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Results: Regulation of Leasing Industry Questionnaire by Christopher Menkin “We have met the enemy and he is us” - Pogo. 63% of those who responded said the leasing industry should not be more regulated than it is today; 37% thought it should be. Those who said it should be more regulated, many said by the leasing associations. In the column by whether the federal government or state government, 41% said by the federal government; 37% by the state governments; 22% did not respond to either category. 54% were satisfied with the present regulation of the industry. 46% disagreed. The dictionary definition of the word is “the act of regulating; a principle, rule, or law designed to control or govern conduct.” By definition, those who felt the industry was “well-regulated,” the over-whelming majority, just don't like being told what they must do---especially by the government. It is ironic on this anniversary day of our country's first president birthday, that so many are against government rules and regulations, which was the purpose of the American Revolution and formation of the states to stop the imposition and taxation and form our own union. Despite the news about companies cheating funders, brokers retaining “deposits” when leases are not approved, the various lawsuits, jail time of those who broke existing laws, and the many who apparently have, such as NorVergence, Commercial Money Center, MSM Capital, RW Professional, to name just a few (who all were members of one or more leasing associations,) including leasing companies who are well known for using deceptive sales tactics, did not influence their opinion. It appears they are afraid to join the government in making regulations concerning their industry on such issues as licensing, handling of advance rentals, and qualifications to enter the business. “Don't ruin one of the last great entrepreneurial industries because of the actions of a few bad apples. The leasing industry still rewards innovators and people who work hard. With regulation, we'll all just become boring banker types who are afraid to take risks. (it is OK to print this).” Darryl Kushner Tri Counties Bank Leasing Department “The last thing we need is more regulation. There are enough headaches just trying to run a legitimate operation.” SPSLLC@AOL.COM “ Self regulation works when people stay involved. We don't need the state and federal governments regulating something else they know very little about.” japsey@federatedcapital.com There also exists the belief the various leasing associations can handle the regulation by monitoring their members (no mention was made about non-members.) “The industry needs to continue to require individuals and corporations to adhere to using practices that are based on business ethics as defined by several industry associations. Each association should monitor its members to insure compliance by peer pressure.” ( name with held ) Others believed it was not up to leasing associations or the government, that the market would self-regulate itself: “More regulation will not solve fraud problems. As all credit grantors know if someone wants to cheat you and if you do not check every fact, that person will get away with cheating you or others for a period of time. Ultimately, if the scam is continued it will fall apart and be exposed but in the interim, some people will be hurt. “What will be gained by this regulation except increasing the cost burden on honest companies and individuals? As we know the existence of regulations will not stop cheating per se although it may increase the cost when a person is caught. The fact that numerous companies are now being forced to take losses on the Norvergence contracts will tend to make funders more cautious which will protect against unscrupulous practices. This more than any regulation will have the desired impact in the marketplace. “ “Norvergence is an aberration. It does not warrant any attempt to regulate the leasing industry. “ Robert.Krause@sterlingbancorp.com “Generally the industry has provided an honest and competitive product in the marketplace. The NorVergence's of the world are rare and overreaction of government is not warranted. This is an objective lesson to the industry that has no desire to absorb such enormous losses and will be wiser the next time. “Time has proven this is an industry that can police itself for self preservation. “ bcallahan@nationalequipmentleasing.com There were others who responded that the leasing industry was not being self-regulated well, but were still opposed to any government regulation: “More regulation will not solve fraud problems. As all credit grantors know if someone wants to cheat you and if you do not check every fact, that person will get away with cheating you or others for a period of time. Ultimately, if the scam is continued it will fall apart and be exposed but in the interim, some people will be hurt. “What will be gained by this regulation except increasing the cost burden on honest companies and individuals? As we know the existence of regulations will not stop cheating per se although it may increase the cost when a person is caught. The fact that numerous companies are now being forced to take losses on the Norvergence contracts will tend to make funders more cautious which will protect against unscrupulous practices. This more than any regulation will have the desired impact in the marketplace. “ “It is obvious that the industry is deaf to legitimate criticism. I took it to task over a year ago in several articles I submitted for publication. The articles were never published. They were surreptitiously criticized, and dismissed. I then published the article on my website NEFINSYS.COM. It criticized the MISFM of reporting leveraged leases. Thus far I have not had a single official response from any industry group as to the propriety of the criticism or lack thereof. Sadly, there is not even a forum to take criticism to where one can expect an open and fair exchange of ideas. This void ultimately results in people turning towards government in the form of a Mark Spitzer. The apparent lack of interest is characteristic of the problems besetting the industry. The legal and accounting professions have gone a long way towards helping to bring about this problem, however, the industry itself is not adequately policing itself. That was the question! philtirino@aol.com “While the majority did not want regulation, many voted, but did not make comments. This was not true in those who responded they were in favor of regulation and wanting to get involved in the process. They definitely explained their position: “Lessors don't originate grand larceny; they simply suffer from the compulsive tendency to fund it. Benefit won't be realized through regulations designed to protect the lessee from the lessor, benefit will result from regulations that protect the lessor from themselves. ‘We have met the enemy and he is us' - Pogo.” Howard O. Thomas - IFC Credit Corp. “Way too many dishonest transactions by the same old people. “ datasduffy@sbcglobal.net “Two many folks jump into this business with no knowledge or skills in order to make a quick buck. They hurt all of us.” Rosanne@1stindependentleasing “Most forms of commercial lending within