COSTA MESA – Morgan Drexen, a little-known Costa Mesa company, has either swindled risky consumers already in debt across the country or nobly fights broad government outreach through an unconstitutional federal agency.
There does not seem to be a middle ground between these arguments.
The company is involved in two lawsuits. One was filed against Morgan Drexen by the Federal Bureau of Consumer Financial Protection and alleges the company illegally charged upfront fees for debt consolidation services and often failed to provide clients with access to a lawyer to help them eliminate debt.
The other lawsuit – filed by Morgan Drexen – alleges the office shouldn’t even exist because it lacks congressional oversight and, during its more than three-year tenure, engaged in a data mining widespread violation of solicitor-client privilege.
“The lawsuit challenges the enabling legislation that created the super agency,” said Walter Ledda, CEO of Morgan Drexen. “If the lawsuit wins and there is a ruling that the structure of the CFPB lies outside the traditions and Constitution of the United States, Congress will be forced to enact legislation to correct the lack of oversight of the United States. agency, implement checks and balances and fight against abuse of power. “
But some observers believe Morgan Drexen has embarked on a larger and broader strategy: to destroy the agency that sues the company in order to stay in business.
Cue the loyal and dedicated opposition of conservative GOP politicians and right-wing media to Bill Dodd-Frank – named after Sen. Chris Dodd, D-Conn., And Rep. Barney Frank, D-Mass. – that, in addition to seeking to regulate the U.S. financial sector, also created the CFPB, which pursues financial sector mischiefs and oversees around 110 banks and credit unions with assets of over $ 10 billion each. Earlier this month, for example, the CFPB ordered banking giant JPMorgan Chase to reimburse more than 2.1 million customers approximately $ 309 million for illegal credit card practices.
The 2010 Dodd-Frank legislation, aimed at regulating the country’s financial system after the 2008 financial collapse, remains anathema to GOP conservatives. Former GOP presidential hopeful Michele Bachmann, R-Minn., Opened Congress in January with a bill to repeal Dodd-Frank, and it has been a rallying point among other conservatives.
Now, the outcome of this latest legal fight involving the Costa Mesa corporation appears to be a winning chance for Tories appealing to their base as the midterm elections unfold and for Morgan Drexen to bring in some powerful people. to Congress to champion the cause.
Dan Schnur, director of the Jesse M. Unruh Institute of Politics at USC, said there is a story of this playing out in modern politics.
For example, an abortion doctor in Pennsylvania was convicted earlier this year of killing three babies after birth, which has become a topic of discussion in conservative circles.
Another example: accusations that the National Security Agency has cast a wide net to collect data on phone calls and emails sent by ordinary Americans.
The Morgan Drexen case is no exception, as both sides benefit from it.
“As important as the problem may be for a larger audience, there is also the question of how he can play,” said Schnur. “Do you find a problem that plays at the base, or does the problem at the base prove an existing idea?” “
Morgan Drexen Integrated Systems was founded in 2007 in a small office in Anaheim by Ledda as a company that created a “paperless workflow that would ultimately reduce operating costs for lawyers and allow them to focus on their customers, ”according to its website.
It now has 340 employees and maintains working partnerships with more than 100 lawyers across the country.
Ledda, a classically trained violinist who sits on the Pacific Symphony’s marketing committee, said the firm was created to provide services to small law firms that couldn’t afford their own staff.
He said the CFPB is engaged in unprecedented attacks that it is not allowed to do.
“Conservatives have speculated that many would be damaged by a tyrannical CFPB,” Ledda said. “Morgan Drexen is the first company to survive an aggressive attack by the powerful CFPB, and conservatives have come together to support Morgan Drexen’s trial in Washington. “
Representative Darrell Issa, R-Vista, was a natural ally in the fight against the agency.
Issa spokesman Frederick Hill said the congressman viewed the CFPB created under Dodd-Frank as “a vindictive agency” which was “created under one-party rule.”
Issa, who sits on the House Oversight Committee and Government Reform, has criticized CFPB director Richard Cordray and the agency since its inception, and the CFPB was defeated by House Republicans on September 12, when Cordray had a heated exchange with Rep Sean Duffy, R-Wis.
Duffy compared the CFPB’s data mining actions to those of the NSA’s vast collection of private data and argued that the agency was not transparent about why it was collecting the data.
“America said I’m okay with my phone company having information on my phone records, but, man, am I outraged when the federal government takes this information from me,” Duffy said. “And you’re here to protect consumers and you take this financial data that they think is acceptable to a financial institution and you take it and you don’t give them any transparency about what information you provide. Take, how much you take, who you take it from. It’s incredibly frustrating. “
Critics argue that the data collected by the agency as well as the bankruptcy records sought in the Morgan Drexen case constitute both a breach of solicitor-client privilege and a massive invasion of privacy. The CFPB responded by saying it needed the information on the bankruptcy contract to expose what it sees as “a ruse designed to cover up the illegal upfront fees the company charges consumers for debt relief services. debt as a cost of bankruptcy “.
CFPB spokesman Samuel Gifford said in indictment documents Morgan Drexen violated the telemarketing sales rule and the Dodd-Frank law on reforming and protecting Wall Street.
As Americans faced default, Gifford said Morgan Drexen lashed out at clients who sought to escape these tax burdens and ended up making millions out of the 22,000 clients who signed up for the services. – often advertised on late night television channels. He said the firm’s fees are typically between $ 1,500 and $ 2,000 per client.
The lawsuit claims Morgan Drexen used salespeople – working on commission – to offer clients two contracts: one for debt settlement services and one for bankruptcy-related services.
Gifford said bankruptcy services through a lawyer were rarely available and people paid monthly fees and continued to accumulate fees when nothing was done for them.
The company argued that it is the lawyers with whom it has contracted who receive the fees.
Steve Rhode, a consumer debt expert and analyst who has followed the Morgan Drexen cases, said the company’s broader defense strategy appears to center on funding the CFPB.
Hill, in Issa’s office, said the CFPB budget should be in the hands of Congress. The agency is funded as a percentage of the Federal Reserve budget and is capped at 12% of 2009 Federal Reserve System operating expenses, but is not subject to congressional budget approval – a topic of discussion that Ledda used to rally support. among congressional conservatives who see Dodd-Frank as the source of a centralized government without checks and balances.
CFPB’s fiscal year 2013 budget was $ 541 million – below the cap of $ 56.6 million.
Rhode said Morgan Drexen was likely scared of the CFPB because it acts faster than the Federal Trade Commission, which was the main police force fighting consumer fraud. Ledda has had her own run-ins with the FTC, including a no-appeal complaint that resulted in a settlement in 2005.
“We’ve had the FTC before and it does a really good job, but they can’t move as fast as the CFPB,” Rhode said.
Schnur said Morgan Drexen and the Tories would likely continue to use the fight for their own advantages and that success in a midterm election isn’t necessarily defined by wide media coverage.
“This is a harder question to sell than the NSA question because it is more difficult for most voters to identify with their daily lives,” he said. “If a defender can break into the larger media universe, that’s a good bonus for them, but the primary value of this kind of problem is to motivate its core of supporters. “
ABOUT MORGAN DEXEN
According to the company, Morgan Drexen’s name is derived from two names. Morgan comes from the name of the Morgan horse – a breed that can participate in a wide range of activities, including pulling horse drawn carriages or participating in competitive sporting events.
Drexen is a derivative of Drexel Burnham Lambert – a large investment firm that offered a wide range of financial services but ultimately went bankrupt following violations of the Securities and Exchange Commission in the 1990s. It is mostly related to the financier of the junk bond Michael Milken.
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