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February 26, 2001 This week, Linda Kester writes," "How To Survive a Recession", exclusively for Leasing News. ------------------------------------------------------------------------------------------- Headlines---- Advance Rentals---Rage!!! eLease--Employes Let Go, Prime Street is "History." Finova Hurtle Tomorrow---Dow Jones Predicts Showdown (( note: Lehman Bros. ( who are also involved with United Capital) are discouraged,in addition, Finova needs operating cash---see story ))
_________________________________________________________ Information Leasing Corp. in Cincinnati Oh. has acquired/ is now the servicing agent on the lease portfolio previously serviced by United Capital leasing Corp. Austin Texas. We are still trying to get confirmation or denial on this. As we said last week, it will come out in public, but the significance is the "survival" of United Capital. We are unable to obtain any information directly from Steve Dallas. -------------------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Sorry for any inconvenience or posting as we were again hit by a hacker. We keep making our system more secure, but it appears we have someone who doesn't like us, and is determined to keep us off line. It is an inconvenience, also involves my time, costs us more time in labor and software, but as you can see we are back on line and will make every effort to remain on line. We have sought help from the FBI about spamming jamming up our system, but we evidently are a small concern to their other cases they are working on. We do not know if all our mail went out today, or if we received all our mail, and are still working on that aspect. We are sorry for any inconvenience to our readers. editor ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ------------------------------------------------------------------------------------------------- We encourage you to quote us or send our newsletter to a colleague. --------------------------------------------------------------------------------------------- eLease---PrimeStreet ( We reported earlier the closing of eLease ). PrimeStreet has let go all of their employees and is closing operations. Up until last week, I worked for eLease and was supposed by part of the Palo Alto office of PrimeStreet. They were unable to secure funding for their "C" Round, so the acquisition of eLease was canceled and PrimeStreet is history . name with held.
-------------------------------------------------------------------------------------------- The Name---Name the Company----Come On, Name the Company!!!! What Is the Name of the Company Doing "Bait and Switch," Keeping Advance Rentals and Deposits?
I don't get it. You printed an excerpt from an email about an unscrupulous leasing company involved in a typical bait and switch scam and your not going to alert all of us so we can inform our prospects about their heinous practices? These are the guys who screw it up for everyone and I think it is part of your responsibility to report these findings. Please print my name. Michael Duhamel Zaxon Entreprises, Inc. 877-553-2734 www.zaxon.com ( It is upon the advise of the Leasing News Advisory Board that we are not printing the name of the company at this time. There are many legal issues involved. Unfortunately these practices are not "uncommon", although luckily also not typical. Leasing News is giving air to many practices that have been going on for years that many experienced professionals are aware, but nothing has been done as most look the other way. See lease attorney Barry Marks comments on Friday: "...both Joe Bonanno and I have been warning for years that collecting rents and security deposits before deals are approved, while a common practice and not per se unreasonable, can lead to a lot of trouble." One of the major reasons for the demise of many leasing companies in the last eighteen months are the unethical and poor business practices who's sole goal is the almighty buck. editor). ------------------related subject--- Sunday Sermon I guess I don't get to church enough but what exactly does this have to do with advance rentals? Are you saying we should blame our selves for the dishonest practices regarding advance rentals when we are honestly collecting advance rentals and re funding them in the same manner if for some reason we can't adhere to our proposal and keeping them if the lessee decides to back out after the approval has been given that matches the term?? Michael Duhamel Zaxon Entreprises, Inc. 877-553-2734 www.zaxon.com ( Yes. First, I am always "nervous" to send out non-Industry e-mail, and especially to mix "religion" with "business." Mentioning "God" brings up all kinds of things with people, and if I say I am in favor of prayer in public schools, then I am anit-Muslim, anti-Judaism, anti-Buddhaism, and am a "bible toter." Well, I think of myself as "prejudiced,". I don't promote being "prejudiced." I also don't see why there can be a prayer said in public schools. What's the matter with getting "God" into your life? If that crosses the line, fine, as I am not afraid of controversy. Second, to your specific question, I answered, "yes." If we look the other way, stick our heads in the sand, double-talk about what we know is unethical, dis-honest, bad business, then we are part of the problem. Let's not mince words or play games, even if you contract gives you the right on "advance rentals" and you do not proceed with the lease, and especially if your aim is "bait and switch" or unethical selling ( making a "used car salesman" look good ), this is not professionalism, this is not good business, and to put the blame on someone else or the practice in the industry, or the lease contract---Yes, that is what I meant in the Sunday Sermon. It's time we took responsibility. It is time we stand up and say, " No More." I won't do business with a company that does that. I won't promote it. I won't just ignore it. We as a leasing community need to take more responsibility and blame for letting things like this happen. You will see that the great majority agree about the ethics and morals regarding keeping "Advanced Rentals." editor ) Kit, Do you attend Tim Timmons church " New Community"? Very odd. My pastor, this morning, said the exact paragraph thing you said below, whole story, about it not being their fault as to why they screw up or things go wrong. I am a strong believer with perseverance you can only succeed. And yes, take responsibility for your own actions and choices. And when troubles occur, face them and go through the wall because you will be stronger for it. Just wanted to add a 'weird' to this below Sunday Sermon. Kerrie La Bianco <kllb@home.com> First Providence Capital ________________________________________________________________________ On the posting of the comments from the individual that you protect their identify, I'm confused. Is the author bragging about how he/she blatantly misrepresents the monthly payment to the customer just to get an advance payment check or his the author wanting feedback about the policy. I'm not sure but here is my comments. It is not only morally reprehensible, I'm sure it is illegal. Anyone who works for this company and does not see that this is a "bait and switch" scam, should not be in the leasing industry. If the author is going to stay in the industry, my advise, changes companies. If not, one day when you walk into work, you might be having a conversation with the local, if not federal authorities. Kit, I wish you would let us know the name of this company. Companies like this is what give the industry, especially brokers, a bad name. Craig Tillison craig@evergreenleasing.com = + + As to the retention of advance rentals on deals that don't close. Think about whether you want to stay in this industry for the next 20 years, and IF there will be an industry in 20 years, and then ask yourself: 1. If the customer whose money you take (without earning it) will EVER do a lease again, with you, or any other lessor except the very large ones (Dell, Amex) 2. It is said that the largest single direct funder in this industry is American Express. Would American Express keep the advance rentals? I doubt it. 3. Thank you for the legalese from our two distinguished attorneys, but ethics come first... I hope the writer of that piece isn't a CLP, or studying to be one. Charlie Meaker,CLP - Lease Financing, Inc. Mrlease@aol.com Look me up in the UAEL directory (if there ever is another one published) ---------------------------------------------------------------------------------------- Re: Advanced Rentals The fact that the writer would be fired if they published the name of the company speaks for itself. Obviously the advance payments are being kept inappropriately, otherwise why worry? This is a typical bate and switch type of operation and the kind of thing that sours customers' on doing business with legitimate lessors because they've gotten their nose bloodied by these types. I would advise the writer to find another career or associate themselves with a legitimate lessor. It might make for a better night's rest to say the least. Michael Wagner Dimension Funding mwagner@dimensionfunding.com ------------------------------------------------------------------------------- I guess every industry has its share of skunks, ours just seem to stink more. Maybe I just fell off the turnip truck but sending out lease contracts prior to approval without disclosing such to the customer is, at bare minimum, misrepresentation. Doing so with the express purpose of collecting non-refundable payments and/or changing lease terms after docs are signed is plainly fraud. We've recently had 2 incidents involving difficult credits that cost us immeasurable amounts of time and frustration yet other lease companies swooped in and miraculously "approved" them in a day. One of them we were able to confirm for the customer that their "approval" was bogus in time for them to stop payment on their check. The other has substantial funding issues (lien searches, site inspection problems) yet the