TRENTON – Attorney General Peter C. Harvey
today announced settlements with two major
financing companies – General Electric Capital
Corp. (“GE”) and CIT Technology Financing
Services, Inc. (“CIT”) – that will result in the
forgiveness of nearly $8 million in payments owed
by New Jersey customers under long-term service
agreements with NorVergence, Inc., a bankrupt New
Jersey telecommunications company.
NorVergence, which was based in Newark, is
under investigation for allegedly deceiving
thousands of customers across the U.S., mostly
small businesses, in its leasing of
telecommunications equipment and services.
NorVergence sold its long-term service agreements
to 26 financing companies. Although NorVergence
stopped providing services to the customers, the
financing companies have continued to bill
customers and, in some cases, have initiated legal
actions against them. Some customers have monthly
payments as high as $5,700.
Attorney General Harvey said that as a
result of cooperative discussions with GE and CIT,
the two companies have agreed to forgive the
majority of payments owed by 525 customers, more
than one-third of the roughly 1,450 NorVergence
customers in New Jersey. GE has agreed to forgive
$3.57 million owed by 270 New Jersey customers.
CIT has agreed to forgive $4.36 million owed by
255 New Jersey customers.
“We have made protecting New Jersey
consumers a top priority,” said Acting Governor
Richard J. Codey. “The NorVergence customers for
whom we are providing relief are mostly small
businesses with narrow profit margins. They cannot
afford to lose money to this type of scam. We will
continue to fight to make sure New Jerseyans get a
fair and honest deal.”
“These NorVergence customers were faced
with the prospect of paying hundreds or, in some
cases, thousands of dollars per month for several
years to come for nothing in return since they
would not have received any telecommunications
services,” Attorney General Harvey said. “I
commend these two companies for working with us to
provide appropriate relief to these customers, who
are mostly small business owners. We’re continuing
to work with other financing companies to reach
settlements for the remaining New Jersey customers
who were misled by NorVergence.”
Under the settlements, GE will forgive 85
percent of the balances that were owed by
customers under the rental or service agreements
as of July 15, 2004, the date when all services
from NorVergence were
discontinued.
CIT will forgive such balances
according to a graduated schedule based on
original contract amount. It will forgive 100
percent on contracts less than $18,000; 85 percent
on contracts between $18,000 and $25,000; 80
percent on contracts between $25,000 and $30,000;
and 75 percent on contracts in excess of
$30,000.
Each customer may decide whether to
participate in the agreement. GE and CIT will
forgive all late fees or penalties and property
insurance charges assessed against the customers
since July 15, 2004. In addition, the companies
will pay refunds to or credit any customers that
have paid in excess of the amounts called for
under these settlements for periods after July 15,
2004. The companies are not forgiving payments for
periods prior to that date that remain unpaid by
customers. The companies have agreed to terminate
all litigation against customers related to
payments due after July 15, 2004. More
importantly, the companies have agreed to contact
credit reporting agencies to clear customers’
records of any adverse reports related to such
payments.
In addition, each company has agreed to
make payments to cover the State’s costs in
handling this matter and to fund future
initiatives of the Division of Consumer Affairs.
GE has agreed to pay $105,000, which is 2.5
percent of its outstanding contract balances. CIT
has agreed to pay $54,000, which is 1 percent of
its outstanding contract balances.
Deputy Attorney General Lorraine K. Rak,
Chief of the Consumer Fraud Prosecution Section,
represented the State in the negotiations.
Investigator Aziza Salikhov is investigating this
matter.
Last month, New Jersey participated in a
multi-state agreement involving TCF Leasing, Inc.,
another financing company that purchased
NorVergence service agreements. TCF, which had
service agreements with two New Jersey customers,
agreed to forgive all customer
balances.
From at least 2002 until shortly before it
filed for bankruptcy in June 2004, NorVergence
sold and resold telecommunications services as
integrated packages, including local and long
distance telephone, cellular telephone and
high-speed Internet access. NorVergence marketed
its services primarily to small businesses and
not-for-profit organizations that did not have
in-house counsel or technology personnel who could
properly evaluate what was being offered.
NorVergence’s salespeople told customers that they
could save up to 60 percent compared to their
current service providers over the term of the
NorVergence contract, which was typically five
years.
NorVergence claimed the savings were
made possible by an innovative proprietary device
called the “Matrix” box. In fact, the Matrix is a
standard combination of telecommunications
equipment for high-speed voice and data
transmission that did not make cost savings
possible.
NorVergence salespeople used
high-pressure tactics to sign up customers,
putting the bulk – at least 80 percent – of the
service agreement into an equipment finance lease
purportedly for the Matrix box. The monthly rental
payments for the equipment varied widely from
approximately $200 to $5,700, so that rental
payments over the duration of the five-year
contract totaled anywhere from $12,000 to more
than $340,000. Although the actual cost of the
Matrix box was not more than $1,500, customers
were not given the option of buying
it.
