$24 Million More in Settlements NorVergence Leases

(-----23 state attorney general plus the District of Columbia now have reached settlements with the major holders of NorVergence leases. Three more leasing companies have entered negotiations, and definitely more will follow the lead, first started by GE Capital. The rumor was they could afford it, but in reality, other were soon to join them, including CIT, among others, and now USbancorp and others. Leasing News reported earlier that USbancorp had take the high road. We think others should get on the band wagon. editor )

At press time, four state attorneys general issued press releases on their victory in obtaining settlements that add up to an additional $24 million, not including the amounts won in New York, New Jersey, Florida, Texas and several other states. Reportedly all the attorney general offices involved in the latest settlement will be issuing press releases on how it involves their state.

Massachusetts Attorney General Tom Riely said “...73 in Massachusetts who will receive an estimated $1.6 million - will either receive refunds or be cleared of $24 million in debt under the terms of a settlement reached with three finance companies linked to a telecommunications scam spearheaded by NorVergence, a now-bankrupt New Jersey-based telephone company.”

“The settlement, filed today in Suffolk Superior Court, resolves allegations that CIT Group/Equipment Financing, Inc.(CIT), of Livingston, New Jersey, Lyon Financial Services, known as U.S. Bancorp Business Equipment Finance Group (US Bancorp), of Marshall, Minnesota, and Wells Fargo Financial Leasing, Inc. (Wells Fargo), of Des Moines, Iowa, knew or should have known that their financing agreements with more than 1,000 small businesses were fraudulently obtained. At the center of the controversy is NorVergence, a bankrupt New Jersey-based telecommunications provider, which misled customers into signing long-term contracts with claims that the company would provide discounts on local, long distance, wireless and Internet services.”

" ‘This settlement lifts the burden off many small business owners who were being forced to pay hundreds or thousands of dollars each month for non-existent services,' AG Reilly said. ‘Today's action is another step forward in our efforts to hold NorVergence accountable for its widespread telecommunications scam, and to end the continuing victimization of these consumers by the finance companies which, through their actions, whether intentionally or not, facilitated and furthered the scam."

Colorado Attorney General John Suthers also announced the multistate settlement with Lyon Financial Services (dba U.S. Bancorp Business Equipment Finance Group) and Wells Fargo Financial Leasing Inc., both of which had purchased lease agreements from NorVergence Inc., a bankrupt, New Jersey-based telephone equipment and service company.

Suthers said the settlement will put more than $500,000 back in the hands of Colorado small-business owners. However, creditors still would collect about $93,000 from the companies involved in the case.

Michigan Attorney General Mike Cox summed it with settlements from CIT Group/Equipment Financing, Inc. (CIT), Lyon Financial Services d/b/a U.S. Bancorp Business Equipment Finance Group (USB), and Wells Fargo Financial Leasing, Inc. (WFFL) will collectively refund or not collect more than $24 million in rental payments from consumers according to the following formula:

CIT: $8.83 million not collected, 496 contracts affected, 10 states.

USB: $7.9 million not collected, 366 contracts affected, 18 states.

WFFL: $7.3 million not collected, 261 contracts affected, 20 states.

" ‘Many Michigan small business owners were victimized by NorVergence's bogus promises, and then suffered again when financing companies tried to collect for services that were not being received,' said Cox.'” I am pleased that CIT, USB, and WFFL have agreed to forgive the bulk of the outstanding balances on their NorVergence contracts. These settlements will offer resolution to affected small businesses that were struggling to meet dead-end obligations, including some that were sued for payment in courts in Minnesota and Iowa."

“CIT, USB, and WFFL are three of approximately 40 financing companies involved with the financing of telecommunication services through the rental of data routers that NorVergence called the Matrix box. NorVergence enticed small business customers to enter into rental agreements for a Matrix box that purported to provide telecommunications services by false claims of dramatic savings. While the rental agreements were typically for three to five years with payments of $500 - $2,000 per month, the market price of the Matrix box was no more than $1,500. After securing contracts with businesses, NorVergence sold the rental agreements to different finance companies, including CIT, USB, and WFFL.

“When NorVergence was forced into bankruptcy in June 2004, its customers were left without service but the finance companies, including CIT, USB, and WFFL, maintained that customers were still responsible for the five-year rental agreement payments. Customers who did not pay faced being sued or threatened with suits by USB and WFFL in the states in which they have their corporate headquarters, in most cases, a distant and inconvenient forum for the NorVergence customers.

