SANTA ANA, Calif. (CN) — Less than a year after hitting debt-relief company Morgan Drexen with a $173 million judgment, the Consumer Financial Protection Bureau has accused two attorneys and their firms of continuing the shuttered business’s scheme to cheat desperate consumers out of more than $5 million in illegal advance fees.
In a federal lawsuit Monday, the bureau sued Vincent D. Howard, Lawrence W. Williamson, their individual law firms and their joint firm, Williamson & Howard, claiming they “collected millions of dollars of unlawful fees from consumers before settling their debts — which defendants often fail to settle at all.”
Williamson is based in Kansas City, Kansas. Howard’s office is in Anaheim, but for several years he worked out of Morgan Drexen’s headquarters in Costa Mesa. He is the immediate past president of the Orange County Trial Lawyers Association, having handed on the post in a ceremony Jan. 21.
Howard did not return a call late Tuesday about the CFPB lawsuit.
Attorney Sean A. O’Keefe of Costa Mesa, who represented the two lawyers in part of the Morgan Drexen litigation, said he would do so this time as well.
O’Keefe declined to comment on the new lawsuit. “We’re still going through what they filed,” he said.
The CFPB accuses the defendants of violating the federal Telemarketing and Consumer Fraud and Abuse Prevention Act, and its Telemarketing Sales Rule.
The rule, as amended in 2010, prohibits debt-relief agencies that use telemarketing from asking for or accepting advance fees until they have resolved at least one of a customer’s outstanding debt accounts and the customer has made at least one payment on the account.
When the amendment took effect, Morgan Drexen and the defendants started giving customers two lengthy contracts to sign, one for debt services “and one for sham bankruptcy work” — even though customers were trying to avoid bankruptcy, the CFPB says.
The 4- to 5-page, single-spaced bankruptcy contract — “filled with legalese written in a small font” — required customers to pay fees in advance, usually $1,000 to $3,250 upfront and a monthly “administrative” fee of $50 deducted from their checking accounts.
The twin contracts created a “façade” that the defendants were obeying the rule, according to the bureau. “(T)hey just moved every mention of these fees to the contract for bankruptcy-related services,” the lawsuit states.
Howard and Williamson were deeply involved in the scheme from the beginning in 2007, when Howard moved into Morgan Drexen’s offices, the CFPB says. The two “developed intake procedures, contracts, document templates, and other components of their debt relief program,” and Howard hired and trained “intake specialists” who took consumers’ calls and sold them the program. He also developed a network of about 100 lawyers around the country to be the apparent counsel for customers outside California.
When the CFPB sued Morgan Drexen and its founder and CEO Walter Ledda in 2013, Howard told the court that all the advance fees had been for bankruptcy, not debt-relief, work. The company submitted 400 bankruptcy petitions the attorneys allegedly had prepared for customers.
Those petitions were phony, fabricated specially for the CFPB case, according to the lawsuit.
In response, U.S. District Judge Josephine L. Staton issued “terminating sanctions” against Morgan Drexen, declaring the CFPB the winner of the lawsuit without a trial and issuing the judgment.
But Howard, Williamson and their firms simply took over the company’s business, the new lawsuit says: “From June 2015 to October 2015, the defendants collected over $5.2 million from consumers who had signed up for the unlawful debt relief scheme through Morgan Drexen.”
In announcing the bureau’s lawsuit Monday, CFPB Director Richard Cordray said: “We put a stop to this scam once already, and we intend to do it again.”
The bureau accuses the lawyers and their firms of two counts of violating the Telemarketing Sales Rule, and seeks restitution, disgorgement of profits and an injunction permanently barring them from violating the rule again.
Republicans in Congress have repeatedly tried to dismantle the Consumer Financial Protection Bureau, and it has come under increasing attack in the new Trump administration.
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