Antitrust Lawyer Blog Commentary on Current Developments

FTC Charges Company With Financing Fraudulent Telecom Services Scheme

On June 6, following the NorVergence Inc. telecommunications fraud case won by the FTC in 2005, the agency charged a company with violating federal law by helping to finance the scheme and continuing to seek payment from defrauded consumers.

In 2004, a federal court voided 1,600 NorVergence contracts with small businesses and religious and other nonprofit organizations that were misled by promised savings on phone and Internet services. The contracts purported to be long-term rental agreements for a relatively inexpensive device that NorVergence falsely claimed would create the savings. NorVergence was forced into bankruptcy, and the promised services stopped. The judgment the FTC obtained against NorVergence left unaffected thousands of rental agreements NorVergence had already sold to finance companies.

According to a complaint filed on June 6 by the FTC, IFC Credit Corporation purchased NorVergence rental agreements valued at $21 million, with individual contracts ranging from $4,439 to $160,672. Altough payments were received, as the complaint alleges, no customers received services from NorVergrnce for an extended period, while others received none.
The complaint states that IFC continued with the fraudulent scheme because they aquired new rental contracts, despite NorVergence’s failure to provide the promised services and the resulting high rate of default among IFC customers. Even after NorVergence entered bankruptcy in 2004, the complaint states, IFC continued to tell consumers they were obligated under the rental agreements because the payments were for the device, not for services.

The FTC charges IFC with misrepresenting that consumers have no defenses to payment on the NorVergence rental agreements; harming consumers by unfairly accepting and collecting on the rental agreements; and unfairly filing debt collection lawsuits in courts far from consumers’ locations.

The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Illinois. The FTC is asked the court to order all rental agreements terminated and is requested refunds for payments consumers made for services they never received. The FTC also is seeking a preliminary injunction to stop IFC from continuing any debt collection while the suit proceeds.

Camelia Mazard
(202) 589-1834
cmazard@dbmlawgroup.com