Wisconsin's debt-laden consumers paid a California company more than $8 million to settle less than $4 million in debt in a fee-and-payback arrangement a state administrative law judge decided Thursday is illegal and requires a hefty fine and restitution to resolve.
The company took to YouTube to defend its practices.
The judge agreed with the Department of Financial Institutions and ordered Morgen Drexen to pay $4.25 million in restitution for fees DFI claims the company illegally charged the state's consumers since 2007. The company is not licensed to "adjust" any financial debt in the state, said DFI, which demanded an additional $1.89 million in penalties for 1,890 -- the number of customers here -- violations of Wisconsin's debt adjustment laws.
The company, a prolific advertiser on television, responded with an Internet defense and its top lawyer, Jeff Katz, blazing that "we are not shy about our practices."
The company, which has 30 days to appeal DFI's order to circuit court, last month posted a YouTube "news" report claiming Wisconsin regulators are making life easier for debt collectors.
"It's unconstitutional to apply this" licensing requirement, because the company merely supplies services for lawyers, and DFI cannot regulate lawyers, said Katz. He said the company's legal fight with DFI goes back to 2009, and the order Thursday means "in essence, we are returning to that case. " He would not, however, say yes or no to the company appealing the order.
To negotiate debt settlements in Wisconsin, a company must get a license, file disclosures and limit fees. DFI's order said Morgen Drexen was not licensed and charged excessive fees that totaled $4.25 million out of the $8.1 million state consumers paid to the company from 2007 to 2012.
The company claims -- as it has in similar legal wrangles in other states -- it is not a debt settlement company, but instead is a "paralegal and administrative support firm that works for attorneys," according to the decision on DFI's complaint by an administrative law judge. In Wisconsin, the company said, it contracts mainly on a fixed amount per-customer basis with Tiffany Stockinger, whose website takes pains to announce that the company "assists ... attorneys to be more efficient."
The company describes itself as a designer and deliverer of "integrated support systems to attorneys across the United States," while also "providing critical back-office paralegal and paraprofessional services."
That description of the Wisconsin model is "both in execution and intention, a pretense designed to evade regulation," wrote the judge, Andrew Parish, wrote in a 55-page decision and order.
He agreed with a Wisconsin Department of Justice attorney's description that the "non-lawyer assistant tail emphatically waves the lawyer dog." The order includes descriptions of the company's debt adjustment strategies -- sending a "mock" bankruptcy document to convince creditors that debtors don't have any money -- and fee schedules.
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