Your Friendly Federal Trade Commission by Christopher Menkin
"The Commission is headed by five Commissioners, nominated by the President and confirmed by the Senate, each serving a seven-year term (on a staggered basis so they do not all expire at the same time.) The President chooses one Commissioner to act as Chairman. No more than three Commissioners can be of the same political party. The current Chairman and Commissioners are: Deborah Platt Majoras, Pamela Jones Harbour, Jon Leibowitz, William E. Kovacic, and J. Thomas Rosch. http://www.ftc.gov/bios/commissioners.htm "The FTC may begin an investigation in different ways. Letters from consumers or businesses, Congressional inquiries, or articles on consumer or economic subjects may trigger FTC action." http://www.ftc.gov/ftc/action.htm Perhaps best known to the equipment leasing industry is FTC Senior Attorney Randy Brook out of the Northwest Regional Office, Seattle, Washington. He has over thirty-three years with the commission, winning many restitutions, the most recent was from Leasecomm, where stop collection efforts on all outstanding judgments, totaling $24 million, involving the financing of the software and equipment for processing credit-card transactions. Leasecomm also paid a $1 million fine to be split by the states of Massachusetts, Florida, Illinois, Kansas, North Carolina, North Dakota and Texas. The district attorney for Ventura County, California also received a portion of that fine.
Leasing News readers perhaps know this man most from our stories on the NorVergence scandal, where he acknowledges communicating with private attorneys, the attorneys generals and their staff, plus 'FTC headquarters staff in Washington, DC. He states the FTC has always welcomed information from both state government and the private sector, striving to work for the good of all consumers, including those in business. In writing the story about how many were offered and took settlements from the attorneys generals office in NorVergence lease settlements, Brook said he could make no official comment, but personally believes they were reasonable offers. The FTC is not involved in criminal prosecutions but primarily in protecting consumers and obtaining restitution, he pointed out. As an information gathering process across the 50 states, what the FTC staff uncovers can be used in deciding whether to bring cases with nationwide effect. That information may also be used by various law enforcement agencies of both the federal and state governments. In the NorVergence telephone scandal, the FTC received a $181,721,914 judgment in the Federal District Court case against NorVergence . While it is most likely there will be more liabilities than assets, the judgment was of assistance to those who had signed leases where the equipment and service did not begin or any collateral nature from those who had direct leases with NorVergence. At the present time, Brook and his staff are looking into several leasing companies in the manner in which their financial records book the "Equipment Rental Agreements." In one instance, a Civil Investigative Demand (CID) was issued to IFC Credit Corporation, Morton Grove, Illinois, for such information. On the Lease Team web site where their clients are listed, one of them is IFC Credit. Brook claims to be comfortable in reading “Lease Plus,” the software which records the leases for accounting purposes and is utilized by IFC Credit Corporation. In the Leasing News story about the numbers who accepted settlements from New York Attorney General Elliott Spitzer and his staff, Leasing News noted it had questions (http://www.leasingnews.org/archives/March%202006/03-24-06.htm#norv). In an exclusive interview, FTC Senior Attorney Randy Brook had answers : "As you know there are many ways to define "leases .” These may vary leg ally, accounting wise, by the consumer, by the leasing trade itself... T hese NorVergence contracts principally financed services, which doesn't sound like a lease in any legal sense. Even the forms themselves are titled "Equipment Rental Agreements , " not leases . From an accounting standpoint, they might be treated as leases, but that treatment would have to comply with FASB 13. With NorVergence as the "rentor," and with a rental price tens or hundreds of times the Matrix cost, they would presumably start out as a sales-type lease under FASB 13 . The rental agreement might be treated after assignment to a finance company as a direct financing lease, but I can't see how it could ever be an "operating lease .” “Xerox Corp. got into trouble with the Securities and Exchange Commission when it mixed services in with its copier leases and treated the whole package as an operating lease. Note that I don't have any reason to think the finance companies here are treating the NorVergence rental contracts as operating leases, but I expect we will find exactly what they are doing during our investigations. "In investigating finance company practices, the FTC is examining how the accounting was recorded of the "Equipment Rental Agreement." Under FASB 13, one of the requirements is to determine the "Fair Market Value" of the equipment. FASB 13 lease classification also requires consideration of residual value at the end of the lease. What numbers were utilized? The actual cost of the Matrix Box or the rental price? The FTC charged that the rental contract prices had nothing to do with the cost of the Matrix box. It also charged that finance companies doing business with NorVergence knew or should have known that the Matrix was only an incidental part of the services promised by NorVergence and that, based on the wide variance in rental agreement amounts, that the contracts might have been part of a scheme to defraud consumers. Thus, the manner in which the rental agreements were on the actual books is something the FTC is examining closely. ”Kit , you've asked me about UCC Article 2A. First, I should say that the UCC is a state law issue, and the FTC doesn't enforce state law. However, if a company misrepresents that consumers have to pay no matter what happens, and misleadingly base that claim on a state law that might not apply at all, that misrepresentation could be an FTC issue. This happened in the Leasecomm case. “In Leasecomm, the FTC contended that the leases were for intangibles like websites that could not be subject to 2A leases. Here, with the rental agreements principally covering future services, the same argument might apply. However, there's another reason why it might be misleading to say that 2A applied to NorVergence rental agreements. Article 2A presumes that the lessor is not the manufacturer or supplier and has not selected the product leased. NorVergence claimed to be the manufacturer, or at least was the supplier of Matrix boxes manufactured by Adtran. It was also the original "rentor" and selected the equipment out of its inventory. I don't see how 2A could apply to this situation. This could impact whether any "hell or high water" clause would be enforceable, although as I said, this is a matter of state law, not FTC law. However, as the FTC charged in the NorVergence case, various clauses in the NorVergence Rental Agreement might have allowed the finance companies to misrepresent that consumers owed money regardless of whether NorVergence provided the promised services. " Another thing the FTC is looking at, as you can see in the investigational documents made public in a recent court filing, is "force placed" insurance on the Matrix boxes. A rental contract provision allows the rentor to obtain loss or damage insurance on the Matrix and bill the customer for it, similar to what is done for vehicles purchased on credit or home mortgages . Here we have to ask how the amount of insurance coverage was arrived at . "The same question comes up regarding personal property tax. Was it on the fair market value of the equipment only, as is the requirements in most counties through the United States that collect this tax, or did it include the soft costs, such as service, installation, and labor that were part of the total rental price ?" Now it is time for the leasing companies to answer questions from the friendly Federal Trade Commission. |
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