The CFPB has filed a complaint in a California federal district court against three law firms and two individual attorneys alleging that they offered debt relief services to consumers in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA).

The CFPB’s complaint alleges that in offering debt relief services, the defendants “aligned themselves” with Morgan Drexen, Inc., the company (and its CEO) sued by the CFPB in 2013 for allegedly charging advance fees for debt relief services in violation of the TSR and engaging in deceptive acts and practices in violation of the CFPA.  In June 2015, based on a finding that the company had violated the TSR and CFPA, the court issued a permanent injunction prohibiting Morgan Drexen from collecting any more money from customers and charging upfront fees for debt relief services.  The company then shut down its operations and a trustee appointed by the bankruptcy court took control of the company’s assets.  In March 2016, the court entered a final judgment in favor of the CFPB that required the bankrupt Morgan Drexen to pay nearly $133 million in restitution and a $40 million civil money penalty.  The judgment followed a stipulated final judgment against Morgan Drexen’s CEO approved by the court in October 2015 which, based on the CEO’s inability to pay, required him to pay $500,000 in consumer redress and a $1 civil money penalty.

In the new complaint, the CFPB alleges that the defendants had consumers sign two contracts, one for debt settlement services and the other for bankruptcy-related services, to disguise upfront payments for debt relief services as fees for bankruptcy-related services that consumers had not sought.  According to the complaint, although consumers entered into contracts with the defendants, Morgan Drexen conducted nearly all of the debt relief work.  However, after the CFPB filed its enforcement action against Morgan Drexen, the company’s debt relief work was transferred to the defendants.

The complaint alleges that the defendants violated the TSR by charging unlawful advance fees for debt relief services and engaging in marketing in which defendants represented, directly or by implication, that consumers were not charged advance fees.  It alleges that the defendants also violated the TSR by providing substantial assistance to Morgan Drexen and its CEO while “knowingly or consciously avoiding knowing” that Morgan Drexen and its CEO were engaged in practices that violated the TSR.  The complaint further alleges that the defendants’ alleged  TSR violations constitute violations of the CFPA’s UDAAP prohibition.  The complaint seeks various remedies under the CFPA, including injunctive relief, restitution, and civil money penalties.