Morgan Drexen Sued by U.S. Consumer Agency Over Debt-Relief Fees

Morgan Drexen Inc., a provider of debt-relief services to consumers through law firms, charged illegal upfront fees and deceived clients, according to a lawsuit filed by the U.S. Consumer Financial Protection Bureau.

The Costa Mesa, California-based firm misled thousands of customers with claims they wouldn’t be charged upfront fees and would be debt-free in months, the CFPB said in a statement. The lawsuit, filed today in U.S. District Court for the Central District of California, said Morgan Drexen advertised debt-relief services and used a network of attorneys nationwide that turned over most of their clients’ fees to the firm.

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

U.S. law bans debt-relief providers from charging for their services before a debt is settled or reduced. The company was charging such fees and also charged for bankruptcy services without performing any significant work, the agency said, adding that Morgan Drexen had more than 22,000 customers since October 2010.

The firm filed a lawsuit last month to block the CFPB probe, claiming the bureau is unconstitutional. The CFPB lacks the accountability the Constitution requires for a government agency and the law provides no definition of the unfair and deceptive practices the bureau is supposed to police, according to the company’s lawsuit.

“CFPB has chosen to engage in procedural gamesmanship by opening a new front to the lawsuit,” the company said in an e-mailed statement today. “This is disruptive and inefficient and distracts from what we should be doing, which is preparing to present arguments to the D.C. court on the constitutionality of the CFPB structure.”

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net.

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