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Leasecomm will cancel $24 million in judgments deceptively obtained against consumers 2

DEFENDANTS' BUSINESS ACTIVITIES

10. Leasecomm's principal business since at least 1997 has been providing financing through contracts it calls
"leases" to individuals and small businesses. The contracts purport to be leases for items such as point-of-sale
credit card swiping machines ("POS machines") and Internet-based, online payment systems ("virtual
terminals"), which have often been sold as part of a purchase of a business opportunity or profit making
venture. The business opportunities and profit making ventures include Internet web malls, multilevel
marketing programs, pyramid schemes, medical billing software, coupon clipping programs, and similar, often
worthless get-rich-quick schemes that consumers have been duped into buying by deceptive practices of the
business venture sellers. A typical lease requires total payments of $3,000-4,000 over a 3-4 year period.

11. Customers usually make no upfront payment for their business venture purchase. Instead, the business
venture vendors, acting as Leasecomm's agents for selling financing, procure customers' signatures on
Leasecomm financing contracts for all or most of the cost of the business venture. After making a successful
sales pitch, the vendor presents the Leasecomm contract to the customer amid the various papers the customer
signs. Customers have little opportunity to read or understand the complex Leasecomm contracts, which the
vendors virtually never explain to them. Even if customers did read all the fine print in the contract, it is unlikely
that they would understand or appreciate the rights and remedies that fine print attempts to take away from
them. Leasecomm expressly prohibits its vendors from negotiating over or changing any of the contract's
boilerplate terms.

12. Typically the only payment the seller receives for the business venture is a lump-sum payment from
Leasecomm. In some cases Leasecomm splits the payment between the vendor and a supplier of other goods
or services associated with the business venture, like the provider of a POS machine or merchant account
services. Thus, Leasecomm is actually financing the whole business venture.

13. Based on the sales pitch by the vendors, customers think they are signing a financing agreement for the
entire business venture they are purchasing. In fact, even though the monthly payments under the lease cover
the full price of the business venture package plus finance charges, the lease purports to only finance a POS
machine or virtual terminal, a computer software license, or some other item that is an incidental part of the
business venture. For example, a typical sales contract lists many items included as part of a business venture
(e.g., training, web site design, customer leads, a manual, forms, software, merchant account) for a specified
price per month (e.g., $70) over a specified term (e.g., 4 years). The corresponding Leasecomm contract in
this example would also be for the $70 per month and over 4 years, but would state as the item being financed
only one component of the business venture (e.g., a POS machine). Nonetheless, what the customers
understand and believe is that for payments of $70 per month over a 4 year period they are purchasing the
entire business venture.

14. Leasecomm does not allow its vendors to fill in finance contracts with a truthful description of the business
venture. Leasecomm makes the finance contract look like an equipment lease, because Uniform Commercial
Code Article 2A ("UCC Art. 2A") equipment lease provisions are significantly more favorable to creditors than the
provisions relating to non-lease finance contracts. Finance contracts for business ventures and other general
intangible items cannot qualify as Art. 2A leases.

15. For web-based business ventures, the specified item financed in the Leasecomm lease is often a "virtual
terminal." This is not a tangible piece of equipment that can be owned by Leasecomm as a lessor or the
customer. Rather it is simply the setting up of an online point of sale authorization system and the information
necessary to access that account. Virtual terminals are typically available at little or no cost from alternative
sources, such as merchant account providers and processors, who then charge the customer a commission when
charges or debits are made, plus a small monthly fee.

16. The customer will receive a contract for virtual terminal services included in the papers the vendor provides,
along with the sales contract for the principal items being sold (e.g., training, web site design, customer leads,
a manual, forms, software, merchant account) and the Leasecomm contract. The virtual terminal service
contracts are generally cancellable by either party upon relatively short notice (e.g., one month). The "lease"
that Leasecomm writes for that virtual terminal, however, is not cancellable for 36-48 months.

17. The deception continues when Leasecomm and its vendors fail to disclose to customers material facts about
the transaction that would lead them to question whether they should enter into the business venture
transaction or the finance contract. Leasecomm and its vendors do not explain the involvement of Leasecomm
in the transaction so that customers are often unaware that they are entering into a financing transaction with a
third party. They also do not explain that the contract purports to make the customer's obligation to pay
Leasecomm absolute, that this obligation to pay is based solely on the customer's acceptance of the POS
machine or virtual terminal or other item financed, that the customer is agreeing to waive defenses including the
defense of fraud in the inducement, and that these provisions may not be enforceable under applicable contract
law. Finally, they do not explain that the contract provides that any disputes under the contract will be resolved
in a forum distant from the customer's residence.