vendor took it elsewhere and it was "approved and docs sent" within a day. Hard to believe. I have a set of signed docs which clearly state that the advance payments are non-refundable but we will probably refund them anyway keeping only a small portion to cover out-of-pocket costs. Caveat emptor. ******************************************* John Craine, VP Sales PowerNet Financial Group Inc. Your Professional Equipment Leasing Network http://www.thePowerNet.com (800)348-2288 Fax (781) 461-9449 JohnC@thePowerNet.com ------------------------------------------------------------------------------------ As a newcomer to your site, but a veteran of the industry, I am truly amazed at the level of informative "buzz." However, I am grossly disappointed by some practices being employed, which result in a negative reflection on our industry overall. Namely, the practice of quoting a low lease payment, obtaining advance rents and retaining those advance rents if the lessee doesn't agree to being "shaken down" by paying a higher lease payment than what the lessor agreed to. I thought it was pretty simple; i.e. quote on a deal, obtain an advance rent with the lease application - if the transaction is declined due to the lessor's inability to obtain underwriting and/or poor lessee credit - return the advance! If, upon review, the credit is weaker then expected, with a risk premium being necessary to get the deal done - offer the lessee the option of a higher payment - or return the advance ! To engage in deposit taking is not only unethical but illegal and to think it is an accepted industry norm is outrageous and hurts all leasing professionals. Corporate Capital <mail@corporatecap.com ----------------------------------------------------------------------------------------
I understand why the writer in the 2/23 LeasingNews wanted to be anonymous. Quoting a low "competitive" rate and then sending the applicant docs at rates that are "...usually much higher..." is at best unethical, and in most states is illegal. This is referred to as a "Bait and Switch" scheme, a tactic used by unscrupulous car dealers. If a quote is given that the sales rep knows is unavailable and takes an advance from the customer for providing the quote, if the applicant does not agree to the higher rate, the advance should, under any ethical standard, be returned to the applicant. The quote and acceptance of an advance payment is an implied "contract", and unless the quote specifically provides for the retention of the advance if the applicant does not sign the higher rate contract, the failure to return the advance probably constitutes breach of contact under civil law, and may also constitute fraud under criminal law. Mark Speros Director-Broker Division Landmark Financial Corp. MSperos007@aol.com Keystone My few informal dealings with Barry Marks have lead me to believe he is very knowledgeable, very bright, and very committed to serving this industry, to which he has been most gracious. Hence, his admonitions against advance fees cause concern. Many years ago, after being exercised in vain by a string of tire-kickers, I came up with a form for any applicant in whom I detected a lack of serious interest. After spelling out the proposed lease terms, conditions, advance rental and documentation fee in paragraphs one and two, the letter goes on to say: 3. Upon approval of credit application and signing of lease, the entire payment shall be applied to Applicant's advance rentals and documentation fee. 4. If Lessor refuses to approve Applicant's credit application, the entire payment herein received shall be returned without unreasonable delay. 5. If Applicant declines the lease offered after Lessor has expended time and effort in obtaining the approval, Lessor shall retain from the deposit any sum it deems necessary in its sole judgment to adequately reimburse its efforts. Before asking for signature and check, I verbally highlight paragraph five, with a quip about it being a "tell-me-that-you-love-me-letter." I continue my pitch by saying that if the applicant decides, after approval, to "get the money from his brother-in-law," I shall consider the advance to be mine. When I cannot approve an application, I return the entire pre-payment including doc fee. Further, when I retain monies per paragraph five, I permit one hundred percent of it to be applied to future transactions, if any. In response to his recent letter to LeasingNews, I would ask Barry if this meets minimum requirements for establishing a defensible position. If his response is positive, I encourage others to use it. Most serious applicants tell me that it is very inoffensive. Thank you, Barry Reitman baldguy@keystoneleasing.com 800-225-3489 800-BALDGUY ------------------------------------------------------------------------------------------ Can We Agree on One Thing? Thanks for the informative newsletter. We enjoy it daily. We have no problem going on record for the sake of industry opinion in saying that Brokers are continually monitored by their funding sources based on submittal