Nearly four years ago, federal regulators shut down a debt relief company — Morgan Drexen — accused of deceiving customers with promises of reducing their debt and charging illegal upfront fees to do so. While that company eventually paid $170 million to resolve the allegations, the Consumer Financial Protection Bureau Monday sued a related company using the same playbook.
The CFPB filed suit [PDF] Monday against Howard Law, the Williamson Law Firm, and Williamson & Howard, as well as attorneys Vincent Howard and Lawrence Williamson, accusing the company of running a debt collection scheme that bilked tens of millions of dollars from consumers.
According to the lawsuit, the allegedly illegal plot began in 2007 when Howard and Williamson began working with Morgan Drexen to offer debt relief services.
Through the connection, the two men developed intake procedures, contracts, document templates, and other components of their debt relief program that were integrated into Morgan Drexen’s computer platform.
With the newly created debt relief program, customers would sign two contracts for debt relief services with Howard Law or Williamson Law Firm. The CFPB says customers were required to pay advance fees prior to obtaining a settlement.
However, the Telemarketing Sales Rule prohibits debt relief operations from charging customers a fee until the debt is actually settled, reduced, or the terms of the debt are changed.
The company required customers to sign two contracts, one for debt relief settlement services and the other for bankruptcy-related series.
Customers who signed the contracts — which includes upfront fees ranging from $1,000 to $3,250 and a monthly “administrative fee” of $50 — say they believed they were seeking services related to debt relief not bankruptcy.
The CFPB alleges that the bankruptcy contract was used by the company as a ruse to disguise the upfront fees.
By using this system, the CFPB alleges that the companies brought in millions of dollars from consumers, including $5.2 million from June 2015 to Oct. 2015.
With the lawsuit, the CFPB seeks to stop the company’s alleged scheme and refund customers.
Back in 2013, the CFPB 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. Last year, 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.
by Ashlee Kieler via Consumerist