LeaseComm
Settlement Will Cancel $24
Million in Deceptively Obtained Judgments Against Consumers
A finance company that allegedly used shady agents, deceptive contracts, and
false claims to target thousands of would-be entrepreneurs will cancel $24
million in judgments allegedly obtained through deception and will reform all
business opportunity financing contracts to settle charges by the Federal Trade
Commission and an eight state task force that the practices violated federal
and state laws. The law enforcement agencies charged that Leasecomm financed
the purchase of business opportunities such as work-at-home operations using
business opportunity sellers as its agents. According to the FTC, the contracts
contained provisions purporting to waive consumers' defenses and allowing Leasecomm the right to sue consumers in Massachusetts, where it is based, rather than where consumers
lived and purchased the business opportunity. The FTC alleged that most
consumers could not afford to travel to Massachusetts to contest Leasecomm's
charges and had default judgments entered against them in the Massachusetts court. If they didn't pay, Leasecomm
resorted to aggressive collection measures such as wage garnishment and
property attachment to collect, even though Leasecomm
knew or should have known that their vendors used deceptive practices to sell
their business ventures and promote the financing, according to the FTC's
complaint.
Leasecomm is a wholly-owned operating subsidiary
of MicroFinancial Incorporated. Both companies are
based in suburban Boston, Massachusetts.
"Leasecomm's customers
got a one-two punch," said Howard Beales,
Director of the FTC's Bureau of Consumer Protection. "Leasecomm
used sellers of highly suspect business opportunities to sell its financing,
and then claimed it had no responsibility for their deception. Companies that
try to hide behind the fine print in contracts and lie to consumers about what
they're were signing, whether directly or through agents, simply do not pass muster."
" Leasecomm knowingly
participated in a scheme that used the 'get-rich-quick' allure of selling
products on the Internet to take advantage of thousands of consumers who were
ultimately forced into debt," Massachusetts Attorney General Tom Reilly
said. "This agreement relieves the debts of customers who fell prey to these 'business opportunities' and helps
protect future consumers by requiring Leasecomm
to change its business practices."
According to the FTC, the scheme worked as follows: Leasecomm
Corporation financed business opportunities, including Internet web malls,
multilevel marketing programs, medical billing software, coupon clipping
programs and similar, often worthless, get-rich-quick schemes sold by
third-party vendors. Consumers typically made little or no up-front payments,
but signed a contract, which Leasecomm
called a lease, requiring payments ranging from $3,000 - $4,000 over a three or
four year period. While consumers thought the contracts covered many items
included as part of a business venture -- training, Web site design, and
consumer leads, for example -- they didn't. They covered only one small part of
the venture -- a "virtual terminal," for example.
Leasecomm drafted its contracts to ensure that
customers paid even when the vendors used misrepresentations or fraud, or when
the products or services failed to perform as represented, according to the FTC
complaint. The FTC alleges that Leasecomm
knows or should know that many of its vendors engage in deceptive practices to
sell their business ventures. In one case, a vendor signed up 1,882 consumers
for a "business opportunity,"and nearly
1,500 went into default, the complaint alleges. Nevertheless, Leasecomm aggressively collected from many of
those customers. Leasecomm pursues its
customers "even when the customers have been defrauded and received
nothing of value," the complaint alleges. When consumers argued that the
lease really financed an entire business venture that was fraudulent and that
the virtual terminal was worthless without the other elements of the package, Leasecomm took the position that the consumer
still had an obligation to pay in full. When consumers set up their own
internet Web sites to share information on how to fight Leasecomm,
company employees falsely posed as consumers and made misleading statements
about other consumers' absolute obligation to pay Leasecomm,
according to the complaint.
According to the FTC, when consumers failed to pay, Leasecomm
sued them. The FTC alleges that Leasecomm
has sued over 27,000 consumers in the past three years in Massachusetts courts, and, as of January, had 2,200 suits pending.
Few of the customers could afford the expense of litigation in a distant city
and most suffered default judgments the FTC alleges. Although Leasecomm files its suits in Massachusetts, it aggressively enforces its judgments in the
consumer's local forum. "Had Leasecomm
filed the suits in the local forum in the first instance, customers might have
been able to appear and present a defense," the complaint says. According
to the FTC, Leasecomm adds to the
consumer injury by imposing high collection fees, not only for late payments,
but for every collection call it makes and letter it sends. These practices
substantially increase the total payments due under the Leasecomm
contract, the complaint says.
Leasecomm, and its parent corporation, Microfinancial, Inc., have agreed to settle the FTC charges
and similar suits filed by members of the State Task Force, comprised of the
attorneys general of Massachusetts, Florida, Illinois, Kansas, North Carolina, North Dakota and Texas, and by the District Attorney's Office for Ventura County, California. "This is an excellent example of federal-state
law enforcement cooperation," Beales said.
The settlement will:
bar misrepresentations about the terms of any contract -- including
misrepresenting that consumers cannot raise defenses against Leasecomm;
require disclosure of material facts about a contract, including disclosure
that Leasecomm, not the vendor, is financing the
transaction;
require that if Leasecomm sues consumers, it does so
"where the customer resides or signed the contract;"
require Leasecomm to vacate pending lawsuits filed in
the wrong forum and correct any damage to the consumer's credit record;
require that Leasecomm invalidate illegal provisions
of existing contracts, including waivers of defenses;
require that Leasecomm cancel and cease collections
on approximately $24 million in final court judgments;
require that Leasecomm give consumers who are the
target of more than 2,000 pending Leasecomm lawsuits
currently filed in Massachusetts the option of having the suit conducted
locally;
require that consumers who were unlawfully required to agree to electronic
funds transfers be given the option to switch to another payment method.
The settlement also contains certain bookkeeping and record keeping provisions
to allow the agency to monitor compliance with its order.
The FTC vote to accept the settlement was 5-0.
The FTC has set up a special Web site for consumers who may be affected by this
case at http://www.ftc.gov/ro/leasecomm/index.html
. It also has established a special phone number to provide information for consumers
at: 202-326-3445.
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NOTE: A stipulated final judgment and order is for settlement purposes only and
does not constitute an admission of guilt. Stipulated final judgments and
orders have the force of law when signed by the judge. The order was filed in
the United States District Court for the District of Massachusetts.
Copies of the complaint and stipulated final judgment and order are available
from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive
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