Morgan Drexen Loses Legal Battle Against The CFPB

The lawsuit battle between the Consumer Financial Protection (“CFPB”) and Morgan Drexen, in effect since July 2013, has finally ended with the company filing bankruptcy.

An enforcement action filed by the Consumer Financial Protection Bureau in August 2013 against Morgan Drexen, Inc. and its CEO has found the company to be in violation of the Telemarketing Sales Rule (“TSR”), as well as the Consumer Financial Protection Act (“CFPA”). A California federal district court has ordered Morgan Drexen’s CEO to pay a civil penalty of $40 million and $132,882,488 in restitution charges.

Prior to the CFPB taking action against Morgan Drexen, the company lodged a complaint in the D.C. federal district court asking for injunctive and declaratory relief in relation to the CFPB’s constitutionality as an agency. The court dismissed the case on the grounds that Morgan Drexen would not suffer any irreparable harm given the remedy at law in the CFPB’s enforcement action in California.

The D.C. circuit affirmed the dismissal in May 2015, stating that the case fell short reach on the merits of the constitutional challenge.

In January 2014, Morgan Drexen’s motion to dismiss was denied and all of its constitutional arguments were rejected by the California district court. In April 2015, alleged falsification of evidence in discovery led to the court entering a default judgment against Morgan Drexen. The company then filed for bankruptcy after a temporary freeze was imposed on its assets. Following the court’s revelation that Morgan Drexen was in violation of the TSR and the CFPA by not only charging upfront fees for debt relief services, but also falsely describing its services, the company has been ordered to halt all money collection activities from customers. To read more, please click here.

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