NorVergence Up-Date—CIT/Florida AG/NAELB

At the up-coming November  5th-6th Regional Conference in Atlanta, Georgia, the National Association of Equipment Brokers (NAELB) have recognized the historic importance of the “NorVergence Leasing Phenomena.”  

In addition to marketing, training, and other education workshops, “The Lessons of NorVeregence” is on the agenda, to be moderated by Barry Marks, former NAELB Counsel:

“Signing D&As in advance, relying on the vendor for document execution and financing significant soft costs and services as part of the rent are common practices that may be tested in the NorVergence class action lawsuits. The Norvergence bankruptcy has already resulted in lawsuits, numerous government investigations and comment on the internet.

“The panel will discuss not only what happened and may be yet to come on the NorVergence deals, but lessee claims in other leases and the lessons to be learned. The NAELB considers keeping you abreast of major happenings in the industry an important part of the work of the association.”

    From the CIT Press Release:

CIT Announces Diluted EPS of $0.86 for the Quarter, Up 25% From Last Year...

* The increase in charge-offs for Specialty Finance - Commercial was due largely to charge-offs taken with respect to leases to customers of NorVergence, Inc., a bankrupt vendor currently subject to regulatory  investigations.  At September 30, 2004, after taking into account charge-offs and loan loss reserves, the remaining "outstandings" of NorVergence customers is approximately $6.0 million.

The reserve for credit losses increased in amount during the quarter due to portfolio growth, but declined in percentage due to charge-offs  against the specific telecommunications reserve and continued  improvement in credit metrics. Total reserves rose to $637.9 million (1.85% of finance receivables), compared to $621.0 million (1.95%) at June 30, 2004.

·        Telecommunication charge-offs were $11.2 million for the quarter, compared to $15.9 million last quarter, and telecommunications non-performing accounts were $24.5 million, compared to $48.5 million  last quarter. 

  The Florida AG gets more serious :

### Press Release ####################

Crist Sues 12 Leasing Companies Over NorVergence Contracts

       TALLAHASSEE - Attorney General Charlie Crist today filed a civil

complaint against a group of 12 leasing companies for violating Florida's deceptive and unfair trade practices statute.  The leasing companies demanded payments from consumers for services despite knowing that services were not being provided.

      The leasing companies purchased contracts from NorVergence beginning in 2003 after NorVergence had entered into agreements with approximately 700 small Florida businesses to provide local telephone, mobile phone and high-speed Internet services at reduced rates. NorVergence allegedly used high-pressure sales tactics, including claims that the offer was for a limited duration and available only to a few select companies, in order to finalize contracts that cost consumers as much as $1,000 per month.

      "Small businesses were hurt by the false, deceptive, misleading and unfair sales tactics used by NorVergence," said Crist. "The leasing companies knew the scheme and compounded the harm by making intolerable demands to be paid for services that were unconscionably priced and never provided."

      NorVergence targeted small businesses that had good credit ratings and that were owned by persons who were age 60 or older but lacked in-house legal and technology personnel to protect them.  The small business owners agreed to sign contracts with NorVergence with an understanding of the following terms:

      -   They were obtaining telephone services directly from NorVergence.
      -   NorVergence would provide the consumers with unlimited long
distance, cell phone and high-speed Internet at greatly reduced rates.
      -   In order to use the NorVergence services, customers would have to
rent a "Matrix" box.

      These business terms were later found to be inaccurate.  Many consumers never received telecommunication service, and in any event NorVergence terminated service when it went into bankruptcy.  The company failed to install the Matrix box for consumers who had entered the agreement and thus failed to deliver the promised reduced rates. Additionally, it was found that the Matrix was nothing more than a commercial router that sells for $500 to $1,200, creating an unconscionably large disparity between the value of the box and the $1,000-per-month lease payments due under the rental agreement. 

      In further violation of the agreement, the leasing companies then began demanding payments for services that were never provided. When customers missed their monthly bills, the leasing companies accelerated payments and demanded payment in full, in sums ranging from $10,000 to more than $90,000. After receiving subpoenas from the Attorney General, three leasing companies - CIT Technology Financial Services, Inc., Northland Capital Financial Services and BB&T Leasing Company - agreed to a  moratorium of the payment demands and are not currently facing charges. 

      The 12 leasing companies that the Attorney General is suing are:

Wells Fargo, Commerce Commercial Leasing, LLC, Court Square Leasing Corporation, Dolphin Capital Corporation, IFC Credit Corporation, National City Commercial Capital Corporation (formerly known as Information Leasing Corporation), Irwin Business Finance, Liberty Bank Leasing, Patriot Leasing Co. Inc., Popular Leasing U.S.A., Inc., Preferred Leasing, LLC and Sterling National Bank. 

      Each is charged with two counts of violating Florida's unfair and deceptive trade practices statute.  If convicted of the charges, the companies face a $10,000 fine for each violation of the statute and a $15,000 fine for each violation involving a senior citizen, as well as consumer restitution and attorney fees and costs.  The Attorney General is also seeking an injunction to prevent the leasing companies from making further efforts to collect on these unconscionable agreements.

To view a copy of the complaint, go to:
http://www.myfloridalegal.com/NorVergenceComplaint.pdf 

                                   # # # 

Please note that Florida has a broad public records law, and that all correspondence to me via email may be subject to disclosure.

Aaron Wische
Executive Producer
Investigations and Special Projects
<<...OLE_Obj...>>
(813) 354-2914 (voice)
(813) 214-3784 (pager)
(813) 354-3020 (fax)

### Press Release #######

Reportedly after receiving subpoenas from the Attorney General, three leasing companies -- CIT Technology Financial Services, Inc., Northland Capital Financial Services and BB&T Leasing Company -- agreed to a moratorium of the payment demands and are not currently facing charges.

The 12 leasing companies that the Attorney General is suing are: Wells Fargo, Commerce Commercial Leasing, LLC, Court Square Leasing Corporation, Dolphin Capital Corporation, IFC Credit Corporation, National City Commercial Capital Corporation (formerly known as Information Leasing Corporation), Irwin Business Finance, Liberty Bank Leasing, Patriot Leasing Co. Inc., Popular Leasing U.S.A., Inc., Preferred Leasing, LLC and Sterling National Bank.

At the present time Illinois and New Jersey are also seeking remedy.  While ELA executives have visited with the New York State Attorney General's office both US Senators have requested action, plus local and national television news broadcasters have taken the story to their viewers.

Several other state attorney generals have been reluctant to proceed, perhaps because their geographic area has not received many public complaints.  Of course, they watch the Florida action as all states are looking for “income.” 

In the meantime, the three class action against leasing companies is moving forward with almost 3,000 plaintiff's joining the groups, also creating a large “war chest.” 

On Wednesday, September 1, 2004, an Order to Show Cause For Temporary Restraints to stop the leasing companies from enforcing the leases or prosecuting filed individual actions was filed on behalf of the class action. The 26 defendant leasing companies were then served with the amended complaint and the Order to Show Cause.  The amended complaint includes a representative plaintiff for each leasing company named.