Lenders push equipment finance agreements over leases to avoid fees

Lenders should use equipment finance agreements instead of traditional leases to skirt regulations and avoid fees.

So said members of a panel at the National Equipment Finance Association conference in California on March 27. A typical lease will see the lessor own the equipment for the duration of the lease; if the dealer or customer has a lease-to-own agreement, they assume responsibility when they pay off the loan. 

Problems can arise in the vehicle leasing space with extra fees including toll violations and vehicle registrations that are the titleholder’s responsibility.  

During the regulatory compliance panel, one lender said his firm had issued a loan to a manager of a trucking fleet but was listed on the lease as the equipment owner. His company began receiving overdue notices that should have gone to the operator, including thousands in unpaid state toll bills and vehicle registrations.  

Panelist Shervin Rashti, CEO of Beverly Hills, Calif.-based lender Slim Capital, said “the reason why leasing banks don’t like to be on leases is because of vicarious liability.” While this typically is not an issue as the lender is often exempt from accident liability, he said state fees can pile up, adding. Rashti said his company has also struggled to match license plates with leases to settle up.  

To avoid confusion — and, crucially, to put more responsibility for operations into the hands of the owner and lessee — lenders recommend offering equipment finance agreements. For these, the financier will own the equipment for the duration of the loan, as opposed to a lease, for which the financier retains ownership.  

Equipment finance agreements are less likely to trigger financial disclosure regulations, the lenders in the panel said.  

“The lienholder or the owner of the vehicle gets all those notifications,” Lisa Whitehead, a panel moderator and certified lease and finance professional, said. “It’s so much more onerous on the lender side, they have to have more staff to monitor that.” 

Registration is now available for Equipment Finance Connect. The dealer-centric equipment lending and leasing event of the year offers opportunities for dealers to learn new strategies, foster valuable partnerships and emerge with ideas to immediately apply to their businesses. Learn about Free Dealer Registration at EquipmentFinanceConnect.com.