North Carolina Department of Justice
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Finance companies agree to release customers from debts, says AG Cooper

Release date: 5/26/2005


NorVergence telecom scam left small businesses to make payments on worthless equipment

Raleigh: 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, Attorney General Roy Cooper announced today.

Cooper joined attorneys general from 22 other states and the District of Columbia to announce settlements with CIT Group/Equipment Financing, Inc. (CIT), Lyon Financial Services doing business as U.S. Bancorp Business Equipment Finance Group (USB), and Wells Fargo Financial Leasing, Inc. in connection with a widespread telecommunications fraud involving NorVergence, Inc., a bankrupt New Jersey-based telephone equipment and service company. In the settlement, CIT, USB, and Wells Fargo have agreed to refund or not collect more than $24 million in rental payments from 1,388 small businesses that rented equipment from NorVergence.

“When NorVergence signed its contracts over to other companies and then went out of business, small businesses across our state got stuck paying for phone service that didn’t exist,” said Cooper. “I’m pleased that these finance companies worked with my office to help North Carolina consumers get out from under these unfair debts.”

The agreement with Wells Fargo means that 13 North Carolina consumers could opt to be forgiven $342,310 of a $398,034 debt. 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.

CIT, USB, and Wells Fargo are three of approximately 40 finance companies that purchased contracts from NorVergence for telecommunication services through the rental of data routers called the Matrix box. Cooper’s office is continuing to investigate the role of other financing companies that purchased the contracts. Both USB and Wells Fargo have previously sued or threatened suit against NorVergence customers in the states in which they have their corporate headquarters, which is usually distant and inconvenient for consumers. As part of today’s agreement, CIT, USB, and Wells Fargo have agreed to stop this practice.

As alleged in a lawsuit Cooper filed against NorVergence in November 2004, NorVergence told small businesses that it could provide them dramatic savings and free minutes by installing its revolutionary “black box” at the business to route telecommunications. Businesses had to sign a rental agreement for the box, obligating them to make monthly payments of $200 to $4,000 for up to five years. In reality, the “black box” is a standard router used to connect telephone equipment to a long distance provider’s lines that is widely available, retails for $500 to $1,500 and does not provide telephone or Internet services. NorVergence had to obtain those services from other providers, which it stopped doing before it went bankrupt in June of 2004.

After signing contracts with small businesses, NorVergence sold the rental agreements to finance companies, including CIT, USB, and Wells Fargo. When NorVergence declared bankruptcy, its customers were left without service but the finance companies maintained that customers were still responsible for rental payments.

All consumers who signed agreements with NorVergence that were bought by CIT, USB, or Wells Fargo or signed NorVergence agreements directly with one of these companies will receive a notice in the mail telling them how they can participate in this settlement. Any consumer who previously settled with CIT, USB, or Wells Fargo for terms that are less favorable than this settlement can receive the more favorable settlement terms if they choose.

NorVergence had over 9,000 customer accounts nationwide. Most of these customers were small businesses, non-profit organizations, or local government entities. In North Carolina, more than 40 small businesses and other customers filed complaints with Cooper’s office about NorVergence. Other North Carolina businesses and consumers that may have done business with NorVergence are encouraged to file a complaint with the Attorney General’s Office by calling 1-877-5-NO-SCAM.