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Bob Rodi, CLP on Michael Fleming letter to Star Ledger “As I am still a faithful daily follower of Leasing News I read Michael Fleming's letter to the Star Ledger that you printed the other day. I also saw that you reprinted something that I had written to Leasing News a while back. “I just wanted to add something to my comments. During most of my 22 year career in this industry I have had to, at some point, convince a lender to buy my transactions whether that be to collect a broker commission or clear my warehouse line. During that time I have had to defend my vendor relationships on countless occasions. Who in this business, that has spent any time as a third party, has not gotten a response from a funding source that states, "We have funded 5 transactions for this vendor. We cannot do any more until we get a complete vendor profile". This response, by the way, generally comes on your sixth approval. Since we knew this was coming we simply got in the habit of checking the vendor out, up front. I have also had lenders and funding sources send any computer related invoice to their "collateral evaluation" department and then receive a response that the equipment on my invoice was 15% higher than the manufacturer's suggested retail price, so why was the vendor pumping up the price. Knowing that this was going to take place, we simply got in the habit of verifying the pricing before the funding source had the chance to call it to our attention. “I know that most of the readers who spent any time as third party originators have had this identical experience. One of the first things we were taught was to be wary of "Blue Sky" transactions. “While I cannot totally excuse the individuals who bought this service, there is no way that I will ever believe that some of the major leasing companies who funded these transactions did not figure out that this was a total scam. “In the past, when I have put together transactions involving service contracts, I never fully fund the vendor for the entire amount of the contract. I fund the vendor one year of service in advance and hold back the amounts in the subsequent years. I use the economic benefit that this provides to "buy down" the rate for the customer while mitigating the inherent risk in financing the unsecured portion of the transaction. “I was taught that you put these deals together this way. I was also taught that if a leasing company did not structure service contract transactions this way, then the leasing company could be liable to provide the service if the vendor were to "disappear" with all the advance service contract money. “Were the leasing companies so anxious to book this volume that they overlooked the red flags that are taught to every rookie doing vendor business? Were the Norvergence customers so anxious to save a few dollars that they didn't check into the quality and stability of the vendor for something as important as telephone service? “This whole situation truly epitomizes the old saying "If it sounds to good to be true, then it probably is". “Kit, I think Leasing News should have some fun with this and start a pool. I think you should take bets on when the Norvergence people will resurface with a new company and which one of the banks and/or leasing companies involved in this will be the first to buy business from them. Let me know if you decide to do that. I am definitely in for a piece of that action because, in this business, history seems to repeat itself far more often.” Bob Rodi, CLP
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