Texas Sues NorVergence Debt Collector

June 6, 2007
Texas Attorney General Greg Abbott today asked a Harris County District Court to prevent IFC Credit Corp., an Illinois finance company, from attempting to recover fraudulently incurred debts from Texas small businesses and nonprofits for telecommunications services.

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According to court documents filed by the Attorney General and the U.S. Federal Trade Commission, IFC attempted to collect on debts it purchased from NorVergence Inc., a now-bankrupt company that defrauded small business owners.

NorVergence marketed fixed-price, low-cost telecommunications services to business owners. However, NorVergence customers did not realize they were actually signing five-year “rental agreements” for equipment that was essentially useless without the promised services. Since purchasing these accounts, IFC has aggressively attempted to collect debts that it knew resulted from contracts designed to deceive business owners, the state charged.

“Small businesses are critical to the success of Texas’ economy,” said Attorney General Abbott. “The Office of Attorney General is committed to protecting small business owners from fraudulent schemes and unlawful debt collection practices. Texans can rest assured we will aggressively protect NorVergence victims from continued suffering because of this illegal, fraudulent scheme.”

Prior to its bankruptcy, NorVergence sold $21 million worth of accounts to IFC at a discount. NorVergence used the proceeds from the sale to pay for additional worthless products that it marketed to small businesses, Abbott said.

Today’s action accuses IFC of failing to exercise caution before acquiring the indebted customers’ accounts, and of knowing NorVergence customers were tricked into the transaction with the false promise of low-cost services.

In 2004 the Attorney General took legal action against NorVergence for misleading hundreds of small businesses into signing five-year rental agreements for what amounted to worthless equipment and service. NorVergence falsely claimed it would drastically reduce telecommunications costs with its services. The rental agreements ranged in value from $4,400 to almost $161,000.

The Attorney General’s petition against IFC seeks the dissolution of debts incurred by fraudulent means and the cancellation of wrongful contracts. Attorney General Abbott has also asked the court to void lawsuits IFC has filed against debtors since 2004, given that the company misled business owners into thinking they had no defenses in debt collection cases and that the debts were enforceable.

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