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For Immediate Release:  
For Further Information Contact:
January 12, 2005

Office of The Attorney General
- Peter C. Harvey, Attorney General

 

Peter Aseltine
609-292-4791

 
 

Attorney General Reaches Agreements with Major Financing Companies to Provide $8 Million in Relief for NorVergence Customers

 

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.

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