Last week new information in the lawsuit between Morgan Drexen and the CFPB brought to light a commission compensated department called the Preferred Creditor Program. You can read that article, here.
At least one commenter mentioned Morgan Drexen is not the only company to have such a program. If not, then an industry wide problem may exist here.
One commenter said they thought the Morgan Drexen Preferred Creditor Program staff was commission based as determined on how much money they could save the consumer. That’s a nice thought but the facts don’t seem to support that position. – Source
Here is what Morgan Drexen has to say about their Preferred Creditor Program.
“Preferred Creditors: The Preferred Creditors Department is responsible for communicating with creditors who participate in the attorneys’ Preferred Creditor Program. The department performs a weekly update with the preferred creditor to determine whether or not the creditor or collection agency is collecting on a debt owed by the clients of attorneys supported by Morgan Drexen. If so, pending the review and acceptance of the attorneys and their clients, the creditor or collection agency will settle the debt at the agreed upon preferred rate.”
Here is what Morgan Drexen says about their Preferred Creditor Program.
- Save time and money
- Work directly with an account executive
- Settle your accounts at a guaranteed percentage
- Reduce your collection costs
- Daily settlements
They also say, “The Preferred Creditor Program (PCP) makes it simple for you to collect funds more efficiently, with no added expense and less effort. After setting up your Preferred Creditor account ID, your accounts will be flagged in attorney databases nationwide and our systems will check the status of funds for you every day.
When your accounts are ready to be settled, attorney offers are generated and automatically sent to you for approval. Payments are sent overnight within 5 days of approved offers.” – Source
They even have a video that promotes their program which you can watch here.
The video says:
Payments to preferred creditor program participants will receive preferential treatment and be paid ahead of non-preferred creditors.
Now keep in mind in court documents Morgan Drexen says, “There are also differences among the attorneys Morgan Drexen supports with respect to client engagement terms and the application of the preferred creditor program.” But to creditors and collectors it sure looks like the creditors and collectors call the shots. They provide the standard language to be used, they get paid first, and they determine the guaranteed settlement percentage.
And if individual attorneys are calling the shots then how is Morgan Drexen telling creditors and collectors they will be able to have their accounts settled at a guaranteed percentage?
Morgan Drexen states in a testimonial in their preferred creditors program video that the preferred creditor program offers represent the best interests of both sides of negotiation. But aren’t there at least three sides in a negotiation: creditor/collector; Morgan Drexen/Attorney; and Consumer? So which two of that cadre is best represented in this arrangement?
Does the Preferred Creditor Program Put Consumers at a Disadvantage?
So the marketing information on the preferred creditor program not only says the participants will be able to login to the Morgan Drexen portal and look at accounts, they will receive a guaranteed percentage, but it also says creditors/collectors who participate will be paid first. But what if it is not in the best interest of the consumer to pay a preferred creditor ahead of another threatening legal action?
Those in the settlement industry can think of times when one creditor or collector should be settled ahead of others. And what about consumers who live in states where wages can’t be garnished or debts are outside of the statute of limitations and there is no basis for paying on those accounts without careful consideration?
And What About the Attorney Fiduciary Responsibility for the Consumer?
Attorneys using the Morgan Drexen system who may not realize that participating creditors/collectors are paid first at a guaranteed percentage, could seemingly easily run into a situation where the fiduciary best interests of the consumer were not put ahead of such a system.
According to an article from the Florida Bar, the duty of the attorney, acting as a fiduciary for the consumer, has the following duties.
The most basic duty of a fiduciary is the duty of loyalty, which obligates the fiduciary to put the interests of the beneficiary first, ahead of the fiduciary’s self interest, and to refrain from exploiting the relationship for the fiduciary’s personal benefit. This gives rise to more specific duties, such as the prohibition against self-dealing, conflicts of interest, and the duty to disclose material facts. – Source
The Morgan Drexen Preferred Creditor Program and Debt Buyers
According to a 2013 attendee list for the 2013 DBA International Conference, Morgan Drexen Preferred Creditor Program representatives were in attendance. – Source
DBA International is the nonprofit trade association that represents the interests of companies that acquire distressed asset portfolios on the secondary market. – Source
The fact they attended a conference means nothing alone but what reasons can you think of for the manager and account executive of the Morgan Drexen Preferred Creditor Program to otherwise attend along with the settlement manager?
