The CFPB has filed a lawsuit against Morgan Drexen and its President/CEO alleging that the company violated the Telemarketing Sales Rule and the Dodd-Frank Act. The complaint, filed in California federal court, claims that the company illegally charged customers upfront fees for debt-relief services and misled consumers about the company’s ability to resolve their debt issues. In a statement issued by the CFPB, Director Cordray remarked, “[t]he company charged consumers illegal fees and deceived them about the service declared, we will hold them accountable for these actions.” The CFPB claims that Morgan Drexen attempted to circumvent the prohibition on upfront debt-relief fees by also charging its clients for bankruptcy-related services, which the CFPB claims were virtually non-existent. Morgan Drexen has not only questioned the legitimacy of the CFPB’s claims, but also the motive and timing of the lawsuit.
A representative for Morgan Drexen told Law360 that some of the allegations in the CFPB’s complaint are “scurrilous” and nothing more than an attempt to “leapfrog” Morgan Drexen’s lawsuit challenging the constitutionality of the CFPB. Last month, Morgan Drexen filed suit in the federal court for the District of Columbia alleging that the CFPB engaged in “threats” of legal action and “improper and coercive tactics.” Morgan Drexen’s suit seeks relief from these alleged tactics, as well as an order declaring the Bureau unconsitutional because its “structure insulates it from political accountability and internal checks and balances in violation of the United States Constitution.” Morgan Drexen issued an e-mail in response to the CFPB’s lawsuit claiming that it is nothing more than “gamesmanship” and “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.” The Morgan Drexen has even gone so far as to suggest that the CFPB’s actions have impacted its charitable work.
Given the CFPB’s track record on enforcement actions, it is unlikely that its lawsuit was motivated by Morgan Drexen’s constitutional challenge. The timing of the two lawsuits, however, raises questions about “gamesmanship” on both sides.