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Copier Scams Part Deux "Dude Where's my Copier"?

I ran across yet another scam from a copier dealer.  First let me point out that 99.9% of the dealers out there are great at what they do and great to do business with. 

 

However in any industry there are always a few bottom feeders that go to any length to fatten their wallets and steal from others.  I just wish that one day we could rid our industry of those problematic bottom feeders.  I'm hoping that by writing about it will be greater attention to some of the issues at hand.

 

A big part of our business to help prospects to lower their costs that are related to hardware, service and supplies. Since most copiers aka MFP's are leased there is usually a fixed cost associated with the lease and in some cases the monthly or quarterly service and supplies.  Once we have the price that the customer is paying most sales people will try to see if they can lower the cost by swapping out the old lease with a new lease (upgrade the existing lease).

 

This is where it gets sticky, when you're working with a new account, the lease you are proposing to upgrade is not yours.  Not yours, meaning you (your company) were not the originated vendor for the lease, it was another copier dealer.  In the course of negotiating the new lease the professional sales person will get together with the prospect and figure out the remaining stream of payments that is owed on the old lease to the leasing company. Once they have a agreed on the number of payments, a check for the remaining payments will be paid back to the prospect when they enter into a new lease.  That check to the prospect can be handled in a few ways, the company can offer to pre-pay the remaining payments on the lease or just continue to pay the monthly payments on the old lease until the copier has to be returned. In most cases the old copier is stored at the same location where is was installed.  Removing the copier from that address needs prior approval from the leasing company.  Removing it without the consent of the leasing company may put in default of the lease. Ninety-nine percent of the time all goes well and there are no problems.

 

Here's the scam I've seen and where the problem starts is that the sales person aka dealer owner tells the customer that they will remove and store the system (no letter goes to the leasing company about the system being removed nor does a letter of intent if one is needed at the time the system is removed), that dealer then tells the customer that they will make the payments on the old lease for the remaining stream of payments.  Thus the bottom feeder of a dealer cuts a check back to the customer either monthly, or quarterly or in some cases they don't make any payments because they are horrible payers. But the real scam is the copier, remember the copier that is suppose to be sitting in the dealers warehouse?  (Please keep in mind that the copier may have to sit in the warehouse for 6, 12 or even 24 months).  The bottom feeder of a dealer then takes the leasing companies property and rents it to another company for a term that is shorter than the term that is left on the lease!

 

The leasing company is getting hosed because instead of getting a system back early or getting a system back with a low meter read they will get the system back with higher usage. Think of it this way, you leased a car, traded it in early with 30K mileage, the car dealer did not return the car to the leasing company but they put in their rental fleet. Here the cars gets additional wear and tear and is then returned on the end of lease date.

 

The customer is in violation of their lease and could be called into default, and what happens if the dealer goes out of business (like a dealership did here in NJ), the customer is left holding the bag for the remaining stream of payments, probably no copier to be found, a legal mess and still making payments on the new copier.

 

Here's my point, these bottom feeders need to go. There is no room for them in the industry as there is no room for PED's in baseball. Just as you would have a lowjack system on a car, maybe it's time that the leasing companies put them on their copiers. This way they can track the movement of them, and it one is turned off then that would raise a red flag.  I'm not sure if the leasing companies are willing to pay for this and if they are then I'm sure everyone will pay with higher monthly payments for copiers.

 

If you know of a dealer who is doing this, turn them in, and get rid of the bottom feeders of the industry.

 

-=Good Selling=-

 

 

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Comments (17)

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No doubt it's fraud, that's an open and shut case. But I may never get to the bottom of why the individual in the organisation signed the agreement. I'll leave that to the imagination. It's a tough one as well, it was signed by the sister of the owner of the business!!

You obviously deal with this much more than I but tell me this...Regardless of past emails and/or conversations, if the customer can prove that they own the equipment then they have proof that the leasing company leased an asset they didn't own. What more do you need?

I'm not sure if that has an equivalent in the UK. here we have the Consumer Credit Act. However, it only applies to consumers. Business to business isn't covered (except in a small number of cases).

 

"I've almost never seen a disputed copier lease where the lessee wins. I'll admit I'm no expert in leasing however most of these agreements are rock solid."

 

In my experience the reason why they're perceived as rock solid is because they are rarely challenged. If they're not challenged they'll never be beaten. Also, the finance companies have very deep pockets and can pay for top lawyers who specialise in these contracts.

 

Joe customer doesn't know who to turn to or specialist lawyers. Most of the lawyers who I come in to contact with and talk to about these agreements are clueless, They do not understand how the industry works, they go down the wrong path and usually hit a dead end. Coming up against the might and experience of the lawyers for the finance company they don't stand a chance. They don't know the finance companies Achilles Heal.

 

The other point is that the finance companies cannot afford to lose one battle, that would potentially open the flood gates. They will stop at nothing with their lawyers, but if it gets to the point where they may have to defend in court, they will settle out of court subject to a NDA. So you never get to find out if the agreement is rock solid and the perception continues.

 

In general though the lease agreements are pretty watertight and the fault usually resides with the customer due to their stupidity in signing up for something without being thorough and getting everything in writing from the supplier. Caveat Emptor

 

I'm working on a case now where (amongst other things) the Head of Finance signed a variation document for a lease just 18 months ago. They can't remember why they signed it. The variation effectively enters the customer in to a lease on a piece of equipment they actually purchased for cash some years before. When I asked where the proposal is or the emails, they have nothing. This is a pretty straight forward case of fraud but shows that people are often persuaded in to singing things for no plausible reason. Unless, of course there was a bribe involved.

 

I will probably never find out the truth on this one.

