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Kim’s Catch: BCA Helps Authorities Shutdown Debt Relief Scheme

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Business Consumer Alliance aided the Consumer Financial Protection Bureau (CFPB) in their case against F-rated debt relief scheme, Morgan Drexen. We provided 244 consumer complaints to the agency who filed suit against the company and its CEO, Walter Ledda, for scheming debt-ridden consumers into paying up-front fees for debt relief services that, in most cases, were never fulfilled. The CFPB’s complaint, filed back in 2013, resulted in the shutdown of the operation by the courts in July 2015 and their subsequent bankruptcy filing. Unfortunately, clients who had paid Morgan Drexen millions of dollars in illegal fees are left scrambling to find ways to get out of debt, repair some of the damage done by Morgan Drexen, and recover some of their money.

Morgan Drexen

In September 2011, BCA published a warning to consumers about Morgan Drexen, who at the time had received some 229 complaints and were F-rated due to the serious nature of complaint allegations. While there were a large number of complaints filed against Morgan Drexen, the allegations pretty much echoed the same theme:  distressed consumers turned to the company for debt relief only to be disappointed and harmed by up-front fees and unfulfilled promises. Allegations included misrepresentation of services, inability to settle debts, unfulfilled contracts, and inability to obtain refunds for unfulfilled services. While customers paid monthly fees to get out of debt, the majority of the funds went toward Morgan Drexen’s fees and not to settle debts with creditors.

Fast forward to 2016 and the company is no longer in business, but the lingering effects of their unlawful actions are still felt by clients who trusted the company, only to be let down. In March 2016, the CFPB was able to win a final judgment against Morgan Drexen for their illegal debt relief scheme to the tune of roughly $170 million in restitution and civil penalties. Since the company filed for bankruptcy in June 2015, any payment of the permanent injunction issued by the court will occur through the bankruptcy process.

Kim’s Advice:  Morgan Drexen clients may be waiting a long time before they see any relief from the bankruptcy process. In the meantime, the debts that have not been settled by Morgan Drexen need immediate attention. Clients should be in contact with their creditors to determine if any settlements have been made and find out how to avoid losing the reduced debt of their settlement, if there is any. For debts that have not been settled, customers may wish to negotiate directly with the creditor, make payments to bring the debts down, or consider filing bankruptcy.

If you’re considering using a debt relief service, here are some red flags to look out for. Avoid doing business with any company that promises to settle your debt if they:

  • Require you to pay any fees before they settle your debts
  • Claim there are "new government programs" to bail you out of personal credit card debt
  • Guarantee to make your debt go away or that your unsecured debts can be paid off
  • Claim they can stop collection calls and lawsuits
  • Advise you to stop communicating with your creditors

Nonprofit consumer credit counseling services may be able to assist you in working with your creditors to develop a reasonable debt management plan that will aid you in getting out of debt. They also provide other financial counseling and services. Another available alternative is consulting a bankruptcy attorney.

If you choose to do business with a for-profit debt relief company, always check them out through BCA first. Be mindful that debt relief companies may charge expensive fees and encourage you to stop paying your debts. If you stop paying those bills, you will incur late fees, penalties and interest charges may accrue, and more than likely, your creditors will step up their collection efforts. Also, using debt settlement services can have a negative impact on your credit score and your ability to obtain future credit; there may be tax consequences for debt forgiveness; and the debt settlement process may leave you deeper in debt than when you started. Carefully weigh all available options before making a decision.

For more tips on dealing with debt and related topics, check out the following BCA blogs:

Debt Settlement and Debt Negotiation

Credit Repair

Should You File Bankruptcy?

Easy-To-Swallow Debt Relief Pill Carries Bitter Side Effect

About Business Consumer Alliance Business Consumer Alliance (BCA) is a non-profit company that started in 1928. The broad purpose of BCA is to promote business self-regulation. BCA's mission is achieved by assisting consumers in resolving complaints with businesses and using that complaint information, along with other relevant information such as customer reviews, to forecast business reliability. With community support, BCA can identify trustworthy and ethical businesses and warn the public to avoid unscrupulous businesses whose purpose is to defraud the marketplace. BCA also helps businesses promote themselves by providing services and tools to protect their business and reach out to their customers. BCA obtains its funding from member businesses who support the mission and purpose of the organization and who agree to abide by high standards of ethical business practices.