Monday, June 25, 2012
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Leasing News Help Wanted Ad Pricing
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Free Posting for those seeking employment in Leasing:
All “free” categories “job wanted” ads:http://www.leasingnews.org/Classified/Jwanted/Jwanted.htm
Funders Looking for New Broker Business
It should be noted there are a number of funders, who are working with brokers, who would like to work with more brokers, but do not want to be on this list. There are also others who have asked to be removed from the list because they received too many calls from those new in the business or ones they did not want to consider or just “too many telephone calls.”
The credit unions mention in previous stories who do leasing, and/or accept broker business, have also asked not to be on this list.
There are also funders who don’t want to be on the “Funders A” list as they also get “too many calls” from those with leasing transactions.
My advice to those who find this disturbing, join www.naelb.org and not only learn the business, but network, and also learn funders that will consider their transactions. (For more information about NAELB membership, please contact: firstname.lastname@example.org.)
To be chosen for this list, the company must qualify as a "funder" and be on the "Funder A" list, including no listing on the "Complaint Bulletin Board" as well as always notify the lessee prior to termination if their lease contract or the discounting document used has an Evergreen clause.
There is no advertising fee or charge for a listing. They are “free.” Leasing News makes no endorsement of any of the companies listed, except they have qualified to be on this specific list.
Leasing News reserves the right to not list a company who does not meet these qualifications.
We encourage companies who are listed to contact us for any change or addition they would like to make. Adding further information as an "attachment" or clarification of what they have to offer would be helpful to readers are very much encouraged.
Watch Out for Small Capital Leases
When is a commercial loan not a commercial loan or a Capital Lease? Well, when the lender makes a loan subject to Financial Code § 22204. That Code section can take an otherwise admitted commercial loan and turn it into a consumer loan, making the lender subject to rate and fee limitations and the dreaded Regulation Z disclosure requirement. This would be a disaster of course, and that is exactly what happened to one lender.
The case is Wertheim, LLC v. Currency Corporation, 2012 WL 1854944 (Cal. App. 2nd Dist. 2012). There, the lender, Currency Corporation, loaned monies to the son of a well known songwriter based on a royalty stream. Many of the loans were less than $5,000 and all were for rates which exceeded 50%.
The lenders law has a curious, and much maligned, definition of a consumer loan which includes loans which are for commercial purposes. One of the provisions of the definition defines a “consumer loan” as any loan where the “principal amount is less than five thousand dollars where the proceeds are intended by the borrower for use primarily for other than personal, family , or household purposes.” California Financial Code § 22204(a). In other words, any commercial loan which is less than $5,000 is really a consumer loan.
Further aggravating the situation are the provisions of Financial Code §§ 22303, 22304, which place rate and fee caps for consumer loans on a sliding scale. These are applicable to commercial loans under $5,000. Once the gates of the consumer loan provisions are open, the lender is required to comply with Regulation Z disclosures and other onerous provisions.
However, there is an exemption, which would deem small commercial loans to retain their commercial status in Financial Code § 22551. Called the “open-ended credit agreement” exemption, this statute allows lender to make small $5,000 or less loans to a borrower and still maintain the commercial quality if the loans are made pursuant to a credit line. Financial Code.
In Wertheim, the lender made a series of high interest, one-off, standalone loans under $5,000 which on their face would appear to fall within the trap of Financial Code § 22204(a) and would turn the commercial loans into consumer loans. Once deemed consumer loans, those loans would arguably be illegal due to rate and fee caps.
While the lender in Wertheim tried to argue that the loans were commercial. However, it was clear that the loans were not advances under an open-ended credit agreement, and were intended, drafted, and funded as one-off, standalone promissory notes. Consequently, the borrower could dispute the loans, recover illegal interest, and obtain a judgment against the lender. While the lender had other loans which were in excess of the $5,000 floor, the borrower ultimately had a larger net recovery. The borrower was awarded its attorney fees.
As is the case with most cases involving the Financial Lender’s Law, there are many lessons for the equipment lessor here.