18. Leasecomm drafts its lease contracts to ensure that customers pay even when the agreement to enter into
the lease or the underlying business venture transaction is induced by Leasecomm's vendors'
misrepresentations or fraud, or when the products or services fail to perform as represented. Most lease
contracts contain a provision that tells customers that they cannot assert any defense or counterclaim:

I fully recognize your right to enforce the lease free from any current or future defenses, offsets or
counterclaims.

Most lease contracts also contain a second provision that sets the location for filing collection suits in
Massachusetts, regardless of where the customer resides or signed the contract. A typical form of that provision
is:

The Parties hereby . . . consent and submit to the jurisdiction of the Courts of the Commonwealth
of Massachusetts and express agree to such exclusive forum for the bringing of any suit, action or
other proceeding arising out of their obligations hereunder, and expressly waive any objection to
venue in any such Courts . . .

Other provisions require that customers agree to automatic debiting of their bank accounts and require that
customers sign a personal guarantee of the lease contract.

19. Leasecomm knows or should know that many of its vendors engage in deceptive practices to sell their
business ventures. Leasecomm employees maintain a close relationship with its vendors, and Leasecomm uses
a computerized system to track delinquent accounts, default rates, and customer complaints of vendor fraud or
misrepresentation. The default rate with respect to particular business ventures often exceeds 30%, and with
some vendors has exceeded 50%. Leasecomm also receives large numbers of customer complaints about
misrepresentation or fraud concerning these vendors. Despite possessing evidence of serious problems with
vendors, Leasecomm rarely terminates a vendor. Instead, it simply reduces the payment it makes to the
vendor, retaining a larger share of the customers' payments for itself.

20. Leasecomm does not apply the usual finance industry standards for granting credit. First, the value of the
equipment purportedly leased by Leasecomm has no relationship to the value of the lease. POS terminals,
which Leasecomm leases for as much as $4,000, have retail value of $400-500 and wholesale cost of
approximately $250. Virtual terminals, leased for the same amount, essentially have little or no value. Second,
the credit worthiness of the customer is rarely used to deny credit. Instead, Leasecomm applies a matrix for
rating both the vendor and the customer to set a discount rate for the lease.

21. Leasecomm's approach to debt collection is very aggressive. It uses the contract provisions described in
Paragraph 18, above, to the fullest extent possible to obtain payment from customers and obtain judgments, if
necessary. This is true even when the customers have been defrauded and received nothing of value.

22. Leasecomm is usually unresponsive to customers' disputes or claims of fraud against vendors. It relies
heavily on the wording of the contract to tell customers that they have no defense to Leasecomm's demand for
payment. For example, collectors will point out that the customer accepted a POS machine and that was the only
product named in the lease. When the customers argue that the lease really financed an entire business
venture that was fraudulent, and the POS machine was worthless without the rest of the package, the collectors
will still insist that obligation to pay in full is absolute and that the customers have no defense.

23. One example of how Leasecomm treated complaints of fraud involved InfoDirect, a vendor that ran a
pyramid scheme. Its organizers made their money by requiring the purchase of overpriced computers, financed
by Leasecomm, to participate in the scheme. According to Leasecomm's own complaint records, the computers
(if delivered at all) were typically low-end or used and defective models leased for $3,300. The total lease
volume was $5.2 million. Of the 1,882 deals, 1,483 went into default, most early in the lease term.

24. Leasecomm wrote letters to InfoDirect complaining about the poor payment rate. Nonetheless, it continued
to accept new leases for nearly a full year after it had notice from customer complaints and defaults that there
was a serious problem with the product delivered. Leasecomm also sued one-third of the InfoDirect customers
for non-payment.

25. Another example involved one of Leasecomm's largest vendor for virtual terminal business ventures at
seminars, Executive Credit Services. This company accounted for $16 million in business during 1999-2000, with
nine thousand customers and a default rate of over 30%. Leasecomm's internal records show many complaints
about software and websites never working. Leasecomm rejected virtually every claim. An example of a "reason"
for rejecting a claim was:

83 year old lessee claims he was misled. [Lessee] signed a non-cancellable lease
agreement/merchant acct application ext all docs showed what the charges were for each/ it states
right on the lease that if the person does not understand the lease they should seek legal advice

The fact that Executive Credit Services sold its business ventures at seminars means that customers had little
chance to read over all the purchase and finance documents, and even less opportunity to consult with a lawyer
before signing them.

26. Another example involved Roma Computer, a company selling worthless web site business ventures.
Leasecomm financed the computers that customers purchased, ostensibly to access their website. One customer
complained that she "received the equipment, but never used it; still has equipment; was under the impression
after seminar that they would get a website and could make lots of money." [Cryptic spellings from
Leasecomm's complaint database expanded for readability.] The customer also complained about not receiving
an expected printer. Leasecomm denied the complaint completely because "the free printer has nothing to do
with the lease agreement." Leasecomm simply ignored the complaint about the worthless website business
venture.