 

 

That's a great question,  it should, it would drive more paperwork, however the leasing industry would be better off in the long run.
Originally Posted by Old Glory:

I will never understand why Business Equipment Leases do not fall under the Truth In Lending laws that apply to everything else.

 

I do a lot of "contract disassembling" and am very successful at it - It's kind of like a fun sport or hobby to me.

 

US & UK contract law are almost exactly the same. That would be an unenforceable penalty in both UK & US.

 

Here's a reference to "Penal Damages" on Wikipedia that refers to US law. http://en.wikipedia.org/wiki/Penal_damages

 

Most of the people I know who work in the copier industry are of the belief that these clauses are legal and enforceable. That works to my advantage, just because it's in a contract doesn't mean that it's legal OR enforceable.

How is it that you are familiar with the laws in the U.S.?

Tell me what this is if not a pre-payment penalty?

 

"...You may not payoff this Agreement prior to the end of the Agreement term without our consent and We may charge You, in addition to the other amounts owed under this Agreement, an early termination fee equal to five percent (5%) of the total amount We paid for the Equipment.
9. USE AND MAINTENANCE. You agree that the Equipment is owned by Us and will be used for business..."

"Many companies actually have a pre-payment penalty". Any clause which is an attempt to penalise a party if they try and terminate a contract early is illegal in the UK. This is not the same as liquidated damages clauses, where the injured party is entitled to compensation. I'm pretty the same legislation applies in the US?

Again, you are stating as fact things that are only true for you or possibly only true in the UK. Over here, I haven't seen an early settlement discount in years. Many companies actually have a pre-payment penalty. The settlement added to the new lease that you speak of is only a benefit to the lease company when the new deal goes to the incumbent. And if there is no residual, why isn't the equipment free to the dealer at the back end? The price to the dealer whether contracted in advance or negotiated at the end, is the residual. Even when sold to a wholesaler, there is a residual, granted its pennies on the dollar although re-stocking fees are becoming more common which helps them recover more.

It's easy to work out where the lease co's make their money. Every time a deal is upgraded early the early settlement discount is a paltry sum (3%). The effective interest rates are therefore huge. This settlement is then more often added to a new lease and interested lumped on top of that.

 

There's no factoring in of a residual kit value for the lease companies, too little money for too much effort and management. That's why they don't handle the kit and insist the customer or dealer does and why they will have an end of lease pre-purchase clause with the dealer for just £50.

That's not really the point I was trying to make. The point is that a salesrep shouldn't assume anything as fact because the facts vary from dealer to dealer and lease to lease.

 

That having been said, you are missing a big part of the lease equation and that is the "alternative forms of revenue" that comes at the end of the lease. Anytime a lease is ended effectively, the lease company loses the chance of an automatic renewal (evergreen clause), in some cases they lose the chance to sell the equipment direct to the lessee at an inflated rate, and if the deal goes to a competitive dealer they most likely lose the lease customer to a competitive lease company. Also, the equipment does have a residual value when sold to a wholesaler (which is not offset by shipping charges because shipping charges are paid by the lessee, not by the lease company). All of this revenue is 100% profit and I believe that the alternative forms of revenue is what pays the bills, not the interest on the loan. Again, no hard and fast rules but this seems to be characteristic of business on this side of the pond.

 

Challenge...take the sum of payments plus residual and compare the result to the same deal using the $1.00 rate. Why aren't they similar? I contend that the difference is the expected revenue from end of lease "gotchya's" that don't exist in a $1.00 out environment.

 

 

Even if the contract with the supplying dealer specifically has a clause that says the dealer will NOT buy the kit back, the lease co don't want it.

 

I have never heard of a leasing company actually asking for the kit back at the end of a lease, they aren't interested. It's not part of their business plan. What is required as a condition on every lease is that the lessee is responsible for returning the equipment to a destination of the lease co's choice. If it does come to that it will go to a trader. The lease co just don't want it.

 

If you know of a leasing co that actually wants to take possession of the kit  then that is the first time I have ever heard of it.

 

 

Sorry Grant but I have to call you out.It is a big mistake for salespeople to assume that what is true in their case, is true across the board. It causes the salesrep to make mistakes in judgement and may cause them to unintentionally misinform their prospect. Anything that isn't required by law is negotiable and therefore will vary from lease company to lease company and dealer to dealer. So two dealers using the same lease company may have negotiated different terms.

Art, it's a part of the industry that I doubt you will get rid of. I would like to add my own "observation". I don't think that 99.9% of dealers do a good deal. If 99.9% was the case these instances would not even be noticed because they would be unheard of. I think the reality is that around 60-70% of dealers are OK.

 

Another point is that the leasing companies do not give a damn about the state of the copier at the end of a lease. As long as the customer has made all the payments they're happy. The leasing companies all have a trading agreement with the supplying dealer that automatically requires the dealer to buy the equipment back at the end of the lease.

 

Once you're a third of the way in the equipment has more cost to remove it than it's worth to the finance company. They are in the money business, they really do not give a damn about the asset.

 

Also, it's the leasing companies that turn a blind eye to dodgy dealer behaviour. Most, if not all of the time, the lease co will work with the dealer to mitigate their loss and pursue the customer, even if they believe the dealer has been at fault. Why, because they will get more business from the dealer over the next XXX years, whereas the lessee won't give them any more business.

 

So the leasing companies actually protect the dealers.

 

In the UK you do not have to have a licence as an individual working in a company selling B2B finance. As long as the Company has a Credit license anybody working there can sell finance, even somebody with a criminal conviction.

 

If the leasing companies got together with the regulators they could easily come up with a registration scheme, even if at first it was only voluntary. But that won't happen because the leasing companies want no barriers or hurdles to them offering finance schemes to vendors.

 

This situation has existed ever since sales aid leasing was offered to dealer, and I doubt it will change.

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