Wisconsin Court of Appeals has upheld an order requiring a debt settlement company to return more than $6.1 million dollars in fees and forfeitures for operating a scam in violation of Wisconsin’s consumer protection laws.
Morgan Drexen provides nationwide fee-based services by negotiating debt settlements with creditors on behalf of debtors. Wisconsin consumers paid more than $8.1 million from 2007 to 2012 toward its debt settlement services, but only $3.8 million was actually paid to creditors. The remaining $4.25 million was taken by Morgan Drexen as fees for its service, according to court documents.
The company counsels debtors to stop paying creditors and instead make monthly payments to an account controlled by Morgan Drexen, from which it first takes its service fees. As part of the rip-off, Morgan Drexen would not begin to negotiate settlements until the debtor's monthly payments had accumulated to an amount large enough to settle a defaulted account.
The Wisconsin Department of Financial Institutions (DFI) filed a complaint against Morgan Drexen in 2011 alleging it violated Wisconsin law that requires adjustment service companies to obtain a license, file disclosures with DFI, and comply with limited fee requirements that can be charged to debtors.
Morgan Drexen asserted that it did not need a license to operate because it is a “paralegal and administrative support firm that works for attorneys," not a debt settlement company.
“Morgan Drexen’s attorney model is, both in execution and intention, a pretense designed to evade regulation,” said the administrative law judge who ordered the original repayment at a 2013 hearing. The order was appealed by Morgan Drexen, but affirmed by a Wisconsin circuit court and now, the Wisconsin court of appeals.
Morgan Drexen claimed that the hearing examiner erred in its interpretation of the state law definition of an adjustment service company. The court of appeals admitted that the disputed statute, Wis. Stat. § 218.02, is “not a model of clarity.” However, it rejected Morgan Drexen’s argument, and relied on the legislative statutory intent, which was to “protect debtors from oppressive or deceptive practices” and to “prevent evasion of this [statute] section,” according to court documents.
The Consumer Financial Protection Bureau (CFBP) warns that dealing with debt settlement companies can be risky. Companies often charge expensive fees and encourage debtors to stop paying their bills, which can increase late fees, negative credit ratings and collection efforts by creditors, often leaving debtors deeper in debt than when they started.
The United States Government Accountability Office (GAO) called these practices “fraudulent, abusive, and deceptive” in a 2010 investigation report on debt settlement companies. The report indicated that less than 10 percent of debtors successfully complete the programs although many companies claimed unusually high success rates from 85 percent up to 100 percent. Unfortunately many debtors, after fees and late charges, end up with a settlement balance much higher than what they originally owed.
Morgan Drexen's website lists other legal support services claims to offer, and its performance benchmarks include supporting attorneys in settling more than $360 million in debt for more than 5,000 consumers nationwide and most material references the debt settlement operations. It also posts a current list debt resolution settlement letters, showing, for example, a settlement for an original balance of $950 with a current balance of $1,807.60, which settled for $813.42.
In its open letter to America’s legal professionals, Morgan Drexen claims that the “affordable legal care” that it provides is “under fire” by the CFPB, who is trying to eliminate companies like it. Morgan Drexen’s operations have been eliminated from Wisconsin since the Court of Appeal also upheld an order for Morgan Drexen to cease operations in Wisconsin as a result of its unlicensed operation and collecting paid fees that it “was not legally entitled to collect,” according to the court.
