The Consumer Financial Protection Bureau is nailing a debt settlement company with a federal lawsuit for allegedly charging illegal upfront fees to clients and deceiving consumers.
Defendants Morgan Drexen, Inc., and its president and CEO, Walter Ledda, are named in the suit and are accused of misrepresenting their product on a couple different fronts: falsely claiming the company doesn’t charge consumers upfront fees for debt-relief services, and falsely representing to consumers that they’ll become debt free in months if they work with the company.
“This company took advantage of people who were struggling,” CFPB Director Richard Cordray said in a statement. “The company charged consumers illegal fees and deceived them about the services provided. We will hold them accountable for these actions.”
Ledda founded Morgan Drexen, a nationwide debt-settlement company based in Nevada, in 2007 and maintains a 93% ownership stake. He plays an active role in the company’s business strategies and practices, according to the CFPB.
The defendants in the suit have violated the Telemarketing Sales Rule and the Dodd-Frank Act, the CFPB alleges, which both prohibit deception in telemarketing.
The Telemarketing Sales Rule also prohibits debt-relief providers from charging a fee for any debt-relief service until it has actually settled, reduced, or otherwise altered the terms of at least one of the consumer’s debts. However, based on an investigation, the CFPB believes Morgan Drexen charges consumers for its services even when little to no bankruptcy work is actually performed.
Morgan Drexen presents consumers with two contracts at the time they sign up for its services, one for debt-settlement and the other for bankruptcy-related services. But the bankruptcy-related contracted is a “ruse designed to disguise the illegal upfront fees” the company is charging consumers for debt-relief services as bankruptcy-related, the CFPB alleges.
Since October 2010, more than 22,000 consumers have enrolled in Morgan Drexen’s program and have been charged millions of dollars in upfront fees for debt-relief services.
The bureau’s goal is to halt the company’s alleged unlawful practices, including a request for the court to penalize Morgan Drexen and Ledda for their conduct, and order the defendants to pay restitution to consumers who have been adversely affected.
View the CFPB’s complaint.
Written by Alyssa Gerace