First, Bad Facts Make Bad Law. Here the lender had effective interest rates in excess of 50% and also compounded interest. While it is difficult to determine if the trial court may have held this against the lender, the lender with that kind of effective interest rate, coupled with non-compliance with applicable laws, will not be looked on favorably. If a lender’s business model involves super high interest rates, then it ought to review the Financial Code and strictly comply. It will not get many breaks.
Second, the Financial Lenders Law Treats Some Commercial Loans as Consumer Loans—Be Aware of Those Definitions. As stated, Financial Code § 22204 defines certain commercial loans as consumer loans. It is difficult to explain to clients that a commercial loan is really a consumer loan in certain circumstances, and I often get curious looks when I explain this. Many counsel try to argue that the definitions should be read in context with reality, but one expert interviewed the Department of Corporations and the DOC opined that the definitions of a consumer loan in Financial Code § 22204 were independent standalone definitions. See generally, Law Journal News Equipment Leasing, July 2002, Michael A Karpen, “How Lenders Can Protect Themselves Against California Finance Lenders Law” page 1 (July 2002). All I can say is read the definition, and try not to do the things in the definition which might trip up the lender, such as taking accounts for collateral or making a series of low dollar loans, as was the case here.
Third, For Those Lessors Which Still Use Master Leases and Schedules, Review the Exemption and Determine If the Schedule is An Open-Ended Credit, or a Standalone Obligation. The lessor schedule may be for equipment with a value of less than $5,000 and if a standalone schedule, and not part of a credit line take down, might be considered consumer loan. The lessor should review its lease documents in light of the Wertheim decision.
The bottom line for the equipment lessor is that its business model should be thoroughly vetted by competent lender’s counsel or someone with a familiarity of the Financial Lenders Law, otherwise your commercial loans may be deemed consumer loans.
Visit our Web Site at www.bkolaw.com
WERTHEIM Decision PDF:
Career Crossroad—“Should I leave my current employer?”
Question: I have been actively interviewing and was just made an offer, but I am now not sure I am ready to leave my current employer; however, I may be interested in the future. How do you suggest I handle this situation?
Answer: I have written about this before, but not as direct as this situation. You really should have evaluated your situation before EVER embarking on a job search.
It is imperative for you, to make sure you do not begin ANY search unless you are sincerely ready to make a move. The consequences of changing your mind can affect many – most importantly YOU.
It is one of the first questions I ask, are you really sure you want to leave your present employer? And why?
If you ask this question, you are not ready to move on!
Stop the process right away – they may have another candidate that is ready to accept today. Approach the company and let them know you appreciate their efforts and interest in you. Explain that at this time it just does not make sense (e.g. maybe you would lose a bonus that you worked hard for or were given a new assignment). Express your positive impression of the company / its culture / potential managers, etc… and that you would like to leave the door open for future conversations.
Career Crossroads Previous Columns
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Please see our Job Wanted section for possible new employees.
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Bank Leasing Companies
Legal authority to lease for non-regulated Lessor’s is a “non issue,” however for Banks they are generally authorized by the corporate law of their incorporating jurisdiction to lease personal and real property. Bank leasing is divided into three categories; National banks, leasing operations owned directly by the Bank holding Company and State chartered banks. Also any foreign banks engaged in leasing also fall under the same rules as the bank holding companies. The three distinctions are necessary because of the bank regulations that govern each type of bank.
National Banks are federally chartered and are regulated by the office of the Comptroller of the Currency (OCC) under the National Bank Act. Their regulations are covered in two parts based on the size of the lease portfolio. The first comes from 12 U.S.C. #24 (seventh), and leases done under such authority are termed section 24 Leases. The second comes from 12 U.S.C. #24 (tenth), enacted as part of the Competitive Equality Banking Act of 1987 (CEBA) and these leases are called CEBA Leases. Both of these leases have the following restrictions:
Net Lease: The Bank may not, directly, or indirectly, provide for or be obligated to provide for:
Full Payout Requirement: The bank must reasonably expect to receive its investment back from the rents, tax advantages (depreciation), and residuals.
The major difference between Section 24 (seventh) Leases and CEBA Leases is the reliance on residuals to meet the full payout requirement. The Section 24 leases only allow for a 25% maximum un-guaranteed residual risk and a maximum residual up to 50% with the second, or top half, of the residual guaranteed by a credit worthy insurer or vendor. The Competitive Equality Bank Act requirements allow for unrestricted residuals except the lease portfolio with residuals in excess of 25%, unguaranteed, may not exceed 10% of the banks consolidated assets.
