GE Capital Takes Another $2.9 Million NorVergence Hit

by Christopher Menkin

On December 6, 2004, GE Capital forgave $2 million in New York State.

January 11, 2005 3.5 million in New Jersey, now $2.9 million in eight other states.

Eight attorneys general have crafted a settlement agreement that could provide $2.9 million in debt forgiveness to small businesses now on the hook for payments to third-party leasing companies after an allegedly fraudulent telecommunications company went bankrupt.

Connecticut, Georgia, Illinois, Maryland, North Carolina, Pennsylvania, South Dakota, and Washington, D.C. - 85% ‘walk away” as of 7-15-04, $2.89 million debt removed for 216 small businesses across the states. CIT reportedly offering 100% “walk away” on lease payments owed.

Leasing News has been informed from a highly reliable source that more settlements are coming next week. Wells Fargo Financial Leasing is a subsidiary of Wells, and therefore not a bank in itself. The state enforcement people, like the Attorney General, would therefore have jurisdiction. This fact is what is making all the state settlements with bank subsidiaries possible. Look for more announcements as over twenty state attorney general's offices have been in the mood to start using their subpoena action, if settlements are not forthcoming.

A major lessor has informed us they are concluding a settlement with the California attorney general's office, where papers may be signed by the time your read this.

Leasing News has stated from the very beginning in its editorials that this is the right direction to go and has applauded the various attorneys general offices for their thorough and timely resolution to the NorVergence scandal.

While many leasing companies thought they could “hide” behind a “hell and high water” contract, those days are in the past. While Leasing News is a trade publication for the industry, incompetence, fraud, or unethical conduct should have its consequences. It is the smart, adult, best business decision, to step up to the plate. Or as many professional collectors know, some times you “take the hit” and the company learns from the experience so hopefully it does not happen again.

Many leasing companies have a long list of restricted equipment or industries or categories where extra precaution should be taken due to the nature of maintenance, obsolescence, trouble-prone, liabilities, or general nature of the situation itself. Telecommunication equipment leasing will never be the same as it was in the past.

Here is the official press release from Illinois Attorney General Lisa Madigan, who seems to have taken the lead on this settlement with seven other states attorneys general's offices:

MADIGAN, OTHER ATTORNEYS GENERAL SETTLE NORVERGENCE CLAIMS WITH GENERAL ELECTRIC CAPITAL CORPORATION

ILLINOIS CUSTOMERS OF NORVERGENCE COULD BE FORGIVEN OF DEBTS TOTALLING MORE THAN $855,000

Chicago – Attorney General Lisa Madigan today announced that she has joined seven other Attorneys General in crafting a settlement agreement that could provide more than $855,000 in debt forgiveness to 62 Illinois small businesses now on the hook for payments to third party leasing companies after an allegedly fraudulent telecommunications company went bankrupt.

Illinois Attorney General Lisa Madigan

Madigan and the Attorneys General of Connecticut, Georgia, Maryland, North Carolina, Pennsylvania, South Dakota, and Washington, D.C., have reached an agreement with General Electric Capital Corporation (GE Capital) in connection with its collection agreements on behalf of NorVergence, Inc. Under the terms of the agreement, impacted consumers may choose to participate or decline to participate. If all affected consumers in the six states and D.C. accept the deal, GE Capital will be writing off more than $2.89 million in debt for 216 small businesses.

“Deceptive sales pitches lured hundreds of Illinois small business customers into signing telecommunication service agreements with NorVergence. But when the service suddenly ceased, the collection agency hassles began,” Madigan said. “With this agreement, GE Capital is agreeing to end a nightmare that has haunted many small businesses as they try to regain telecommunications service and overcome the financial hurdles caused by NorVergence.”

Under the settlement agreement, GE Capital – which entered into direct contracts with NorVergence customers or, through other third-party companies, bought out lease agreements between NorVergence and its customers – has agreed to write off or forgive $2,891,699 million it claimed to be owed by 216 NorVergence customers from the states represented in the agreement, including $855,440 owed by 62 Illinois consumers. This amount constitutes 85% of the debt owed to GE Capital from the period beginning on July 15, 2004, the approximate date that NorVergence ceased providing any services. Consumers who have made payments to GE Capital since July 15, 2004, will receive credit for those payments toward their remaining balance.

While GE Capital denies any wrongdoing, it has agreed to forgive the $2.89 million of the debt it claims consumers owe on rental agreements and provide up to two years for customers to pay any remaining balances.

In November 2004, Madigan filed a lawsuit against NorVergence, and Peter Salzano, its president. NorVergence is a telecommunications company based in Newark, New Jersey, that set up a sales office in Oakbrook Terrace. Madigan's lawsuit alleged the company's sales pitch offered small businesses discounted telecommunications services through the use of a “Matrix” box.

NorVergence claimed the device was necessary to allow a small business to reap a 30 percent discount on its current telecommunications costs, including long distance, DSL service, and wireless phone service. The total cost of agreements to lease the matrix boxes ranged from approximately $12,000 to $175,000.

Under NorVergence's alleged scheme, the company would sell its five-year contracts to leasing companies and walk away with the profit. When NorVergence was forced into bankruptcy in June 2004, its customers were left without service but still responsible for the five-year lease agreement payments to leasing companies.

All Illinois consumers who signed agreements with NorVergence that were bought by GE Capital or signed NorVergence agreements directly with GE Capital, will receive a notice in the mail shortly regarding the opportunity to participate in this settlement. To accept the settlement offer, consumers must follow instructions contained in the notice and execute a Settlement and Mutual Release by the date indicated in the notice. Also, any consumer that previously settled with GE Capital regarding NorVergence service for terms that are less favorable than this settlement can receive the more favorable settlement terms if they choose.

Illinois consumers with questions about the settlement can contact Madigan's Consumer Fraud Hotline at 1-800-243-0618.

Consumer Fraud Bureau Chief Elizabeth Blackston and Assistant Attorney General Jennifer Meyer are handling the case for Madigan's Springfield Consumer Fraud Bureau.