to funding ratio's. Depending on the underwriter approval to funding ratios can also be vital to a relationship and the overall profitability of a debt source. Having said that it is necessary, at least in my personal experience to collect a deposit from the customer based on a formal letter of intent outlining the terms and conditions being offered from the leasing company. This offer should be competitive and realistic for both parties. Thus the art of negotiation is important to the survival of any business. Organizations attempting to turn and burn the app only market and hire faster than they can train get in trouble with representatives who do not have the skill to review a package and quote a program without a formal credit submittal. In addition it takes a certain political correctness to approach a lessee prospect that you mis-quoted (due to honest error or new information found from the underwriter that the broker was unaware of) and show them how you need to restructure the transaction now. This is not something learned in a training class but over time and with experience. In our organization for example, with the exception of "in house credits", it is company policy that we do not send out final documents without first obtaining a letter of intent from the customer displaying the exact terms they will see on the final documents. This lets the lessee and us clarify that we are in agreement on the terms. If they sign a letter of intent and the terms need to change then we send them a new letter of intent to sign with the appropriate terms. Not only has this increased customer satisfaction with our process but it has increased approval to funding ratio's as well. Sure, we make mistakes and some customers walk away but the bottom line is, if we don't have a letter of intent that matches the terms of the approval then the customer can receive his money back with the exception of minor non-refundable expenses we incur which are disclosed up front in the letter of intent. Conversely, if the lessee signs a letter of intent with a Pawnee rate which we all know is higher for good reason, sends in a deposit, we secure an approval with Pawnee for that customer and they walk away because uncle Bob loaned them money for prime rate at the last minute, then we believe the customer has made a bad business decision and should forfeit his deposit since his deposit is typically less than the commission would have been had he funded the transaction. Again, this is based on us offering the correct terms in writing up front and language in the letter of intent that states should approval be obtained and the lessee not cooperate with funding then deposit is forfeited. We comment on this specific incident with legal knowledge since we had the above occur and the lessee actually stop paid his deposit check 5 days after it was sent in. Since we did not run the check to the bank the deposit had not cleared our account and we were out the deposit and an approved deal went unfunded. Our council pursued a judgment against the lessee based on our letter of intent and won. The lessee then contacted our attorney and settled the case paying us the original deposit we were due + attorney's fee's as a result of his bad business decision. Further proving that it is legally and ethically O.K. to expect payment in this industry when the work is done properly, even if the customer walks away after the approval is obtained but before the funding occurs. Approvals cost a broker/lessor money to obtain, I don't think anyone in the industry could deny that. If we do not protect our organizations from these expenses by holding each applicant directly responsible for the work done on their transaction then the deals that do fund will have to pay for the ones that don't which in the end presents a whole new ethical issue of punishing the faithful good customers for the unfaithful cherry-pickers. Thanks for the opportunity for us to put in our opinion on this delicate issue. We want to be sure that if regulation does come to the industry that it is appropriate regulation and does not strip the rights of the ethical broker/lessor in the process. Jeff Beier North American Capital (949) 425-0259 Direct Line (949) 425-0211 Direct Fax e-mail: jeffbeier@nacapital.com web site: http://www.nacapital.com ------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- We are still investigating claims for: National Capital Corp in NYC gets broker deals funded but does not pay the brokers commission. U.S. Capital, Santa Barbara, California J.D.R. Capital There are several others, but for the sake of being "fair and accurate" we are not at that stage. We are getting "complaints" that we are not being active enough with this information, but we must confirm, verify, and as they say in the leasing business, complete our "due deligence." editor ------------------------------------------------------------------------------------------------- Finova Headed Toward Showdown By Joe Niedzielski, Dow Jones Newswires With debt maturing, Finova Group and its creditors