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.