It appears the Morgan Drexen Preferred Creditors Program uses the login access point for the “Preferred Collectional Engagement Portal” called “Collection First: Where Collectors Get Paid in 30 Days.” – Source
They also say “We help Debt Collectors and Collection Agencies collect from debtors.” So is Morgan Drexen in fact a debt collector or then acting as an agent of the collector?
An interesting academic point to ponder.
Here is a Summary of What Morgan Drexen Has to Say
- There are no agreements with participants of the Preferred Creditor Program.
- Participants set their acceptable settlement percentage.
- Participants get their accounts settled at a guaranteed percentage.
- Participants get paid before anyone else.
- The program benefits collectors/creditors and Morgan Drexen.
- Participation saves time and money.
- Participants establish how they want their settlement agreements worded.
- Participants collectors and creditors have a dedicated Preferred Creditor Morgan Drexen Account Executive.
- Settlements are determined by unilateral client parameters while representing the best interests of both sides.
- Participants have access to a Preferred Creditor portal.
- Morgan Drexen “does not enter into agreements with creditors that have access to the Preferred Creditor Program.”
So Here is The Issue I’d Like for You to Ponder and Comment About
I don’t have any particular position about a “preferred creditor program” in which settlement rates are pre-negotiated as long as that fact is clearly explained and risks presented to the consumer enrolling in the debt settlement program.
Otherwise it seems the predetermined settlement rates and preferential treatment creates the following issues.
- If the account was negotiated individually, would the consumer get a more favorable settlement based on their unique situation?
- If settlement rates are predetermined then why should a consumer pay a higher fee, equivalent to a fully negotiated settlement? There would be less work involved and all parties could benefit from the economies of scale.
- What if it is not in the consumers best interest to settle a preferred creditor participant ahead of other debts?
- Does preferential treatment of creditors/collectors create a fiduciary problem for the locally licensed attorney representing the consumer?
What Morgan Drexen Says About Their Own Program
It is very confusing
Morgan Drexen identifies the creditors and debt collectors who “currently have access to utilize the “Preferred Creditor Program” portal.”
(1) Aargon Agency
(2) AFNI, Inc.
(3) Alliance One
(4) American Express
(5) Apex Financial
(7) Asset Acceptance
(8) Associated Recovery Systems
(9) Brachfeld & Associates
(10) Capital Management Systems
(11) Capital One Bank
(12) Cardworks Servicing
(13) Cash Call
(14) Cavalry Portfolio Services
(15) Chase Bank USA, N.A.
(16) Citibank USA, N.A.
(17) Client Services, Inc.
(19) Couch, Stillman, Blitt & Conville
(20) Credit Control
(21) Creditors Financial Group
(22) Creditors Interchange
(23) Delanore, Kemper & Associates, LLC
(24) Dynamic Recovery Solutions, Inc.
(25) First Asset Recovery Group, LLC
(26) First Capital Recovery, LLC
(27) First Financial Asset Management
(28) Firstsource Advantage, LLC
(29) Forster & Garbus
(30) Frontier Financial Group, Inc.
(31) Full Circle Financial Services
(32) GE Money Bank.
(33) Global Acceptance Credit Company
(34) GMC Credit Services, LLC
(35) GT Services
(36) HFC Beneficial
(37) HP Debt Exchange
(39) Icon Equities, LLC
(40) Jefferson Capital Systems
(41) Judgment Enforcement Law Firm, PLLC
(42) Kramer & Associates
(43) Leading Edge Recovery Solutions
(44) LHR, Inc.
