The Consumer Financial Protection Bureau said Tuesday that it is suing Morgan Drexen, a debt-relief provider, for false marketing a month after the same company filed suit against the CFPB.
The CFPB's suit, filed in the U.S. District Court Central District of California, accuses the Nevada company and its owner, Walter Ledda, of illegally charging upfront fees and falsely marketing to consumers that they would be debt free in months if they signed up. Though the CFPB has come after several debt relief companies on similar allegations, Morgan Drexen was the only accused company to sue the CFPB first.
The firm, which provides debt settlement services to businesses like law firms, filed a federal lawsuit in Washington against the CFPB in July claiming the agency tried to collect personal material that is constitutionally protected by attorney-client privilege. The CFPB did not mention this case in the press release announcing its own suit against Morgan Drexen on Wednesday.
In the CFPB's case, the agency alleges that Morgan Drexen violated the Telemarketing Sales Rule and the Dodd-Frank Act largely for charging upfront fees before it settled or amended a consumer's debt, particularly when a customer sought bankruptcy related services. The CFPB estimates that more than 22,000 customers who enrolled in Morgan Drexen's bankruptcy program since October 2010 were "charged millions of dollars in upfront fees."
"This company took advantage of people who were struggling," said CFPB Director Richard Cordray in the press release. "The company charged consumers illegal fees and deceived them about the services provided. We will hold them accountable for these actions."
The CFPB is requesting the court to stop Morgan Drexen's illegal practices, impose penalties on the company and Ledda as well as require restitution paid to consumers who were harmed.