotated

Investigative authority

Violations of either debt-services part are tied to Montana’s Consumer Protection Act. In an investigation, the department may issue a written investigative demand requiring reports, testimony, documents, or physical evidence. It may also issue subpoenas, administer oaths, and conduct investigative hearings. Those are enforcement-investigation powers, not a verified routine bank-account examination schedule. Montana Code Annotated+3

Relocation, closure, cessation, and insolvency

No operative statutory clause was identified that specifies:

• Advance notice before relocating or closing a Part 20 trust account.
• A mandatory successor-account procedure.
• A deadline for transferring balances after provider cessation.
• An insolvency receiver or account custodian.
• A consumer-notification form for bank failure.
• A provider-initiated account wind-down schedule.

The trust account must be unavailable to provider creditors. That is a direct Montana statutory duty, but it is not treated here as a judicial determination of bankruptcy priority, perfection, tracing rights, or FDIC pass-through coverage. Montana Code Annotated

The current official ARM consumer-debt-management index rendered only rules 23.19.1001 through 23.19.1005; the direct current-body route returned HTTP 405. Therefore, this pass does not make the categorical claim that no separate rule, license condition, or unpublished operational requirement addresses closure or reconciliation. Montana Administrative Rules

Money transmission and escrow gateway

Montana BFID’s current official page states that Montana does not regulate money transmitters as such and that “money transmission” is not defined under Montana law. The same page warns that other Montana licenses may apply, including escrow, consumer finance, loan collection, and other activity-based regimes. This does not exempt a debt-management provider, debt-settlement provider, affiliate, or processor from Parts 20 or 21. Montana Department of Administration+1

Montana’s escrow statute defines escrow by reference to holding money or instruments to effect a sale, transfer, encumbrance, lease, or payments under an encumbrance of property. That is narrower and more fact-specific than merely calling a debt-settlement savings account “escrow.” An account administrator does not become an exempt escrow business through nomenclature alone. Montana Code Annotated+1

No full Title 32 escrow or federal money-services-business analysis is attempted in this component.

4. Cancellation, termination, failed plans, and refund architecture

Part 20 DMP

A DMP must prominently state that either party may cancel without penalty at any time upon 10 days’ notice. It must also state that a consumer who cancels is entitled to a refund of all unexpended funds paid to the service as of the date of notice. Montana Code Annotated

Important boundaries:

• The 10 days is the specified notice period. The statute does not say that the refund must be paid within 10 days.
• The balance snapshot is tied to the date of notice.
• The statute does not state whether scheduled creditor payments may continue during the notice period.
• Money already remitted to creditors is no longer a current held balance and is not refunded again by the provider under this clause.
• The treatment of a previously earned and expended lawful service fee under the phrase “all unexpended funds” was not resolved by a primary interpretation.
• The express refund entitlement is phrased for a consumer who cancels. Although either party may cancel on notice, the statute does not give an equally explicit disposition procedure for provider-initiated cancellation.
• No separate refund-delivery deadline, check method, ACH procedure, or abandoned-property process appears in the section.

If a service imposes an unauthorized fee or charge or receives unauthorized funds or other payments—other than through bona fide error—the DMP is void and the service must return all fees received from or on behalf of the consumer. The remedy expressly says “all fees”; it does not provide a complete principal-return procedure for creditor money that remains in trust. The trust restrictions and cancellation clause still prevent treating that principal as provider property. Montana Code Annotated

Failed enrollment or unsigned DMP

The service may not require or accept consideration unless a compliant written and dated DMP has been signed and provided to the consumer. A pre-plan fee or payment therefore has no established lawful acceptance pathway under the examined text. Montana Code Annotated

If creditor money is transmitted before a valid plan:

• It does not become provider operating money.
• No fee may be assumed earned.
• The exact deadline and mechanism for returning the principal are not supplied by §30-14-2010.
• Contract, electronic-transfer, trust, restitution, and enforcement questions remain outside this bounded finding.

Part 21 settlement cancellation

If a debtor cancels before the service contract is completed, the provider must, on the debtor’s request, refund 50% of collected but unrefunded service fees on a pro rata basis for accounts that have not received a settlement offer by cancellation. Setup fees are not required by this Montana subsection to be refunded. Montana Code Annotated

That language does not establish:

• A deadline for issuing the state refund.
• A definition of a qualifying “settlement offer.”
• Treatment of an expired, rejected, unaffordable, or conditional offer.
• A formula where the contract does not allocate fees among debts.
• A refund of debtor savings held by an external administrator.
• Permission to retain a fee collected prematurely under independently applicable federal law.

