Ethics in Equipment Finance? Let's Talk Some Sense
Common sense is an uncommon commodity these days.
A few years ago, I weighed in on the subject of ethics in our industry with the novel position that it might be good for business if we weed out those of us who squeeze out the last dime from lessees using tactics that they might be embarrassed to talk about openly. I was not alone in noting that if we don’t police our own, the legislators and regulators will do it for us.
And they do it very badly.
I bet half of those who started to read this article are about to turn the page right now. This stuff is old hat. The sky is not falling. Forget that a couple of dozen states have considered or are currently considering banning any type of automatic renewal/evergreen, including those that are good business and perfectly reasonable. Forget that every year, we see new legislation in states like New York and Florida that could be deadly for what is now standard practices.
This not all Jeremiah and Chicken Little. The fact is that lessees themselves are getting smarter. The better ones know that they should be doing business with lessors who have established good reputations, and they will check. Good ethics is good business, as well as being good FOR business.
Here is the bigger message: the ethical practice of equipment finance requires more than simple honesty. It requires education and a commitment to best practices. There is a by-product of the time and trouble all this takes: an educated lessor or broker can protect himself as well as his customer.
Bankers sometimes circumvent brokers by selling loans to the broker’s lease customer. A broker who understands the economics of leasing can prepare the customer for the bank’s pitch or at least avoid walking into a trap. Another defense is to know the documents the bank will throw at the customer and show how the lease puts less restrictions on the lessee’s business. And then there is that all important bank customer lending limit.
What is the difference between a “good” and “bad” automatic renewal clause? Knowing this may not only keep the customer happy, it may be essential in avoiding litigation later on, as smart lessee’s lawyers begin honing in on this issue. In fact, knowing when to settle and when to sue is going to be very important in the years to come.
How about force placed insurance? Does usury affect your leases? Do you need a state license to lease vehicles or to do micro-ticket leases?
My point is that a leasing professional who is not…professional is more likely than anyone else to commit an ethical violation. The same person is also more likely to trip over his or her lack of knowledge and lose a good deal, a good customer or a big lawsuit.
You have all heard why it is important that NAELB members do business with one another, identify and isolate crooks and upgrade industry practice. Here is the other side of the coin: being ethical requires education but it pays great dividends…in cash.