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WBK Industry News - Federal Regulatory Developments

CFPB Wins Final Judgment against Morgan Drexen for Illegal Debt Relief Scheme

On March 18, 2016, a federal district court entered a final judgment against Morgan Drexen ending a lawsuit filed by the CFPB in 2013 relating to an illegal debt relief scheme. Morgan Drexen must pay over $132 million in restitution to borrowers and an additional $40 million as a civil penalty to the CFPB.

Morgan Drexen is a nationwide debt relief company that was founded by Walter Ledda in 2007. The CFPB sued Morgan Drexen and Ledda in 2013, alleging that they had violated the Telemarketing Sales Rule and the Dodd-Frank Wall Street Reform and Consumer Protection Act by charging illegal upfront fees for debt relief services and misrepresenting their services to consumers.

The CFPB alleged, and the court ruled, that Morgan Drexen’s use of multiple contracts for consumers seeking debt relief services constituted an impermissible practice and a violation of the prohibition on obtaining upfront fees for debt collection services. The company was found to be using both a debt settlement services contract in addition to a bankruptcy-related services contract; however, no bankruptcy services were ever provided and the contract served merely as a work-around in order to obtain debt settlement fees up front.

In addition to ruling against the company, the court further ruled that Morgan Drexen’s founder, Walter Ledda, was individually guilty of violating the prohibition on upfront fees for debt settlement relief and ordered both injunctive and monetary penalties against him.

The final judgment is available at:

http://files.consumerfinance.gov/f/201603_cfpb_final-judgment-against-defendant-morgan-drexen-inc.pdf.