One additional provision usually found in the leasing policy of most banks is the restriction of supporting the Lessee’s selection of the leased asset. If the suggestion of the bank were used to decide on the equipment, or the vendor, then the net lease provisions established to protect the rent stream from interruption could be in danger from poor equipment performance. A National bank needs to be a third party to the lease and not be responsible for equipment performance in anyway. This also prevents the bank from including any form of maintenance in the lease arrangement. Any service contract, or maintenance agreement, must be separate and not the responsibility of the bank. No prepayment for supplies, or inventory paid to the vendor for future delivery is allowed either.
Separate records for each type of lease (Section 24 or CEBA) must be kept to distinguish such leases from each other. This requirement is designed to permit the OCC to more easily monitor the separate requirements for the two types of leases.
Leasing under a Bank Holding Company
In 1956 congress enacted The Bank Holding Company Act (BHC). Then in 1970 they gave permission to bank holding companies to engage in activities which they determined to be closely related to banking and amended BLC regulations under “Regulation Y“ to provide authority for bank holding companies to engage in personal property equipment leasing. The rules required in 1974 that the maximum unguaranteed residual was 20% or up to 60%, if the excess was guaranteed, and the lease had to be a net lease and a full payout, much like required by the OCC.
In 1987, following the enactment of CEBA for National Banks, several bank holding companies requested and obtained permission to do leasing, subject to limitations similar to those imposed by CEBA. In 1992 Regulation Y was further amended to include higher residuals except it contained a limitation for aggregate book assets of all tangible personal property, subject to residuals over 25%, was limited to 10% of the bank holding company’s consolidated domestic and foreign assets.
State banks are usually governed by their State department of Banking and while some of them have adopted similar regulations to the OCC in Some States they are less restrictive. However, many State banks are members of the Federal Reserve System and are regulated at the Federal Level by the Board. The Board permits the same activities as permitted in the BHC. Also those State Banks which are insured by the Bank Insurance Fund, administered by the Federal Deposit Insurance Corporation (FDIC), are further limited to similar requirements for National Banks under the OCC
An industrial loan company (ILC) or industrial bank is a financial institution in the United States that lends money, and may be owned by non-financial institutions. Though such banks offer FDIC-insured deposits and are subject to FDIC and state regulator oversight, a debate exists to allow parent companies such as Wal-Mart to remain unregulated by the financial regulators. "FDIC-insured entities are subject to Sections 23A and 23B of the Federal Reserve Act, which limits bank transactions with affiliates, including the parent company." (FDIC.gov) The ILC is permitted to have branches in multiple states (which is permitted by many states on a reciprocal basis). They are state-chartered, and insured by the Federal Deposit Insurance Corporation. They are currently chartered by seven states, with most chartered by Utah. Other states permitting them include California, Colorado, Minnesota, Indiana, Hawaii, and Nevada.
Companies that have set up industrial banks include UBS, General Electric Co., General Motors, Merrill Lynch & Co. Inc., Morgan Stanley, American Express Co. Target Corp, Nordstrom, Harley-Davidson, First Data, UnitedHealth Group, BMW, Marlin, CIT, Fry’s Electronics, and Sallie Mae.
In a recent article in Leasing News about the top fifty performing Credit Unions, it was noted several are now offering leasing, including a few accepting local broker referrals. Credit Unions are non-profit, membership owned, and do fall under the banking laws.
The Federal Deposit Insurance Corp. only insures deposits in banks and savings and loan associations. Federal credit unions have their own insurance fund, which is run by the National Credit Union Administration,
Best Performing Credit Unions
Mr. Terry Winders, CLP, has been a teacher, consultant, expert witness for the leasing industry for thirty years and can be reached at email@example.com or 502-327-8666.
He invites your questions and queries.
