Attorney General Eric T. Schneiderman announced that his office has reached a multi-million dollar settlement with a group of New York City-based business equipment leasing companies that schemed to drain nearly $11 million from the bank accounts of small business customers in New York State and across the country.
Northern Leasing Systems, Inc., and its affiliates provided credit card processing machines and other equipment to small businesses – many of them mom-and-pop stores. As part of a coordinated effort, these companies siphoned over $3.6 million in unauthorized fees from the bank accounts of nearly 110,000 former customers before the scheme was discovered and they were stopped – preventing them from completing their plan to steal nearly $7 million in additional funds.This settlement concludes a lawsuit filed by the Attorney General in Manhattan Supreme Court in April 2012 against NLS and its partners.
As part of the settlement, the companies agreed to fully refund the more than $3.6 million they drained from their customers’ accounts in the spring of 2011.They also agreed to refrain from any efforts to collect the remaining approximately $7 million from customers targeted in the scheme – in some cases, up to 11 years after their victims’ equipment leases had expired.The companies are required to make automatic refunds to certain former customers and there will be a claims process for all other customers.Each customer participating in the settlement will receive 100% of the amount debited.
The companies will also pay $575,000 in costs, penalties and fees to the State of New York.
To disguise the scheme, Northern Leasing used a shell company, SKS Associates LLC, to mislead customers and avoid harming its business reputation.The scheme came to light when former customers, from New York to Texas and California, discovered automatic debits from their bank accounts by a company they had never heard of.
The settlement agreement with Northern Leasing and its affiliates - Lease Finance Group LLC, MBF Leasing LLC, Golden Eagle Leasing LLC and Lease Source-LSI, LLC - is the result of the Attorney General’s investigation into the SKS collection scheme. All of the companies operate out of 132 W. 31st St. in Manhattan.
The companies’ leases required customers to reimburse them for property taxes and “administrative fees” through automated debits. The leases were vague about the exact amount and the timing of the payments.While Northern Leasing claimed it failed to collect these amounts from some customers while their leases were still active, it could not show that the deducted tax amounts were ever owed or paid to taxing authorities, nor could it provide any proof that the or justify the tax and fee amount debited from individual customers was correct. The companies, which debited some victims as much as 11 years after they had ceased to do business together, devised the scheme in late 2010 and started the unauthorized debits in March 2011.The scam was halted April 2011 by court order in California related to a private class-action lawsuit filed in that state.
When Northern Leasing began seizing money years after the leases expired, they channeled the collections through SKS. SKS began withdrawing money from former customers before it was even legally registered to conduct business in New York.Some notice letters were sent out, but many were sent out the same day or only one day before the debits. When SKS was flooded with telephone calls from upset customers, it stopped sending notice letters altogether and took money from former customers’ bank accounts with no notice at all.
Former customers also faced an additional web of misrepresentations, including the false claim that an “audit” was conducted on the customer’s account, which had supposedly revealed that taxes and fees were still owed.When customers asked for proof that the charges were legitimate and accurate, SKS failed or refused to provide any.And when some customers tried to verify the charges on their own, they discovered that the amounts were not accurate.
Besides monetary refunds and penalties, the companies will modify future lease agreements to clearly and conspicuously disclose information about tax and related administrative fees on the first page of the lease agreement. Other reforms include that the companies will not debit or otherwise collect taxes and related administrative fees unless the companies have paid or will pay such taxes to a taxing authority.