Anyone have any suggestions on dealing with these situations? .
It's not your fault that he wasn't properly informed about the limitations of the certification he got, so don't feel guilty about that.
The best thing you can do is to accurately inform him of what the rules are and back that up by citing the standards or even letting him read it for himself. He needs to know that YOU are not lying to him so prove that to him by quoting standards.
I wouldn't play the "blame game" that someone else suggested earlier in the thread. Assigning blame will not help your client understand his situation better. Blaming another instructor, or blaming PADI or blaming standards or blaming the history of the scuba industry as has been done on this thread are hallmarks of poor communication. Don't go down that road. Simply explain the situation as clearly and accurately as you can in a professional tone and let him decide for himself who to blame, if that's important to him..... He may still be mad, but that's ok. You didn't cause this problem but you did help him by making sure he understands his situation.
As others suggested, you may want to offer to "fix" it for him with remedial training but before you offer that, he needs to be sure that you're not trying to scam him into taking lessons that he doesn't believe he needs. So FIRST talk about his situation so he "gets it" and ONLY when you are sure he gets it you can talk about the options you have to help him "fix it" if that's what he wants.
Good luck.
R..