Previous #102 Columns:
(This ad is a “trade” for the writing of this column. Opinions
Top Stories June 8---June 12
Here are the top ten sorties opened by readers
(1) Dan McKew to head up Capital One Commercial Lending
(2) Ladco Leasing/Elavon Fined $418,601
(3) New Hires---Promotions
(4) Leasing 102 by Mr. Terry Winders, CLP
(5) Companies Who Do Not Notify Lessee regarding termination nor
(6) GreatAmerica Leasing by Tony Golobic
(7) Archives June 20, 2000
(8) Late Fees
(9) Sales Make it Happen
(10) Despite What You Read Elsewhere,
Bank Beat--Failed Bank Bidding Details
No bank failures reported this week, but here are the non-winning bid information for 404 of the 420 bank failures that occured between January 1, 2009 and June 18, 2012, as prepared by SNL Financial.
This Year's Non-Winning Bids
* Sylacauga, Ala.-based Alabama Trust Bank NA, which failed May 18, received two bids.
* Rock Spring, Ga.-based Covenant Bank & Trust, which failed March 23, received five
* Prescott, Ariz.-based Summit Bank, which failed July 15, received two bids.
* Chicago-based First Chicago Bank & Trust, which failed July 8, received two bids.
* Charleston, S.C.-based Atlantic Bank & Trust, which failed June 3, received eight bids.
* Burlington, Wash.-based, Summit Bank which failed May 20 received three bids.
* Macon, Ga.-based Atlantic Southern Bank, which failed May 20, received three bids.
* Dallas, Ga.-based First Choice Community Bank, which failed April 29, received six bids.
* Carthage, Miss.-based Heritage Banking Group, which failed April 15, received two bids.
* Birmingham, Ala.-based Superior Bank, which failed April 15, received 10 bids.
* East Ellijay, Ga.-based New Horizons Bank, which failed April 15, received two bids.
* Las Vegas-based Nevada Commerce Bank, which failed April 8, received two bids.
Failures from 2010 with recently released bid details
List of Bank Failures:
2012 Bank Mergers Up 9%
The pace of bank mergers has picked up the first six months on this year compared to 2011. There have been 99 bank and thrift mergers year-to-date, totaling an aggregate deal value of $$4.50 billion, according to SNL Financial.
The median price to tangible book value of the transactions announced in the first quarter of 2012 was 116%, compared to 93% in the fourth quarter of 2011 and 114% in the first quarter of 2011.
In 2011, there were 176 transactions announced with a total deal value of $17.02 billion, compared to 215 in 2010 valued at $12.32 billion. Pricing declined in 2011. The median price to tangible book value was 106.42% in 2011 for 99 deals with disclosed terms, compared to 115.98% in 2010 for 119 deals with terms disclosed.
The most expensive bank deal since Jan. 1, 2010, was announced March 5, when Houston-based Cadence Bancorp LLC said it would acquire Houston-based Encore Bancshares Inc. for $251.3 million. The deal was valued at 171.1% of book and 240.1% of tangible book.
Following Cadence on the list was another Houston deal: Dallas-based Comerica Inc.'s agreement to acquire Houston-based Sterling Bancshares Inc. for about $1.03 billion.
The largest bank deal since Jan. 1, 2010, was McLean, Va.-based Capital One Financial Corp.'s June 16, 2011, agreement to buy Wilmington, Del.-based ING Bank FSB for $9.00 billion, representing 102.21% of the target's tangible book. This also marks the largest bank deal since 2008, when Wells Fargo & Co. acquired Wachovia Corp. for $15.1 billion.
### Press Release ############################
$14 Million Tax Loss
A California man who submitted false tax forms and promoted a tax fraud scheme in the U.S. and Canada was sentenced today in U.S. District Court in Seattle to 12 years in prison, three years of supervised release and $6,206,998 in restitution for conspiracy and wire fraud. RONALD L. BREKKE, 55, of Orange County, California was convicted following a two-day jury trial in March 2012. BREKKE promoted a tax fraud scheme known as “1099 OID” fraud. Promoters of this scheme claim that the U.S. Treasury will pay out tax refunds equal to the value of a person’s personal debt. BREKKE helped nearly 1,000 people in three countries claim over $763 million in fraudulent tax refunds. At sentencing, U.S. District Judge John C. Coughenour said BREKKE “fundamentally failed to grasp our laws.” The Judge told BREKKE, he could spend the rest of his life “tilting at windmills,” and “squander his remaining time on earth,” or instead come to accept that our laws are “rules that citizens of this country have made.”