the banking industry have some type of regulation. Not as cumbersome as consumer lending, but there are still certain compliance issues. Leasing is commercial lending and should be treated as such.” “My 20+ yrs experience leads me to believe we should be regulated like a Real Estate Office with a licensed operator and trainees learning the business before given their Operating license. We can then, have our own checks and balances to police our Industry.” “The equipment lease is a great financial instrument that can be used honestly to the advantage of both the user and the financing entity. The industry should be cleaned up.” (banker: name with held ) “I read too much about sleaze in the finance world in general and, of course, in leasing specifically. Industry self regulation provides little protection in any field as the incentive is always to protect itself. When I call a customer and the customer asks if I use "commitment" fees as a way to make money without providing the financing sought by the customer then I think the dark side of financing is in the general population and more regulation and enforcement is required. “ jbernardy2@earthlink.net “It's that same ol' scenario...a customer contracts for a 60 month term and magically they pay almost 61 payments. Or the lessor hides the fact that the lease has ended! Interim rent, evergreen clauses, and let's not forget forced insurance and blanket filings. it hurts everyone trying to provide a straightforward business approach to equipment financing.” gsaulter@chaseindustries.com “There are a number of abuses that occur on a small scale (areas of rate distortion, and also vendor programs that end up with end users holding the bag)-- if there were some sort of uniform disclosure standard that would be involved on a state by state basis, adopted like the UCC, that would address in large part the problem areas. By and large the industry needs a tune up in those areas and not an overhaul.” (leasing attorney—name with held ) There were also those, while they voted there was not satisfactory regulation by the industry, it was up to the individuals to get more involved in the process. “We need to self-regulate and make available a "hot line" accessible to lessors on issues. “I am not sure we need more rules. But, I do think we need more oversight & and a way to weed out the bad apples (and keep them from returning).” hlease@aol.com “Our industry needs to regulate itself to a greater degree. Leasing companies and brokers must become more aggressive in reporting unfair practices to associations or other entities and then those practices made public to others. Governmental regulations require lots of administrative work but seldom correct practices until brought into a courtroom. This practice creates a poor image for our industry.” “Lessors have stuck their heads in the sand for many years by not checking the backgrounds of key officers for their assignors, vendors and brokers, and by letting sales personnel override reasonable constraints. How in the world did NorVergence and its scam artists get in so deep with so many lessors? We need to have case law in states such as Texas remain in place and not be overridden by Article 2A or federal law. We need to have industry wide standards for the quality of vendors, brokers and credit and for lease documentation. Garbage credit decisions and documentation, coupled with continual dealing with bad vendors, has caused me to cease handling lease collection work on a contingency basis. We also need a statutory safe harbor which would allow lessors to compile and maintain a black list of bad vendors, brokers and their officers and employees without being subject to any sort of legal liability. We need to expel the hustlers and scam artists from the leasing industry. Distant forum abuse by NorVergence lessors and their attorneys with diseased floating forum selection clauses are already causing adverse case law which will hurt in the future. Another problem is lessors' use of attorneys who are not competent to handle important cases. They use contingency fee collection attorneys and large firm defense counsel who do not know what they are doing. The legacy of NorVergence will be not only millions of dollars in write-offs, but more adverse case law and far greater government scrutiny.” Another in favor of regulation, also believes there is some regulations “In true leasing, a good part of the return to Lessors is the Federal Tax deferral- and for some also the State tax deferral- when you look at leasing from a tax standpoint (VS an accounting standpoint)- without tax deferrals or tax exempt income from “muni” leases- the product is a loan- therefore I feel the Federal Government should and to some degree now- regulates the leasing industry. I have not seen much State legislation in favor of leasing- States have given ITC, to mainly users of equipment in the state rather than to owners (Lessors), local communities in a state have give Tax Abatements mainly to USERS of equipment. States like Ohio, do not give tax deferrals for bank lessors because of the way the banks are taxed- therefore they are not as competitive as other type Lessors, who are taxed on income. “ There were many who believed the leasing industry was well-regulated, but were in favor of “more” regulations: “I think the equipment leasing brokers should be licensed like the mortgage industry. There are many unscrupulous brokers looking for the fast buck and don't care about the consequences of there actions which effect the funding sources or the lessee. This is giving the leasing industry a bad name.” danb@1stchoiceleasing.com “Regulation is never good when it involves the government but if there could be non-biased policing of the industry through the various associations then the red tape of the government will not be involved. Brokers that don't respond to inquiries made by associations regarding questionable practices would be put on a list of non-supported brokers in our market. The problem with this format is if the contact at the association is biased in any way. We have many less than ethical players in our industry and if our associations can't help then I am sure the Federal Government will be more than happy to jump in. 41% evidently choose the federal government over letting states set up their own criteria to match other existing state laws (37%). Several mentioned the reason for their vote was uniformity of compliance. “Products are offered in the marketplace which do not comply with the laws or regulations. People are being promoted for volume not quality of product or knowledge. Unfortunately compliance should be at the Federal level because of the issues of trying to comply with 50 different regulations.” e.pletzke@worldnet.att.net To sum this up, it is worth repeating the observation made by Howard O.Thomas, IFC Credit Corp.: “Lessors don't originate grand larceny; they simply suffer from the compulsive tendency to fund it. Benefit won't be realized through regulations designed to protect the lessee from the lessor, benefit will result from regulations that protect the lessor from themselves...” and his conclusion from the Walt Kelly cartoon character Pogo:
| Leasing News Regulation Questionnaire Answered |
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