Debt Relief Company Must Pay $170M For Illegally Charging Customers

Image courtesy of Steven Depolo

Back in 2013, the Consumer Financial Protection Bureau sued Morgan Drexen, accusing the debt relief company of deceiving customers with promises of reducing their debt and charging illegal upfront fees to do so. Today, the Bureau announced a federal district court approved a final judgement requiring the company to pay $132.8 million in restitution and a $40 million civil penalty. 

The CFPB announced the final judgement Friday, noting that the order also prohibits the company from collecting further fees from customers.

According to the CFPB’s initial complaint [PDF] against the national debt relief company and its president and CEO Walter Ledda, the operation misrepresented their services to customers.

When customers signed up for Morgan Drexen’s services, the company presented them with two contracts, one for debt relief settlement, and the other for bankruptcy-related services.

An investigation by the CFPB found that Morgan Drexen consumers who signed up sought services for debt relief and not bankruptcy, that little to no bankruptcy work was actually performed for consumers, and that the bankruptcy-related contract Morgan Drexen presented to consumers was a ruse designed to “disguise impermissible upfront fees for debt relief work.”

In addition to the initial complaint, the CFPB found that shortly before the 2015 trial against the company was set to start, Morgan Drexen had falsified evidence.

“Morgan Drexen had created and altered bankruptcy petitions that it submitted to the court as evidence of having provided bankruptcy services,” the CFPB states.

After filing a motion seeking a default judgement, the court issued an order in April 2015 finding that Morgan Drexen misled the court and “acted willfully and in bad faith by falsifying evidence.”

On the basis of its findings, the court sanctioned Morgan Drexen by entering default judgment against the company. Several months later the court issued a permanent injunction against the company.

Under the final judgement [PDF] issued this week, the company must pay $132,882,488 in restitution to customers who enrolled in programs between Oct. 27 2010 to June 18, 2015.

Additionally, the company must pay $40 million to the CFPB’s civil penalty fund.

Because Morgan Drexen filed for bankruptcy in 2015, the CFPB says that any payment of the judgement will occur through the bankruptcy process.

The court also imposed a $99 million equitable money judgment and $20 million civil money penalty against owner Walter Ledda. However, both of those penalties are in large part suspended based on Ledda’s inability to pay.

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.