“The defendant used his knowledge to exploit vulnerabilities in the tax system, to loot tax dollars,” said U.S. Attorney Jenny A. Durkan. “He used citizens of the U.S. and Canada to hide his dirty work, and now will pay with a lengthy prison term.”
BREKKE was indicted and arrested in late 2010, after two of his Canadian co-conspirators were arrested in Bellingham after trying to cash two refund checks exceeding $350,000 each. The two Canadians, Donald Mason and John Chung, were convicted in U.S. District Court in Seattle, and the investigation revealed that BREKKE had been promoting the tax fraud scheme. The IRS flagged the vast majority of the 1099 OID filings as frivolous, but refund claims totaling approximately $14 million were paid before the IRS detected the fraudulent nature of the returns. About two-thirds of BREKKE’s customers were Canadians who had never paid a dime in income tax and were not owed any money by the U.S. Treasury. Those submitting the phony claims were told to quickly move the money to Canada where it would be more difficult for the IRS to recover the money. BREKKE took in about $400,000 in fees over less than a two year period from the people he aided in the fraud.
BREKKE had been repeatedly warned and fined by the IRS for similar frivolous filings that he had submitted on his own behalf. He also had received a public notice from the FBI warning him that the scheme was illegal. In a recording played for the jury at his trial, BREKKE is heard telling people at a seminar that some of the filings would slip through resulting in a big payout for some of the filers. The IRS has been able to get just over half the $14 million back, resulting in a restitution figure for BREKKE of $6,206,998. The jury also found that $291,064 seized from BREKKE’s PayPal account at the time of his arrest was subject to forfeiture as the proceeds of his crime.
“The American tax system is designed to provide vital government services to our people. It is not a slush fund for thieves and fraudsters,” said Kenneth J. Hines, the IRS Special Agent in Charge of the Pacific Northwest. “Those who illegally target our nation’s tax dollars for personal financial gain, along with others who assist them, could face criminal prosecution and lengthy prison sentences. The foreign nationals residing in other countries who participated are not shielded from prosecution, as a few Canadians who participated in this scheme learned the hard way.”
Since his conviction BREKKE and his cohorts have continued to defy the authority of the justice system. “Ronald Brekke has not simply failed to accept responsibility for his actions.
Rather, he has refused to accept the basic premise that he can be held accountable for his actions…. He filed liens against the Court and others, including a multi-million dollar lien against [an] Internal Revenue Service employee…. He and his cohorts filed a frivolous bankruptcy action against the United States in the District of Arizona and attempted to “remove” this criminal action to the bankruptcy court…. He filed a free-standing action against the Court and the prosecutors, making a variety of frivolous claims. He filed a score of frivolous papers in this Court, making a number of baseless assertions, including that he was entitled to damages from the government,” prosecutors wrote in their sentencing memo.
The case was investigated by the Internal Revenue Service Criminal Investigation (IRS-CI) and the United States Secret Service. The case was prosecuted by Assistant United States Attorneys Thomas Woods, Mary K. Dimke and Tessa Gorman.
The IRS has more information on 1099 OID fraud here: http://www.irs.gov/newsroom/article/0,,id=254383,00.html
#### Press Release #############################
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Miniature Pinscher Mix
“Hi, my name is Marcos and I’m glad to meet you. I’m a bit of a mellow dog but once we get to know each other I’ll be in your lap giving you doggie kisses. I would love a home to call my own. I dream of days of walking around the neighborhood, just me and my family. After that long walk a nice place to curl up and take a nap would be ideal. Do I sound like the perfect dog or what? I can’t wait to meet you.
“For the month of June, all dogs and adult cats can be adopted for a special price of only $25...including me! For more information contact the Silicon Valley Animal Control Authority (SVACA) at 408-764-0344 or visit www.svaca.com."
Shelter: Silicon Valley Animal Control Authority
Pet ID #: 4571983-A786302
Come Meet Our Pets...
3370 Thomas Road, Santa Clara, CA 95054
Adopt-a-Pet by Leasing Co. State/City
Adopt a Pet
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