A federal judge in Santa Ana has denied Morgan Drexen Inc.'s argument that the Consumer Financial Protection Bureau is unconstitutional in a bid to evade a government lawsuit claiming the Costa Mesa company collects illegal upfront fees for debt-relief services.
Morgan Drexen had previously filed suit in Washington, D.C., alleging the federal agency is unconstitutional.
U.S. District Court Judge Josephine L. Staton in Santa Ana disagreed with Morgan Drexen's argument in a decision posted Friday.
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Morgan Drexen deceived customers by claiming there would be no upfront fees charged and that they would be debt-free in months, which were lies, according to the CFPB's suit filed in August 2013 on behalf of more than 22,000 customers who were allegedly dinged with millions of dollars in illegal fees.
Besides charging for services before debts were settled--a no-no under federal law--no actual services were provided, according to the complaint, which alleges Morgan Drexen and its CEO Walter Ledda violated the Telemarketing Sales Rule and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The CFPB suit produced a statement from Morgan Drexen attorney Randall K. Miller in which he claimed his company "is a support services company not a debt-settlement company," and that no fees were charged to its customers. But before issuing that statement, the company had already filed the suit claiming the CFPB is unconstitutional.