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Leasecomm will cancel $24 million in judgments deceptively obtained against consumers 1

When I was first sued by Russ Whitney, I did Web searches to find out more about him. Frequently, his name came up along with the name Leasecomm. Whitney invited a company called E-Commerce Exchange to make a pitch to Whitney’s customers or leads (prospective customers attending free seminars) regarding starting your own home-office Web business. Those who wanted to do so were directed to the back of the room where they were to sign a Leasecomm lease. In the Federal Trade Commission Documents below, they speak often of the companies that provided Leasecomm with the signed leases that are teh subject of the FTC action against Leasecomm. Whitney and E-Commerce Exchange, with whom they still partner, are among the companies the Federal Trade Commission is talking about when they discuss how Leasecomm got these leases. In the documents below, I have put the words and phrases that the FTC apparently means to apply to Whitney and E-Commerce Exchange and other companies like them in bold red type.
People at various Web sites were howling mad at Leasecomm. I called their CEO Peter Blyleben, who was a section mate of my wife at Harvard Business School and talked to him about it. He said they had stopped doing business with Whitney, who came to them through E-Commerce Exchange rather than direct. He also said they had stopped doing business with seminar companies in general.
I also went to Woburn, MA, Leasecomm’s headquarters and extracted some documents from the court house involving Leasecomm suing one of Whitney’s customers for nonpayment of the lease. She complained she had not received anything for the money. She was in Ohio and lost a default judgment for more than $3,000 in MA.
The Federal Trade Commission and the attorneys general of the following states did a joint task force against Leasecomm that resulted in the $24 million settlement:
• Florida
• Illinois
• Kansas
• Massachusetts
• North Carolina
• North Dakota
• Texas
as well as the District Attorney of Ventura County, California.
You can read a synopsis of the case at http://www.ftc.gov/opa/2003/05/leasecomm.htm. I’ll put it here also because other people’s Web sites often change and then my link to them no longer works.
Federal Trade Commission News Release
For Release: May 29, 2003

Business Opportunity Lender Settles FTC Charges

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.htm. It also has
established a special phone number to provide information for consumers at:
202-326-3445.

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, and unfair business practices in
the marketplace and to provide information to help consumers spot, stop, and avoid them.
To file a complaint, or to get free information on any of 150 consumer topics, use the
complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity
theft, and other fraud-related complaints into Consumer Sentinel, a secure, online
database available to hundreds of civil and criminal law enforcement agencies in the U.S.
and abroad.

MEDIA CONTACT:
Claudia Bourne Farrell,
Office of Public Affairs
202-326-2181

STAFF CONTACT:
Randy Brook or Bob Schroeder
Northwest Region
206-220-6350

(Civil Action No. 0311034- REK)

You can read the actual complaint at http://www.ftc.gov/os/2003/05/leasecommcmp.htm. Again, I will put it here in case they change that link:
COMPLAINT
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

FEDERAL TRADE COMMISSION,
Plaintiff,

v.

LEASECOMM CORPORATION and
MICROFINANCIAL INCORPORATED, Defendants

CIVIL ACTION NO.

COMPLAINT FOR INJUNCTIVE AND
OTHER EQUITABLE RELIEF

Plaintiff, the Federal Trade Commission ("Commission"), by its undersigned attorneys, alleges:

1. This is an action under Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b, to secure preliminary and permanent injunctive relief, including rescission of contracts, cessation of collections and other equitable relief, for defendants' unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the Electronic Funds Transfer Act, 15 U.S.C. § 1693k, in connection with financing of business ventures and other items provided to individuals and small businesses.

JURISDICTION AND VENUE

2. This Court has jurisdiction over this matter pursuant to 15 U.S.C. §§ 45(a), 53(b), and 57b, and 28 U.S.C.
§§ 1331, 1337(a), and 1345.

3. Venue is proper in the United States District Court for the District of Massachusetts under 15 U.S.C. § 53(b)
and 28 U.S.C. §§ 1391(b) and (c).

PLAINTIFF

4. Plaintiff Federal Trade Commission is an independent agency of the United States Government created by
statute. 15 U.S.C. §§ 41-58. The Commission enforces Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which
prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission may initiate federal
district court proceedings by its own attorneys to enjoin violations of the FTC Act, including redress for injured
consumers. 15 U.S.C. §§ 53(b), and 57b. The Commission also enforces the EFTA, and violations of the EFTA
are violations of the FTC Act. 15 U.S.C. § 1693o(c).

DEFENDANTS

5. Defendant MicroFinancial Incorporated ("MicroFinancial") is a Massachusetts corporation with corporate
headquarters located at 10M Commerce Way, Woburn, Massachusetts. It transacts business in this district.
MicroFinancial stock is publicly traded on the New York Stock Exchange.

6. Defendant Leasecomm Corporation ("Leasecomm") is a wholly-owned subsidiary of MicroFinancial with a
principal place of business also located at 10M Commerce Way, Woburn, Massachusetts. It transacts business in
this district.

COMMERCE

7. At all times material hereto, defendants have been engaged in the business of providing financing to
individuals and small businesses, and the related business of collecting alleged debts for that financing, in or
affecting commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44.

DEFINITIONS FOR PURPOSES OF THIS COMPLAINT

8. "Customer" is any natural person who is individually liable to pay Leasecomm for financing, either directly or
indirectly, e.g., as a cosignor, guarantor, proprietor, or signatory general partner.

9. "Business venture" includes purported profit making ventures (e.g., multilevel marketing programs, pyramid
schemes, buyers' clubs, coupon clipping programs, investment opportunities, etc.), regardless of how
participation in the venture is characterized (e.g., as investors, members, donors, etc.), seminars, or
promotions that seek to induce customers to make money through business or investment, or similar intangible
items.