If you’re thinking about hiring a debt relief company, may this story serve as a sobering reminder of why you’re likely better off handling it yourself. Yesterday, the Consumer Financial Protection Bureau (CFPB) filed suit against a California-based debt relief company that allegedly charged clients millions of dollars in up-front fees since October 2010. What’s wrong with a debt relief company charging for its services? It cannot legally do so until after the debt has been reduced or a debt settlement has been reached. I wish I could say this illegal practice is unusual, but the fact is debt relief companies are notorious for it.
Consumers who were allegedly deceived by Morgan Drexen were done so under the pretense of “bankruptcy-related” services.
As reported by The Wall Street Journal, clients were asked to sign a contract for debt relief services. Fees were not collected under the terms of this contract. However, clients were also asked to sign a separate contract through which the upfront fees were collected for bankruptcy-related services even though very little work was ever done toward that end.
In addition to charging up front fees, the CFPB also alleges that Morgan Drexen misled its clients, telling them they would be debt-free in a matter of months. In fact, only a small fraction of the debt relief company’s clients ever became debt-free.
The CFPB says more than 22,000 consumers were duped, costing each of them hundreds of dollars (and millions collectively) in illegal fees.
Rather than denying the charges, Morgan Drexen is questioning the constitutionality of the lawsuit itself. The company filed its own lawsuit against the CFPB last month, claiming the consumer watchdog group is overstepping its authority, as it is funded by the Federal Reserve, outside the congressional appropriations system.
If you’re drowning in debt, there is nothing a debt relief company can do for you that you cannot do for yourself. For details, check out our article on do-it-yourself debt settlement strategies.