“All consumers who signed agreements with NorVergence that were bought by CIT, USB, or WFFL or signed NorVergence agreements directly with CIT, USB, or WFFL, will receive a notice in the mail regarding the opportunity to participate in the settlement. To accept the settlement offer, consumers must follow instructions contained in the notice. Also, any consumer that previously settled with the three companies regarding NorVergence service can opt to receive the same or substantially the same terms of this settlement, if they choose.

“During 2003 and 2004, the Consumer Protection Division collected more than $600 million on behalf of Michigan. In 2004, the Division stopped more than $400 million in utility rate increases and responded to more than 102,000 consumer complaints.

“A copy of the settlements with CIT, USB, and WFFL can be viewed at the Attorney General's Web site: http://www.michigan.gov/ag under the Consumer Protection link.”

North Carolina AG Roy Cooper

In Raleigh, North Carolina, Attorney General Roy Cooper announced,
” three finance companies that bought contracts from a telecom company that rented worthless equipment to small businesses have agreed to stop collecting payments and pay refunds.”

His press release stated, “Cooper joined attorneys from 22 other states and the District of Columbia to announce settlements.” This brings the total then from 22 to 24.”

“The agreement with Wells Fargo means that 13 North Carolina consumers could opt to be forgiven $342,210 of $298,034 debt,” he said. “ An additional five North Carolina small businesses are eligible to receive an estimated $100,000 in refunds or debt forgiveness from USB. North Carolina does not have any CIT customers.

from the Massachusetts Attorney General:

Massachusetts AG Tom Reily

NorVergence assigned these customers' contracts to several out-of-state financing companies, including the three named in today's settlement. In many instances, these assignments were done without the customers' knowledge or consent. As a result, even after NorVergence stopped providing any telecommunications services, many NorVergence customers in Massachusetts were forced to either pay the finance companies thousands of dollars for services they were not receiving, or else fight the financing companies and risk collection actions and default judgments in other states.

NorVergence had more than 9,000 customer accounts nationwide, and more than 250 in Massachusetts.

When NorVergence was forced into bankruptcy in June 2004, its customers were left without service but the finance companies, including CIT, US Bancorp and Wells Fargo, still tried to hold the customers responsible for the five-year rental agreement payments. US Bancorp and Wells Fargo then sued or threatened suit against many of these customers, including Massachusetts customers. The finance companies, however, filed -- or threatened to file -- their suits in the states in which they have their corporate headquarters, which in most cases is a distant and inconvenient forum for the NorVergence customers. This made it financially difficult or impossible for the customers to mount a defense.

Under the terms of today's settlement, CIT, US Bancorp, and Wells Fargo will refund or clear $24 million in rental payments they claimed to be owed by more than 1,000 NorVergence customers nationwide. In Massachusetts, CIT, US Bancorp, and Wells Fargo will refund or not collect over $1.6 million in rental payments they claimed to be owed by 73 Massachusetts consumers. In addition, CIT, US Bancorp, and Wells Fargo have agreed not to enforce the waiver of jurisdiction clause -- which means that even if a Massachusetts customer opts not to accept the terms of the AG's settlement, that customer can no longer be sued outside of Massachusetts.

All consumers who signed agreements with NorVergence bought by CIT, US Bancorp, or Wells Fargo or who signed NorVergence agreements directly with one of these finance companies, will receive a notice about participating in this settlement. The settlement mandates that CIT and USB will only collect 15 percent of the customer's remaining balance after July 15, 2004. Wells Fargo will collect 14 percent of the customer's remaining balance after July 31, 2004. Also, any consumer that previously settled with CIT, US Bancorp, or Wells Fargo regarding NorVergence service for terms that are less favorable than this settlement can receive the more favorable settlement terms if they choose.

AG Reilly led this multi-state action with Attorneys General from Arizona, Colorado, Connecticut, Delaware, Illinois, Kansas, Louisiana, Maryland, Michigan, Missouri, New Hampshire, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Washington, West Virginia, the District of Columbia and the Georgia Governor's Office of Consumer Affairs.

Assistant Attorneys General Geoffrey G. Why and Scott Schafer of AG Reilly's Consumer Protection and Antitrust Division and Assistant Attorney General Karlen Reed of AG Reilly's Utilities Division handled this case with assistance from paralegal Caitlin Burke.