The Feds Just Announced All Lease Purchase Deals Should Be Banned

So because they’re “regulated” it’s fine that people sign up for a high interest rate on an 8 year note that will see them paying nearly double of what the car actually costs if they actually see the note out to the end? When in reality they will get tired of the vehicle and roll negative equity into their next note and that’s how you see people upside down $20-30k on a stupid car. But those financial choices are fine because it’s “regulated”. Ok, got it.

As far as payday loans, read what I said. They’re not regulated on the federal level, states have voted and passed some regulations. Where I live they have strong restrictions, not sure what they are because I’ve never looked into them, but I can go one state away and get one with an interest rate of over 300%.

 

Correct, but since that’s already regulated we don’t need to worry about that. We need more and different rules because people are bad at math.

Let’s play out the authority scenario a little bit. The failure rate for new trucking companies with their own authority is reported to be north of 80% with some sources saying it approached 95%. Does that mean the government needs regulated because they just hand out authority? I’m being sarcastic, but that would be the same argument as saying lease purchase needs regulated because most fail.

How do you put the toothpaste back in the tube when it comes to getting authority? You probably can’t. Insurance can be a barrier but people continue to prove they’re willing to pay $20k-30k a year just to haul freight.

When the government gets involved they rarely fix anything. There are already rules on the books about misclassifying employees so instead of enforcing what was already there their solution was going to be a new rule that basically makes owning a truck and leasing to a carrier impossible. Cracking down on the 1099 driver scams, and cracking down on ELD companies, and actually combatting fraud when it comes to people buying different MC numbers, all those things would do more to help rates using existing rules and regulations than getting new and different rules about lease purchase deals.

Edit: if it’s a true FedEx Ground contractor they run on FedEx’s authority and their employees have to be W2. I’m not sure how they do things when it comes to using outside carriers to fill in.

 

The Truth in Lending Act was first proposed in 1960 and took 8 years to pass. 8 years of fighting over "lenders must clearly disclose the cost of lending". A decade later, Truth in Lending was an argument used in deregulating the lending industry. Which led to the S&L kerfuffle, which led to regulation, which was repealed, which led to 2008 poop storm.

Whether or not you want to admit it, regulation is key to making capitalism work. To paraphrase Adam Smith: Profits should be low and labor wages high, legislation is always just and equitable, inheritance laws should partition fortunes, taxation can be high if it is equitable, and the "science of the legislator is necessary to thwart rentiers and manipulators".

How many of these L/P contracts actually allow the lessee to take the truck to another company (provided they continue making the payments)? How many drivers show up expecting a W-2 job but end up signing a lease agreement? And how many of them don't realize they signed a lease agreement until after the fact?

L/P, rent-to-own, land contracts, etc can all have a legitimate place in the world, but in most cases they're a scam.

And it's not just the suckers who sign on the dotted line that are getting scammed. You and I as tax payers are getting screwed as well. Say Dave 'leases' 4 trucks - one to Bob, one to Roger, one to Jubal, and one to Bill.

• The trucks cost Dave $150,000 each
• No down payment
  
• Truck payment is $1,000 for 150 weeks
• Escrow payment is $200 a week until the account reaches $20,000
• Balloon payment of $75,000

Bob completes the lease and buyout. At that point he's paid $225,000, not counting the escrow. Over three years Dave has a $75,000 profit - not bad.

Roger completes the lease, but turns the truck back in. Dave has a paid for truck that he sells for $50,000, or 30% ROI

Jubal does one year and turns the truck in. Dave dumps the escrow of $10,400 into the truck and leases it to John for the same terms. John does one year and turns the truck in. Dave dumps the escrow into the truck and leases the truck to Jim for $850 a week. Jim turns the truck in at the end of the year. Dave sells the truck for $40,000. Total income is $188,000.

Bill makes 1.5 years of payments, then stops paying while still running the truck. Dave spends $20,000 trying to get the truck back, but ultimately fails. $150,000 investment plus $20,000 in recovery minus $78,000 in payments is a $92,000 loss.

Over three years Dave has a profit of $163,000 on three trucks and a loss of $92,000 on one, net profit of $71,000 on a $600,000 investment. Not great, not bad. And if Dave was just the finance guy, I wouldn't be having any qualms. At least until tax time when Dave claims a negative income because he's counting all of Bill's missed payments and penalties as expenses which changes a $92,000 actual loss into a $160,000 paper loss. Dave also uses the escrow funds to cover the costs for flipping Jubal's truck, but uses the receipts as expenses.

But Dave is more than the finance guy, he's also the broker/dispatcher and is taking 15% of the gross revenue of all the loads that he assigns to the truck and 10% of anything the drivers book for themselves. Dave also requires the drivers to insure through his policy, which he inflates by 2%, and requires quarterly inspections done in the company shop which gouges on both labor and parts to a degree that even TA would say "that's a bit much". Not to mention all the 'late fees' assessed to the driver and detention that is recovered from the customer but not paid to the driver. After all that, Dave still claims a loss on his taxes, despite living large.

