The Consumer Financial Protection Bureau (CFPB) filed a lawsuit in federal district court on August 20 against a Nevada corporation, Morgan Drexen Inc., and its president and chief executive officer, Walter Ledda, alleging the company charged illegal upfront fees and deceived consumers. The CFPB says the company falsely claims that it does not charge consumers upfront fees for debt-relief services and falsely represents to consumers that they will become debt free in months if they work with Morgan Drexen.

“This company took advantage of people who were struggling,” CFPB Director Richard Cordray said. “The company charged consumers illegal fees and deceived them about the services provided. We will hold them accountable for these actions.”

Morgan Drexen is a nationwide debt-settlement company that was founded by Ledda in 2007. Ledda maintains a 93 percent stake in the company and plays an active role in the company’s business strategies and practices.

The CFPB alleges that the defendants violated the Telemarketing Sales Rule and the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Telemarketing Sales Rule prohibits deception in telemarketing. It also generally 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. The Dodd-Frank Act prohibits deceptive acts or practices in the consumer financial marketplace.

When consumers sign up for Morgan Drexen’s services, the company presents them with two contracts, one for debt-settlement services, and the other for bankruptcy-related services. Based on its investigation, however, the bureau’s believes that little to no bankruptcy work is actually performed for consumers. Consumers are nevertheless charged fees.

The CFPB believes the bankruptcy-related contract is a ruse designed to disguise the illegal upfront fees the company is charging consumers for debt-relief services as bankruptcy-related fees. The bureau’s investigation has revealed that, since October 2010, more than 22,000 Morgan Drexen consumers have enrolled in this program. These consumers have been charged millions of dollars in upfront fees for debt-relief services.

The CFPB also alleges that Morgan Drexen has violated both the Dodd-Frank Act and the Telemarketing Sales Rule by making the following false and misleading claims in its advertisements: 

• No upfront fees: The company claims that consumers will not pay upfront fees for debt-relief services, when, in reality, they typically pay hundreds, if not thousands, of dollars in upfront fees.
• Debt free in months: Morgan Drexen claims that consumers will be “debt free in months” when, in fact, only a tiny fraction of consumers who work with the company ever become debt free.

Through this lawsuit, the bureau seeks to stop the alleged unlawful practices of Morgan Drexen and Ledda. The bureau has also requested that the court impose penalties on the company and Ledda for their conduct and require that restitution be paid to consumers who have been harmed.

A copy of the complaint can be found at: http://files.consumerfinance.gov/f/201308_cfpb_complaint_morgan-drexen.pdf

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