The Consumer Financial Protection Bureau sued two attorneys and their law firms on Monday for allegedly taking over a debt relief scam of their former client, the now-bankrupt Morgan Drexen, which charged millions in fees to thousands of consumers seeking debt relief.

The agency alleges that attorneys Vincent Howard and Lawrence Williamson carried on a debt relief scam created by Walter Ledda, the CEO of Morgan Drexen, a Costa Mesa, Calif., firm that was shut down in 2015 and that ultimately filed for bankruptcy.

Federal law prohibits companies from charging fees for debt-relief services until the debt has been settled or the terms altered.

“The defendants exploited consumers who were already suffering financial difficulties by tricking them into paying steep, illegal fees,” CFPB Director Richard Cordray said in a press release. “We put a stop to this scam once already, and we intend to do it again.”

CFPB Director Richard Cordray
“We put a stop to this scam once already, and we intend to do it again," said CFPB Director Richard Cordray. Bloomberg News

The law firms worked in the same offices as Morgan Drexen, hired as many as 80 employees and executives of the bankrupt firm, and conducted nearly all of the debt relief work, the CFPB alleged in a lawsuit filed in the US. District Court for the Central District.

Vincent Howard, the president of Howard Law, in Anaheim, and Lawrence Williams, who heads Williamson Law, in Kansas City, Kan., did not respond to a request for comment. The two lawyers are partners at Williamson & Howard, an Irvine, Calif., law firm, also named in the suit. A spokesperson for the lawyers also did not respond to a request for comment.

The CFPB alleges that the law firms designed a model in which consumers signed two contracts, one for debt relief services and a second for bankruptcy-related services. The bankruptcy-related services contract was a disguise to allow the firms to charge illegal upfront fees while giving the appearance that they were following the law.

The fees ranged from $1,000 to $3,250 with administrative fees of $50 for debt relief. The CFPB alleges that the attorneys collected tens of millions of dollars in unlawful fees from consumers, and often failed to settle any debts.

Further, the CFPB alleges that the lawyers and law firms assisted in the illegal debt relief practices of Morgan Drexen, which filed bankruptcy after being ordered last year to pay roughly $133 million in restitution to customers and a $40 million fine. The CFPB alleged in 2013 that the company charged more than 22,000 customer millions of dollars in upfront fees to help resolve outstanding debts.

Howard and Williamson worked with Morgan Drexen to manufacture hundreds of false bankruptcy petitions, the CFPB claims, and took over Ledda’s illegal activities when his company went bankrupt.

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