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Under the terms of a federal court order announced by the Federal Trade Commission today, a finance company that the Commission charged with unfairly collecting on equipment leasing contracts and misrepresenting consumers’ obligations to pay cannot engage in similar conduct in the future. The order settling the Commission’s charges against IFC Credit Corporation prohibits the company from collecting on a finance contract when, based on the information IFC has at the time it acquires the contract, a reasonable businessperson in the finance industry would conclude that the consumer was deceived into agreeing to the transaction.

According to the FTC’s complaint, IFC was one of a group of finance companies that helped finance a telecommunications scheme perpetrated by the now-defunct Norvergence. Under the scheme, NorVergence claimed it would provide substantial telecom savings for small business and nonprofit consumers by installing a “Matrix box” on consumers’ premises. The FTC alleged, however, that the Matrix box, which NorVergence rented to customers for inflated prices of between $200 and $2,500 per month for up to five years, was nothing more than a standard telecom router that had little or nothing to do with reducing telecom costs.

According to the complaint, however, NorVergence had no long-term contracts with telecommunications providers and thus no way to assure the long-term savings it promised. Instead, it immediately sold the Matrix rental contracts to finance companies, including IFC, for quick cash. The scheme collapsed when NorVergence became unable to provide telecom services or pay its suppliers because it was charging consumers less than the services cost and it had spent all the money it received from selling the contracts to finance companies. The FTC sued NorVergence in 2004, and obtained a $181 million default judgment in mid-2005. IFC allegedly violated the FTC Act by using unfair and deceptive tactics in its attempts to collect from defrauded consumers the full amounts owed under the contracts when the consumers were no longer receiving the promised services.

The FTC order settles the Commission’s complaint against IFC and covers the types of transactions at issue in the case, i.e., finance contracts requiring payments of up to $250,000 that are commonly entered into by small businesses, nonprofits, and individual consumers. The largest NorVergence rental agreements IFC acquired called for payments of $160,000.

Specifically, the order prohibits IFC from representing: 1) that consumers have waived any defenses, or are precluded from asserting any defenses or counterclaims, to IFC’s collection on any finance contract; or 2) that consumers are obligated to pay IFC under any other liability theory, including, but not limited to, fraud or misrepresentation. The order further prohibits IFC from collecting on a finance contract if – based on the information IFC had when it acquired the contract – a reasonable businessperson in the finance industry would conclude that: 1) the contract materially misstated the consideration the customer would receive; or 2) the contract was procured by deception.

Finally, the order contains standard record-keeping and reporting requirements to ensure the defendant complies with its terms.

The FTC’s settlement with IFC was reached in conjunction with agreements between IFC and a multi-state group of attorneys general. That group includes Illinois, Arizona, Colorado, Connecticut, District of Columbia, Florida, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, and Texas. Under those agreements, IFC’s NorVergence customers will have an opportunity to enter into settlements with IFC, under which the company will eliminate a substantial portion of what the consumers owe under the contracts. The Commission gratefully acknowledges the valuable assistance of the attorneys general of those and other states in conducting the investigation, bringing the action, and settling the case.

The Commission vote authorizing the filing of the stipulated final order in settlement of the court action was 4-0. The order was filed on November 3, 2008, in the U.S. District Court for the Northern District of Illinois, Eastern Division, and entered by the Court on November 5, 2008.

NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the stipulated final order are available from the FTC’s Web site at and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.

(FTC File No. X070033; Civ. No. 07-cv-3155)

Contact Information

Mitchell J. Katz,
Office of Public Affairs
Robert J. Schroeder,
FTC Northwest Region