PR - FTC Intervenes in Collection Class-Action Settlement

The Federal Trade Commission Wednesday approved a motion to intervene in and object to a proposed class action settlement agreement currently being considered by the Superior Court of New Jersey, Law Division: Monmouth County. The FTC is also requesting leave to participate in the fairness hearing, scheduled for April 18, regarding the proposed settlement. The motion to intervene and the objection, filed by the FTC’s staff on March 26, 2008, can be found on the FTC’s Web site.

According to the motion, the proposed settlement would resolve private claims against IFC Credit Corporation (IFC), which the FTC sued in June 2007, alleging that it had engaged in unfair and deceptive trade practices involving the collection on rental agreements IFC had bought from Norvergence. The FTC had previously brought a separate action against Norvergence as well, alleging it had used deceptive tactics to induce small businesses and non-profits to enter into telecom equipment rental agreements ("Another State AG and the FTC Pile On Debt Buyer over Telecom Bills," July 8, 2007). Under the proposed IFC class action settlement, the FTC contends that IFC essentially would obtain an enforceable judgment against class members that may require them to pay money to the company, without a suit ever being filed against them.

Specifically, class members who do not opt out of the class may be required to pay IFC substantial sums on their existing rental agreements with the company, albeit a discounted amount on the total balance IFC claims they owe. If the class members who have not opted out then fail to pay the amount they owe IFC under the settlement, no reduction applies, and they would be required to pay IFC the full amount they allegedly owed under the original agreement. In addition, the settlement would allow IFC to enforce the terms of the agreement against defaulting customers in any court with jurisdiction in the case, and settling class members would have to release any claims they may have had against IFC related to their rental agreements. Because of the legal ramifications of the proposed settlement, the FTC argues that the delivery of the settlement notice must comport with constitutionally required standards of due process, providing class members with adequate notice about the proposed settlement terms.

As the FTC summarized in its motion, “If approved, the settlement will provide IFC with what is tantamount to a default judgment against class members who have not paid what IFC asserts they owe on the rental agreements. The FTC objects to vesting IFC with this authority when it is accomplished in a manner that denies class members due process. At a minimum, class members should be provided sufficient notice and the opportunity to be heard, so that they may make an informed decision about whether to opt out of the proposed settlement.”