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 Ironically one of the key attorneys for CMC has withdrawn from the case because he has not been paid---more on this story as it develops.)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
Meanwhile former officers of the Commercial Money Center are back
in the leasing business.
on 3/5/03 Leasing News
Featured on 3/5/03 Leasing News