The nonrefund treatment of setup fees under state law is not advance-fee permission under the TSR. A partial Montana refund cannot cure an unlawful federal collection.

Already remitted money

For both models, a creditor payment already completed before cancellation is different from money still held:

• Under Part 20, the completed remittance should appear in the creditor-level quarterly report.
• It is not subtracted again from the trust balance.
• The provider does not refund the same creditor remittance as unexpended funds.
• A mistaken, rejected, reversed, or unauthorized creditor payment would require facts and authority not supplied here.

5. Montana funds rules versus preserved federal account overlay

The following federal points are expressly reused from S_MT PASS-02 and were not freshly fetched in PASS-04: the customer-executed resolution agreement, customer payment under the customer-creditor or customer-debt-collector agreement, consistent per-debt allocation, and the five dedicated-account conditions in 16 CFR §310.4(a)(5).

The federal seven-business-day period is not a Montana refund deadline. Ending debt-relief services, returning account funds, closing the deposit account, stopping future deposits, and revoking provider or creditor ACH authority are separate acts.

Claims: S_MT-P4-C021–C028.

B. Bounded funds-ledger examples

All examples use U.S. dollars, exact arithmetic to the cent, and no assumed interest, bank fees, pending ACH items, reversals, chargebacks, reserves, or undisclosed third-party charges.

Example 1 — Ordinary Part 20 custodial cycle

Assumptions

• Valid signed Part 20 DMP.
• Provider is licensed.
• Creditor money goes into the compliant trust account.
• A separate $30 provider fee is lawful under the preserved fee analysis and is paid through a separate channel.
• No opening trust balance.

Ledger

Starting trust balance: $0.00

Consumer creditor-payment receipt: +$620.00

Creditor A remittance: -$250.00

Creditor B remittance: -$200.00

Creditor C remittance: -$120.00

Current held trust balance:

$620.00 − $250.00 − $200.00 − $120.00 = $50.00

The separate $30 fee never enters this trust ledger. The next required consumer report must show the $620 received and each creditor disbursement. The $50 is the current held balance, not the original receipt.

Example 2 — Part 20 consumer cancellation without double subtraction

Assumptions

• Opening trust balance from the prior period: $50.
• New creditor-money receipt: $400.
• One completed creditor remittance of $300 occurs before cancellation notice.
• No activity occurs after notice for purposes of the illustration.

Ledger

Opening balance: $50.00

New receipt: +$400.00

Available before remittance: $450.00

Completed creditor remittance: -$300.00

Unexpended balance as of notice:

$450.00 − $300.00 = $150.00

The consumer’s conditional statutory refund base is $150. The completed $300 creditor remittance is not deducted again and is not treated as still held.

The ten-day notice requirement is not converted into a ten-day refund deadline.

Example 3 — Receipt before a valid signed DMP

Assumptions

• No compliant signed DMP yet exists.
• Provider receives $500 described as creditor money.
• Provider also receives a $75 purported setup or consultation fee.
• No bona fide-error determination has been made.

Ledger

Creditor-purpose money received: $500.00

Purported fee received: +$75.00

Total received: $575.00

No lawful fee earning is established.

Under the unauthorized-fee consequence, the fee return is:

$75.00

Creditor-purpose principal remaining:

$575.00 − $75.00 = $500.00

The $500 cannot be relabeled as a fee or operating asset. Its exact return deadline and transfer route remain unresolved; this example does not invent one.

Example 4 — Part 21 external-account comparison

Assumptions

• Account is debtor-owned and externally administered.
• Opening account balance: $1,000.
• Consumer adds $500.
• A valid customer-executed settlement agreement covers one debt.
• Customer makes a $900 creditor payment under that agreement.
• Exactly $180 of the total contracted service fee was consistently allocated to that debt.
• No provider custody of principal is assumed.

Before any fee pull

Opening balance: $1,000.00

New consumer deposit: +$500.00

Creditor payment: -$900.00

Balance after creditor payment:

$1,500.00 − $900.00 = $600.00

Branch A — every applicable federal and state fee condition is satisfied

Allocated provider fee: -$180.00

Remaining account balance:

$600.00 − $180.00 = $420.00

Branch B — the customer deposited money, but a required performance condition is absent

Lawfully collectible fee in this example: $0.00

Remaining balance:

$600.00

The $500 deposit itself earns no service fee. Montana Part 21 does not supply the external account’s ownership, withdrawal, closure, or return terms.

