FTC Resolves NorVergence's Unfinished Business

Court provides relief to customers facing debt for disputed service

November 11, 2008

NorVergence • Consumer Complaints • Inside NorVergence --- News • FTC Resolves NorVergence's Unfinished Business • FTC Sues Company for Financing NorVergence Scheme • Texas Sues NorVergence Debt Collector • States Settle NorVergence Claims with 10th Leasing Company • FTC Settles NorVergence Case • Norvergence Forfeits $47 Million In FTC Settlement • California Settles with USB Leasing • States Settle with Three Leasing Companies • GE Capital Agrees to NorVergence Settlement • Leasing Companies Release Florida Customers from NorVergence Leases • Massachusetts Sues NorVergence • Illinois Sues NorVergence • FTC Charges NorVergence • Florida Sues 12 Leasing Companies In NorVergence Case • States Open Investigation

For years, a company called NorVergence did business by claiming it would provide substantial telecom savings for small business and nonprofit consumers by installing a "Matrix box" on consumers' premises.

The U.S. Federal Trade Commission alleged, however, that the Matrix box, which NorVergence rented to customers for inflated prices of between $200 and $2,500 per month for up to five years, was nothing more than a standard telecom router that had little or nothing to do with reducing telecom costs.

But long after the FTC took action against NorVergence and the company went out of business, IFC Credit Corporation pressed NorVergence's former customers to pay up, under the equipment leasing contracts.

Now, a federal court has issued an order that will let consumers pay IFC a substantially reduced amount, just pennies on the dollar in many cases.

The order settling the government's charges against IFC prohibits the company from collecting on a finance contract when, based on the information IFC has at the time it acquires the contract, a reasonable businessperson in the finance industry would conclude that the consumer was deceived into agreeing to the transaction.

According to the FTC's complaint, IFC was one of a group of finance companies that helped finance a telecommunications scheme perpetrated by the now-defunct Norvergence.

According to the complaint, however, NorVergence had no long-term contracts with telecommunications providers and thus no way to assure the long-term savings it promised. Instead, it immediately sold the Matrix rental contracts to finance companies, including IFC, for quick cash.

The scheme collapsed when NorVergence became unable to provide telecom services or pay its suppliers because it was charging consumers less than the services cost and it had spent all the money it received from selling the contracts to finance companies.

The FTC sued NorVergence in 2004, and obtained a $181 million default judgment in mid-2005.

IFC allegedly violated the FTC Act by using unfair and deceptive tactics in its attempts to collect from defrauded consumers the full amounts owed under the contracts when the consumers were no longer receiving the promised services.

The FTC order settles the Commission's complaint against IFC and covers the types of transactions at issue in the case, i.e., finance contracts requiring payments of up to $250,000 that are commonly entered into by small businesses, nonprofits, and individual consumers. The largest NorVergence rental agreements IFC acquired called for payments of $160,000.

Specifically, the order prohibits IFC from representing that consumers have waived any defenses, or are precluded from asserting any defenses or counterclaims, to IFC's collection on any finance contract.

The company also cannot tell consumers they are obligated to pay IFC under any other liability theory, including, but not limited to, fraud or misrepresentation.

The order further prohibits IFC from collecting on a finance contract if – based on the information IFC had when it acquired the contract – a reasonable businessperson in the finance industry would conclude that the contract materially misstated the consideration the customer would receive; or the contract was procured by deception.

The FTC's settlement with IFC was reached in conjunction with agreements between IFC and a multi-state group of attorneys general. That group includes Illinois, Arizona, Colorado, Connecticut, District of Columbia, Florida, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, and Texas.

Under those agreements, IFC's NorVergence customers will have an opportunity to enter into settlements with IFC, under which the company will eliminate a substantial portion of what the consumers owe under the contracts.

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