Morgan Drexen takes CFPB battle to its website

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Explore:  CFPB Commerce Clause Debt

Visitors to Morgan Drexen’s website can now click through to a page that allows them to see information about Morgan Drexen’s lawsuit filed in Washington, D.C. against the CFPB, as well as other information intended to support Morgan Drexen’s position. As we reported last week, the CFPB responded to the lawsuit by filing its own action against Morgan Drexen in a California federal district court.

The information available on the Morgan Drexen website includes an order issued last September by a Colorado trial court in a case filed against the Colorado Attorney General by Morgan Drexen and two attorneys practicing law in Colorado who used Morgan Drexen’s services. In the lawsuit, Morgan Drexen sought a ruling that it was exempt from regulation under Colorado’s Debt-Management Services Act (DMSA).

The court determined that even though it was a provider of debt management services under the DMSA, Morgan Drexen qualified for the DMSA’s exemption of legal services provided in an attorney-client relationship by an attorney licensed or otherwise authorized to practice in Colorado. The court held that an amendment to the DMSA that purported to make the exemption inapplicable to non-employee non-lawyer assistants and out of state attorneys not licensed but otherwise authorized to practice law violated both the Colorado and the U.S. Constitutions. According to the court, the amendment violated the Colorado Constitution pursuant to the separation of powers doctrine because only the Colorado Supreme Court could regulate the practice of law. The court determined that the amendment violated the U.S. Constitution because it discriminated against out of state attorneys in violation of the Privileges and Immunities Clause and improperly burdened interstate commerce in violation of the Commerce Clause.

In May 2013, the Colorado AG appealed the decision to the Colorado Court of Appeals. On July 31, the court set a briefing schedule that requires the AG to file his opening brief by September 11, 2013 and gives Morgan Drexen 35 days after service of the AG’s opening brief to file its answer brief.

Morgan Drexen’s complaint filed in D.C. against the CFPB raises a different separation of powers challenge than its Colorado lawsuit in that the D.C. complaint alleges the CFPB’s structure violates the U.S. Constitution because there are insufficient checks and balances on the CFPB’s authority. In the complaint, Morgan Drexen reserved its claim that the CFPB was also improperly attempting to regulate the practice of law. As a result, it seems unlikely that the Colorado trial court’s decision is likely to carry any weight with the D.C. federal district court.