(45) Matthew Thomas & Associates, LLC
(46) Mattia Debt Management
(48) Merrick Bank
(49) Michael Andrews & Associates
(50) MRS Associates
(51) National Credit Adjusters
(52) National Credit Solutions
(53) National Enterprise Systems
(54) National Recovery Solutions, LLC
(55) Nationwide Credit, Inc.
(56) NCO Financial Systems, Inc.
(57) Northland Group, Inc.
(58) P & B Capital Group, LLC
(59) Palisades Collection, LLC
(60) Phillips & Cohen Associates, Ltd.
(61) Portfolio Asset Group
(62) Portfolio Recovery Associates
(63) Portfolio Recovery Services
(64) Resurgent Capital Services, LP
(65) Richard J. Boudreau & Associates, LLC
(65) RJM Acquisitions
(66) Second Round, LP
(67) Settlement Collections, LLC
(68) Stoneleigh Recovery Associates, LLC
(69) Target National Bank
(70) US Bank
(71) Valentine & Kebartas, Inc.
(72) Washington Mutual
(73) Wells Fargo Financial Bank
(74) Weltman, Weinberg & Reis Co., L.P.A.
(75) West Asset Management
(76) World Financial Network National Bank
(77) Zwicker & Associates, P.C.
We also know, “the following [Morgan Drexen] departments receive commission-based compensation: Creditor Relations, Legal Intake, Marketing, Preferred Creditors, and Processing.”
We know, “The correspondences between Morgan Drexen and the preferred creditors were written by Cris Signorino, Tod Stokes and Leandro de Amaral”
We know, “The idea for the Preferred Creditor Program was originally conceived by Walter J. Ledda, Morgan Drexen’s Chief Executive Officer. The program was thereafter presented to the Associated Attorneys for their thoughts and authorization for implementation with their clients. Since the creation of the program, Cris Signorino, the Preferred Creditor Relations Manager, and Tod Stokes, the Preferred Creditor Account Executive, have been responsible for approaching creditors and debt collectors for participation in the program.” [Could that be why they were at the debt buyer conference?]
It appears from recent court documents, Morgan Drexen has been slow to release more information about this program, “Document Request 18 asks for “Contracts, agreements, or correspondence with creditors that participate in the ‘Preferred Creditor Program.'” You have provided only administrative/non-substantive emails. You have failed to either provide contracts or agreements or, once again, provide any explanation for this delay, simply stating that “the Company will supplement this response at a later date.” We can conceive of no reason why Morgan Drexen has been unable to provide a timely response to this request, particularly the contracts. The Bureau requests full production of this request by May 18, 2012.”
But in response, Morgan Drexen said, “In Morgan Drexen’s April 27 response, the Company produced responsive documents bates labeled MD002072 — MD005172, and explained that its discovery into this matter was continuing. Please find attached as MD009955 — MD9959 a copy of the standard non-disclosure agreement entered into between Morgan Drexen and some creditors that participate in the Preferred Creditor Program. Other than the non-disclosure agreement, the Company does not enter into agreements with creditors that have access to the Preferred Creditor Program. As a precautionary measure, Morgan Drexen asserts that discovery into this matter is continuing. Subject to the schedule restraints of the individuals assisting on this project, Morgan Drexen is working diligently to produce additional responsive correspondence with creditors to the Bureau, if any.
This statement by Morgan Drexen seems a bit unusual since Morgan Drexen already has stated “the creditor or collection agency will settle the debt at the agreed upon preferred rate.” So it seems their must be some agreement on what the preferred rate is.
Morgan Drexen stands by their position, “Morgan Drexen does not enter into any “relevant” contracts or agreements with creditors that participate in the “Preferred Creditor Program.””
The attorney for Morgan Drexen says, “There are also differences among the attorneys Morgan Drexen supports with respect to client engagement terms and the application of the preferred creditor program.”
If you would like to read the full document these facts were taken from, click here.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
I can always use your help. If you have a tip or information you want to share, you can get it to me confidentially if you click here.