Copier Scams Part Deux "Dude Where's my Copier"?

No doubt it's fraud, that's an open and shut case. But I may never get to the bottom of why the individual in the organisation signed the agreement. I'll leave that to the imagination. It's a tough one as well, it was signed by the sister of the owner of the business!!

You obviously deal with this much more than I but tell me this...Regardless of past emails and/or conversations, if the customer can prove that they own the equipment then they have proof that the leasing company leased an asset they didn't own. What more do you need?

I'm not sure if that has an equivalent in the UK. here we have the Consumer Credit Act. However, it only applies to consumers. Business to business isn't covered (except in a small number of cases).

"I've almost never seen a disputed copier lease where the lessee wins. I'll admit I'm no expert in leasing however most of these agreements are rock solid."

In my experience the reason why they're perceived as rock solid is because they are rarely challenged. If they're not challenged they'll never be beaten. Also, the finance companies have very deep pockets and can pay for top lawyers who specialise in these contracts.

Joe customer doesn't know who to turn to or specialist lawyers. Most of the lawyers who I come in to contact with and talk to about these agreements are clueless, They do not understand how the industry works, they go down the wrong path and usually hit a dead end. Coming up against the might and experience of the lawyers for the finance company they don't stand a chance. They don't know the finance companies Achilles Heal.

The other point is that the finance companies cannot afford to lose one battle, that would potentially open the flood gates. They will stop at nothing with their lawyers, but if it gets to the point where they may have to defend in court, they will settle out of court subject to a NDA. So you never get to find out if the agreement is rock solid and the perception continues.

In general though the lease agreements are pretty watertight and the fault usually resides with the customer due to their stupidity in signing up for something without being thorough and getting everything in writing from the supplier. Caveat Emptor

I'm working on a case now where (amongst other things) the Head of Finance signed a variation document for a lease just 18 months ago. They can't remember why they signed it. The variation effectively enters the customer in to a lease on a piece of equipment they actually purchased for cash some years before. When I asked where the proposal is or the emails, they have nothing. This is a pretty straight forward case of fraud but shows that people are often persuaded in to singing things for no plausible reason. Unless, of course there was a bribe involved.

I will probably never find out the truth on this one.

I will never understand why Business Equipment Leases do not fall under the Truth In Lending laws that apply to everything else.

I've almost never seen a disputed copier lease where the lessee wins. I'll admit I'm no expert in leasing however most of these agreements are rock solid.

I do a lot of "contract disassembling" and am very successful at it - It's kind of like a fun sport or hobby to me.

US & UK contract law are almost exactly the same. That would be an unenforceable penalty in both UK & US.

Here's a reference to "Penal Damages" on Wikipedia that refers to US law. http://en.wikipedia.org/wiki/Penal_damages

Most of the people I know who work in the copier industry are of the belief that these clauses are legal and enforceable. That works to my advantage, just because it's in a contract doesn't mean that it's legal OR enforceable.

How is it that you are familiar with the laws in the U.S.?

Tell me what this is if not a pre-payment penalty?

"...You may not payoff this Agreement prior to the end of the Agreement term without our consent and We may charge You, in addition to the other amounts owed under this Agreement, an early termination fee equal to five percent (5%) of the total amount We paid for the Equipment.
9. USE AND MAINTENANCE. You agree that the Equipment is owned by Us and will be used for business..."

"Many companies actually have a pre-payment penalty". Any clause which is an attempt to penalise a party if they try and terminate a contract early is illegal in the UK. This is not the same as liquidated damages clauses, where the injured party is entitled to compensation. I'm pretty the same legislation applies in the US?

I did a search on the web for the company I was speaking about and I found out that there is a law suite pending against for 25 missing copiers!! Where there is smoke there is fire!

Again, you are stating as fact things that are only true for you or possibly only true in the UK. Over here, I haven't seen an early settlement discount in years. Many companies actually have a pre-payment penalty. The settlement added to the new lease that you speak of is only a benefit to the lease company when the new deal goes to the incumbent. And if there is no residual, why isn't the equipment free to the dealer at the back end? The price to the dealer whether contracted in advance or negotiated at the end, is the residual. Even when sold to a wholesaler, there is a residual, granted its pennies on the dollar although re-stocking fees are becoming more common which helps them recover more.

