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Believe it or Not!!! Commercial Money Center
Was Not Licensed in California Leasing News has learned the “class action” suit
against CMC and the funders, including the surety insurance companies, revolves
around the laws of usury. Since the Commercial Money Center was not licensed
by the California State Department of Corporations for a Finance Lenders
License or what was originally called, “Personal Property Brokers
License,” the leases may be subject
to usury, it was reported to us. According to one of the attorneys involved in
the case, the judge has taken under submission to decide whether they
are “operating leases” or “finance leases.” Under the state law, leases that are operating
leases, true leases, do not require that the parties be licensed under the present
law. It is no contest that the CMC lease implied interest rates are
well above 50% APR, not including
the up-front fees or deposits or guaranteed purchase options. The Funding Tree argued this case before them, and moved to Nevada
rather than try to resolve the issue. To be licensed, you cannot have a felony record,
a bankruptcy, and the officers must meet certain criteria. In the instance of the Funding Tree, they obviously did not ( Kendra Bernal was in violation of parole
and actually left her own attorney with a $10,000 bill she has not paid
to date while she was trying to avoid prosecution---this is fact direct from
the attorney involved, not hearsay. Ironically
one of the key attorneys for CMC has withdrawn from the case because
he has not been paid---more on this story as it develops.) There are questions whether CMC would have qualified
for the license, it is reported. Almost all the leases signed by CMC were “PUT’s,”
purchase upon terms. In the equipment lease accounting industry, this
is considered a “finance lease” and not an “operating lease.” While
there may be some exceptions, the great majority took deposits up front to apply for
determined purchase options signed by both parties. The structure is the question
as the judge believes this is either “an accounting matter” or “usurious
matter.” Meaning if they are
“finance leases, “ the owners of the contracts may be liable.
If not, it is for the bankruptcy courts ( more on this to follow) and a division
of assets where the class action plaintiffs may stand ahead of the lenders, including
those with the surety bonds, such as Netbank, it is believed. According to one attorney, one of the purchasers
of one of the CMC portfolio’s was GE Capital, who’s attorney stated
that GE Capital did not require that lessors or brokers be licensed
in California, further stating that not many financial institutions
made this requirement to conduct business. We are talking here about
millions of dollars, where it appears a “due diligence” was not conducted. This information was provided by one of the attorneys involved in
the matter. While this decision goes on in the Los Angeles
courts, the San Diego Federal Bankruptcy Court appears to be trying
to move the matter to the Ohio
Courts, where the surety insurance companies and banks are dukking it
out over millions of dollars ( Net Bank has an
$80 million claim.) Of course, the State Los Angeles courts could
decide the Class Action suit brought by lessees and vendors. This will
then affect the division of the pie, if any. In Ohio, who is the legal owner of the “stream
of payments,” the equipment, and whether the bonds were legally filed or whether
there was misrepresentation or perhaps a settlement will be the outcome or
perhaps the insurance companies could also go out of business—unlikely but possible.
And then there is the FBI investigation into the Kiosk leases ( didn’t
exist, vendor not paid) and other matters. Meaning
whether the Los Angeles judge says “finance lease” or “operating lease” this may be going on for five
years---and maybe there will be more attorneys who will not be paid.
The class action suit is on a “contingent basis” so they can hang on,
if the judge says they are a “finance lease.” The attorneys need someone to help the judge
become a Certified Lease Professional. Meanwhile former officers of the Commercial Money
Center are back in the leasing business. |
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