On October 17, the Consumer Financial Protection Bureau avoided trial in a lawsuit brought by a litigation support company, Morgan Drexen Inc., which challenged the CFPB’s constitutional right to exist. U.S. District Judge Colleen Kollar-Kotelly sided with the CFPB. She granted the agency’s motion to dismissed the suit calling the bureau’s arguments “persuasive” and Morgan Drexen’s argument’s “unavailing.”
The decision comes a month after Morgan Drexen argued its right to bring a constitutional challenge to the existence of the CFPB in a suit about the CFPB’s probe into its debt-settlement practices.
The Nevada-based company sued the CFPB in July in response to the agency’s investigation into several purported violations of federal telemarketing rules. The CFPB launched its own suit against Morgan Drexen in California in August, claiming the company collects illegal upfront fees for debt-relief services through a deceptive contract structure and misleads consumers about its ability to eliminate their debts.
Having sustained defeat in Washington, D.C., Morgan Drexen now must start over in the context of the bureau’s enforcement suit in California. The CFPB has accused the company of charging upfront fees for debt relief work. The practice was made illegal by U.S. Federal Trade Commission’s 2010 amendment to the Telemarketing Sales Rule.
Judge Kollar-Kotelly found that Morgan Drexen can raise a constitutional challenge in the lawsuit in California. The company intends to do so, according to its counsel.
The U.S. District Court for the District of Columbia case is Morgan Drexen Inc. et al. v. Consumer Financial Protection Bureau.