It's easy to work out where the lease co's make their money. Every time a deal is upgraded early the early settlement discount is a paltry sum (3%). The effective interest rates are therefore huge. This settlement is then more often added to a new lease and interested lumped on top of that.

There's no factoring in of a residual kit value for the lease companies, too little money for too much effort and management. That's why they don't handle the kit and insist the customer or dealer does and why they will have an end of lease pre-purchase clause with the dealer for just £50.

That's not really the point I was trying to make. The point is that a salesrep shouldn't assume anything as fact because the facts vary from dealer to dealer and lease to lease.

That having been said, you are missing a big part of the lease equation and that is the "alternative forms of revenue" that comes at the end of the lease. Anytime a lease is ended effectively, the lease company loses the chance of an automatic renewal (evergreen clause), in some cases they lose the chance to sell the equipment direct to the lessee at an inflated rate, and if the deal goes to a competitive dealer they most likely lose the lease customer to a competitive lease company. Also, the equipment does have a residual value when sold to a wholesaler (which is not offset by shipping charges because shipping charges are paid by the lessee, not by the lease company). All of this revenue is 100% profit and I believe that the alternative forms of revenue is what pays the bills, not the interest on the loan. Again, no hard and fast rules but this seems to be characteristic of business on this side of the pond.

Challenge...take the sum of payments plus residual and compare the result to the same deal using the $1.00 rate. Why aren't they similar? I contend that the difference is the expected revenue from end of lease "gotchya's" that don't exist in a $1.00 out environment.

Even if the contract with the supplying dealer specifically has a clause that says the dealer will NOT buy the kit back, the lease co don't want it.

I have never heard of a leasing company actually asking for the kit back at the end of a lease, they aren't interested. It's not part of their business plan. What is required as a condition on every lease is that the lessee is responsible for returning the equipment to a destination of the lease co's choice. If it does come to that it will go to a trader. The lease co just don't want it.

If you know of a leasing co that actually wants to take possession of the kit  then that is the first time I have ever heard of it.

Sorry Grant but I have to call you out.It is a big mistake for salespeople to assume that what is true in their case, is true across the board. It causes the salesrep to make mistakes in judgement and may cause them to unintentionally misinform their prospect. Anything that isn't required by law is negotiable and therefore will vary from lease company to lease company and dealer to dealer. So two dealers using the same lease company may have negotiated different terms.

Grant:

Thanx for the comment, here in the US there is the trade agreement also but it varies from dealer to dealer. If the customer opts to return the system then the dealer has the option to buy the equipment.

Art, it's a part of the industry that I doubt you will get rid of. I would like to add my own "observation". I don't think that 99.9% of dealers do a good deal. If 99.9% was the case these instances would not even be noticed because they would be unheard of. I think the reality is that around 60-70% of dealers are OK.

Another point is that the leasing companies do not give a damn about the state of the copier at the end of a lease. As long as the customer has made all the payments they're happy. The leasing companies all have a trading agreement with the supplying dealer that automatically requires the dealer to buy the equipment back at the end of the lease.

Once you're a third of the way in the equipment has more cost to remove it than it's worth to the finance company. They are in the money business, they really do not give a damn about the asset.

Also, it's the leasing companies that turn a blind eye to dodgy dealer behaviour. Most, if not all of the time, the lease co will work with the dealer to mitigate their loss and pursue the customer, even if they believe the dealer has been at fault. Why, because they will get more business from the dealer over the next XXX years, whereas the lessee won't give them any more business.

So the leasing companies actually protect the dealers.

In the UK you do not have to have a licence as an individual working in a company selling B2B finance. As long as the Company has a Credit license anybody working there can sell finance, even somebody with a criminal conviction.

If the leasing companies got together with the regulators they could easily come up with a registration scheme, even if at first it was only voluntary. But that won't happen because the leasing companies want no barriers or hurdles to them offering finance schemes to vendors.

This situation has existed ever since sales aid leasing was offered to dealer, and I doubt it will change.