are heading toward a potential showdown over whether the company can continue to negotiate a deal that doesn't force it into a Chapter 11 bankruptcy filing. The Scottsdale, AZ-based lender to midsize companies has a $50 million payment due on a maturing issue of medium-term notes. Analysts and distressed debt investors either expect the company not to make the payment or to be blocked from making the payment by its lenders. Finova and its lenders have also been attempting to negotiate a debt moratorium that would give Finova more time to secure a deal its creditors might accept before the issue of a potential bankruptcy filing would be forced, sources say. Finova officials weren't immediately available to comment. Defaults on bond interest payments typically have a 30-day cure period before bondholders can accelerate payments through an involuntary bankruptcy proceeding. But that's not the case with the principal on maturing debt securities. A group of three or more bondholders could potentially bring an involuntary bankruptcy petition if Finova fails to make the maturity payment. At that point, Finova would have about two weeks to convert the involuntary proceeding into its own voluntary filing. The risk, though, is that the company could be caught off guard in terms of where the venue would be for bankruptcy court proceedings. In a research report, Scott Stagg, an analyst at Lehman Brothers, said the firm doesn't believe Finova will make the maturity payment, "providing the impetus for a bankruptcy filing over the next month." Earlier this month, Goldman Sachs and GE Capital, a unit of General Electric, proposed a $2 billion takeover of Finova. The investment would represent about 20% of Finova's capital structure and value its debt at about 75 cents on the dollar, sources say. "The company would like to keep this out of bankruptcy until they can negotiate a deal with GE or somebody else, but the clock is clearly ticking," Stagg said in an interview. Finova's possible bankruptcy filing would be one of the largest in recent memory. The company has about $4.7 billion of bank debt and $6.3 billion of bonds outstanding. In recent months, the company's bonds - trading in the low 50s and 60s on the dollar in the secondary market - became a favored play of distressed debt investors. The bonds are currently bid at around 77 cents on the dollar. Goldman and GE Capital's original proposal, sources said, would have consolidated Finova's roughly 60 outstanding issues of bonds into strips of about $6 billion of senior notes, $3 billion in subordinated notes and an equity component. Goldman and GE Capital would participate in the equity. The senior notes would be paid off within 18 to 24 months. The subordinated notes would garner a higher coupon and would be paid off after the senior notes, roughly in 24 to 48 months. Since word of the Goldman and GE Capital offer surfaced, momentum from investors willing to participate has declined. The workout of the company's debt is expected to be more favorable than what Goldman and GE Capital offered. Since different bond issues would be treated equally in a bankruptcy, all of Finova's paper trades at about the same price. And the large spread that had existed between Finova's bonds maturing this year and those maturing in 2009 has disappeared, said one distressed debt investor. The incentive long-term holders may have had to exchange their bonds for the Goldman and GE Capital deal no longer exists, the investor said. Stagg at Lehman Brothers said in the research report that the firm's view is that the current proposal is far too expensive and severely limits the upside of the debt holders. "The GE offer supports our initial thesis that Finova's loan portfolio has value, and under reasonable scenarios, covers the debt at par," the report said. And indications that the structure of the GE deal requires that about 65% of the debt be repaid over 18 months, again supports "our contention that the majority of the portfolio consists of quality loans and can be monetized over a short period of time," Stagg said in the report. Finova has been exploring strategic alternatives since it hired Credit Suisse First Boston in May. A deal with Leucadia National, in which Leucadia would have injected about $350 million into Finova, fell through in late January when bank lenders balked at having to accept a roughly 10% cut in Finova's outstanding debt. A debt moratorium or deal with another potential liquidator is becoming increasingly important since Finova has more upcoming maturities due following the $50 million payment. The company has another $120 million of maturing medium-term notes due March 9 and $70 million of medium-term notes due March 19. In addition, Finova has a $100 million maturity of bonds that come due on April 1. But the big hurdle is $2.1 billion in bank debt that comes due this May. Most analysts say Finova has already violated the terms of its bank agreements as of the end of the fourth quarter. www.leasingnews.org
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