Example 5 — Part 21 cancellation fee refund with explicit allocation

Assumptions

• Three debts.
• Collected, unrefunded nonsetup service fee: $600.
• Contract consistently allocates $200 to each debt.
• Debt A received a settlement offer.
• Debts B and C received no settlement offer.
• Debtor cancels before completion and requests the statutory refund.
• No prior refund and no setup fee.

Fee allocated to no-offer debts:

$200.00 + $200.00 = $400.00

Candidate Montana refund arithmetic:

50% × $400.00 = $200.00

Remaining collected service fee after that arithmetic:

$600.00 − $200.00 = $400.00

This is a bounded illustration of one explicit allocation. It is not a holding that Montana’s “pro rata” wording must be applied this way in every contract. If any amount was collected prematurely under federal law, the Montana $200 result does not cure the premature collection or cap another required refund.

Example 6 — Hybrid processor held-gap classification

Assumptions

• Consumer sends $800 to a processor.
• Processor sends $650 to creditors.
• Processor still holds $150.
• Provider or affiliate can issue payment instructions.
• No fee deduction is assumed.
• Agency, ownership, signatory, and account contracts are unavailable.

Ledger

Consumer receipt: $800.00

Completed creditor remittances: -$650.00

Current held amount:

$800.00 − $650.00 = $150.00

The arithmetic is certain; the legal architecture is not.

• If the processor is acting for a covered Part 20 service under a DMP, the $150 may be subject to Part 20 trust duties and cancellation treatment.
• If the account is genuinely debtor-owned and independently administered for a noncustodial Part 21 provider, Montana’s Part 20 trust rules may not govern that account.
• If the arrangement falls outside both definitions, no lawful Montana custody pathway has been established.

No return deadline, fee deduction, or provider authorization may be inferred until classification is resolved.

C. Focused source table

Each source ID represents one instrument or source family; separate statutory webpages are not counted as independent authorities merely because sections appear on different pages.

D. Focused claim table

E. Component coverage and gap table

F. Researcher self-check

Freshly read on October 25, 2026, Pacific

• Complete relevant official 2025 MCA Part 20 sections: §§30-14-2002, 2003, 2004, 2010, 2013, and 2015.
• Complete official 2025 MCA Part 21: §§30-14-2101 through 2104.
• Official Part 20 and Part 21 section indexes.
• Consumer Protection Act §§30-14-111, 113, and 114, only for bounded investigative authority.
• Current Montana Department of Administration BFID money-transmitter guidance.
• Current 2025 escrow definitions and exemptions, only for the account-label boundary.
• Official current ARM subchapter search rendering; the direct body failed with HTTP 405.

Expressly reused, not freshly fetched

• S_MT PASS-02’s complete reading of 16 CFR §310.4(a)(5)(i)(A)–(C) and (ii)(A)–(E).
• P1–P3 provider-access, fee, refund, ordinary ARM fee, and provenance findings.
• The six prior fee examples and their checked arithmetic.
• Historical adoption evidence from prior passes, except where the current code’s own history was read.

Discovery or failed routes

• The official current ARM consumer-debt-management index was discoverable, but its direct body route failed.
• Targeted official-domain searches did not recover a Montana AG interpretation or court decision resolving affiliate, processor, constructive-custody, “unexpended funds,” or Part 20/Part 21 hybrid classification. That search result is not proof that no such authority exists.
• No current DMP application or license condition was treated as operative law.
• No secondary chart, marketing statement, or provider description was used as legal permission.

Not read or resolved

• Complete current ARM bodies and complete post-2009 amendment history affecting account operations.
• Comprehensive post-2025 Montana session-law or special-session audit.
• Any actual provider’s registration, license, bank account, processor contract, audit, trust ledger, or consumer statement.
• Actual bank signature cards, beneficial-ownership terms, pass-through insurance treatment, ACH authorizations, or administrator independence.
• Complete Montana escrow licensing law.
• Federal MSB/BSA classification.
• Complete TSR coverage and exemptions, CROA, or broader federal framework.
• Bankruptcy priority, receivership, tracing, bond claims, insurance claims, and full remedies.
• A complete Montana judicial citator or trial-court docket review.

Exact individual source-fetch timestamps were not exposed and are not invented. No independent review, application, filing, contact, account change, purchase, browser control, private-data access, local write, provider approval, operational approval, component acceptance, Montana acceptance, parent-dossier acceptance, A066 acceptance, or publication-readiness determination occurred.

REPORT PARTIAL — the bounded Montana funds/custody component is completed to the source limits stated above.

END S_MT PASS-04.