And that's if they understand what they're signing. Schneider has a VERY specific boot policy - oil/slip resistant bottoms, leather uppers. I cannot tell you how many trainees told me they never agreed to that policy. I had one trainee that did a 3 week lease/purchase with TransAm before he realized he was in a L/P. How many TransAm or CR England trainees finished training and were told "we can't put you in a company truck right now, so you can either continue teaming with your trainer at trainee rates or we can put you in a lease truck tomorrow"?

What if any of the drivers try and take the truck to a different carrier? "Oh, hell naw" is the response, and Dave takes the truck back. From all reasonable definitions Bob, Roger, Jubal and Bill et al should be classified as employees, but because they signed some paperwork and some nerd is making more paperwork behind the scenes they're L/P.

Or Dave runs into financial difficulties and the bank repos the trucks - what recourse do the drivers have? Absolutely nothing, in real terms. Sure, they can lawyer up and maybe win a Pyrrhic victory, but without cash up front very few lawyers are going to take the case because even if they win there is no payday.

Put a Holy Line of Demarcation between trucking companies and lease finance companies - no wholly owned subsidiaries, no shared land, no shared offices, no deductions from settlements, etc - and my objections to L/P decrease. I still wouldn't like them, but at least then there would be some due diligence by the finance company about the ability of the driver to fulfill the lease terms.

 

Regulated at the federal level, not banned. He asked what else was that was on his list.

 

It means the regulations aren't having a stabilizing impact and need to be adjusted. Just like when regulations are overly onerous and are strangling an industry they need to be relaxed.

How do you put the toothpaste back in the tube regarding authorities? Simple, make them non-transferable. Then require any new authority have leased parking spaces for all their equipment at a 1 to 1.25 truck to trailer ratio.

Yes there are rules about misclassifying employees, but the process of enforcing those rules is anything but straightforward as it is generally considered a civil matter, not a criminal one. Getting even a state labor board involved takes a lot of effort by the complainant and MASSIVE misconduct by the employer. The line between employee and contractor has long been blurred - take Snap On or Matco trucks. They're technically independent contractors, but can they sell other products out of their trucks? Nope. So how independent are they? In regards to the trucking industry, why should a lessee pay any percentage of their freight income to the lessor?

As far as I'm aware, Fedex Ground contracts with companies that run their own authority that then hire drivers. In theory, all the contractor's drivers are required to have a W-2. How well that works in practice is anybody's guess. @JohnBoy has had a very positive experience, as has one of my former trainees. Two other former trainees have been screwed within an inch of their lives. One due to L/P book keeping fraud (how do you L/P a slip seated truck?) and one by being expected to make Detroit - Miami -Detroit -Miami in 5.5 days, take a 34 then do Miami- Detroit - Miami - Detroit then take two days off and repeat. The only way to make the gate times was to drive the full 11 and park on the last ramp you came to.

 

Funny you should mention that!lol
Cocaine is ‘no worse than whisky,’ says Colombian President Gustavo Petro | CNN

 

Very well laid out & explained in simple terms.

I would suggest these are also very conservative figures used, compared to fees most actually charge.... but demostrate extremely well even at that.

Now, the scale. This is only a 4 truck example for simplicity/example. Sub in a mega doing this with thousands of trucks....... huge moneymaker that helped created the beasts they are & their ability to undercut markets. Much more profitable than W-2 for them.

Excellent explaination @gentleroger. Glad your still around here. ✌

 

Look at the DOT number on any Ground truck, yes contractors have their own companies but they all run under FedEx’s authority.

Why give up a percentage of income? Simple. Leasing to a carrier provides things that aren’t available under your own authority. For me, the discounts and back office stuff all has value. It’s up to each person to decide if the terms are agreeable or not.

Your ideas about authority also aren’t feasible in the real world. Making them non transferable to combat fraud is easily bypassed by making it appear they purchased the entire “company” on paper and not just the authority. Restricting it past that point would only hurt those trying to buy and sell legit companies.

 

You are probably right with regards to Fedex Ground. In my opinion, if you're running under someone else's authority, you're not a contractor, you're an employee, but that's not the point of this thread. The question is Lease PURCHASE. If the finance for your operation comes from the same entity as your income, that creates an incurable conflict of interest.

As to restricting the sale of authorities - yeah, there are a lot of ways the lawyers can paper it to make it look legit, but if anytime ownership of a non-publicly traded company changed more than 15% and publicly traded company 30% of it's ownership in any given quarter it had to reapply for authority with scrutiny over who was buying and their financial bona-fides it would go a long way to reduce fraud in this industry. Even without that, if you have to buy the entire corporate entity, you become liable for all the actions and debts of that company. To my knowledge, that isn't currently the case when buying an authority.