27. Leasecomm employees also make deceptive statements on the Internet concerning customers' ability to
raise defenses to paying. There are a number of Internet websites set up for customers to share information on
how to deal with Leasecomm. Employees of Leasecomm, acting under pseudonyms and denying their
connection to Leasecomm, regularly post messages with misleading statements about customers' lack of
defenses and their absolute obligation to pay Leasecomm.

28. Contrary to representations by Leasecomm, customers have a number of substantive defenses that could
be raised, particularly where business ventures or other intangible items are financed. The most significant is
that business ventures or other intangible items are not subject to being leased under UCC Art. 2A and that,
therefore, the leases may be voidable or unenforceable in whole or part. At the very least, under applicable
contract law, those provisions of the lease that Leasecomm claims require payment regardless of performance
or fraud may be unenforceable, and customers may have other defenses, such as that the customers did not
actually accept the products or that their entry into the contract was induced by fraud or deception. They also
may have counterclaims based on the EFTA.

29. Customers rarely have the opportunity to raise any defenses. Leasecomm regularly files its collection suits
in Massachusetts, despite the fact that most of the customers reside in other states. Leasecomm has sued over
27,000 customers in the past three years in Massachusetts. Few of the customers can afford the expense of
litigation in a distant forum and most cases have ended in default judgments. Thus, customers have no real
opportunity to raise defenses to the validity of the contract.

30. Even customers who do obtain counsel are hampered by the misleading Leasecomm contracts. Courts may
take individual contracts at face value unless there is evidence that the contract is part of a pattern and practice
of fraud and deception. Given the amounts in controversy, typically under $5,000, it would be extremely difficult
for customers' lawyers to develop the evidence concerning Leasecomm's regular practice of incorrectly describing
what was financed. Making complex arguments about the inappropriate use of UCC Art. 2A by Leasecomm would
also be very costly. Finally, the potential witnesses for the customer are likely to be in the customer's local area,
distant from the Massachusetts court. Customer challenge to the distant forum clause in the Leasecomm's
contracts is similarly difficult.

31. Leasecomm aggressively enforces its judgments in the customers' local forum. With a judgment already
entered, it is almost impossible for customers to challenge Leasecomm in the subsequent judgment
enforcement actions. Had Leasecomm filed the suits in the local forum in the first instance, customers might
have been able to appear and present a defense, either with an attorney or on their own.

32. 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 fees provide significant profits to Leasecomm. In
many cases, by the time Leasecomm commences collection in court, the amount sought substantially increases
the total payments due under the lease.

VIOLATIONS OF SECTION 5 OF THE FTC ACT

COUNT I

33. In numerous instances, in connection with the financing of business ventures, Leasecomm represents,
expressly or by implication, directly or indirectly, that the finance contract the customer is entering into with
Leasecomm finances all or a substantial portion of the customer's purchase of the business venture.

34. In truth and in fact, in most or all cases the finance contract, by its terms, finances only discrete equipment
or services associated with the business venture, such as a credit card swiping terminal or a virtual terminal.

35. Therefore, the representations set forth in Paragraph 33 above are false or misleading and constitute
deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

COUNT II

36. In numerous instances, in connection with the financing of business ventures, Leasecomm represents,
expressly or by implication, directly or indirectly, that it is financing the customer's purchase of a business
venture.

37. Leasecomm fails to disclose:

a. That the financing agreement is with Leasecomm and not with the business venture vendor.

b. That the financing agreement purports to make the obligation to pay Leasecomm absolute and
unrelated to the terms, conditions, or performance of any other agreement, between the customer and
the business venture vendor, and that this agreement may be unenforceable under applicable contract
law.

c. That the obligation to pay Leasecomm in full is based entirely upon acceptance of a credit card swiping
machine or virtual terminal.

d. That Leasecomm's contract requires or has the effect of requiring that customers waive all defenses
that they might have, including, but not limited to, fraud in the inducement of the contract, and that this
provision may be unenforceable under applicable contract law.

e. That any disputes concerning the financing agreement will be resolved in a forum distant from the
customer's place of residence.

38. These facts would be material to consumers in their purchase or use of the product. The failure to disclose
these facts, in light of the representation made in Paragraph 36 above is a deceptive in violation of Section 5(a)
of the FTC Act, 15 U.S.C. § 45(a).

COUNT III

39. In numerous instances in connection with the financing of business ventures, Leasecomm represents,
expressly or by implication, directly or indirectly, that customers have waived all defenses, or are precluded from
raising any defenses or counterclaims, including defenses of fraud in the inducement or that material provisions
of the financing contract are unenforceable.

40. In truth and in fact, in numerous instances, customers have and can raise defenses and counterclaims,
including defenses of fraud in the inducement or that material provisions of the financing contract are
unenforceable.

41. Therefore, the representations set forth in Paragraph 39 are false or misleading and constitute deceptive
acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).