Merchant Newsletter - February 11, 2006

Beware Leases, Lies, and Sales Reps!


You could end up paying 10 times what your equipment is worth!

  
Want to "be your own boss," "work from home," or just "make extra money"? Then you may be tempted by an ad for a business opportunity. Before you open your checkbook, check out the offer. Fraudulent business opportunity promoters use the classifieds and the Internet to tout all kinds of offers, from pay phone and vending machine routes to work-at-home businesses like medical billing and envelope stuffing. Too often, these ads make promises - about earnings, locations, merchandise, or marketability - that sound great, but aren't truthful. The result: consumers are getting ripped off, losing money instead of making it.

No federal or state agency or private organization can tell you whether a company is legitimate or operates in good faith. The FTC or the Better Business Bureau can report on whether consumers have complained about a company. But, operators of fly-by-night franchise and business opportunity scams know this, and may change the name and location of their company every few months to avoid a record of consumer complaints.

There is no substitute for checking the track record of a franchisor or business opportunity seller by personally talking to at least 10 prior purchasers. That’s why the Franchise Rule requires companies to give consumers a list of the names, addresses and telephone numbers of at least 10 prior purchasers who are geographically closest to you. Interview these prior purchasers about their experiences. Ask questions to verify that they have purchased the franchise or business opportunity and that they are not being paid to provide a favorable review. A scheming promoter of a bogus business opportunity may line up "singers" who provide phony testimonials. Visit their business locations in person.

Also, consumers searching for franchise documents may wish to check an online database maintained by the California Department of Corporations, known as Cal-EASI: www.corp.ca.gov/caleasi/caleasi.htm



This article applies to leasing in general, but the most significant abuse seems to be in the merchant service industry. You should take a very close look at any equipment that you are considering leasing. 

Pricing is only the first issue.  I have spoken to dozens, if not hundreds of merchants over the years that were paying 79, 89 even 129 dollars per month for their equipment.  Looking up that very same equipment on Google shows that they could have purchased the equipment outright with 3 to 6 months worth of payments (out of a 48 month lease)!

First, you must understand the motivation of the sales rep who is pushing the lease arrangement:  As soon as he sends your signed lease agreement off to the lease company, he receives a check in FULL (minus leasing fees) for the amount of the full term of the lease. Let's assume a $59 / month lease over 48 months, which is $2832.00 minus fees. He then purchases equipment (generally below $500 and pockets the difference.  Pretty good for one sale!

One of the methods used talk you into this "deal" are telling you you can sign the lease on a "trial basis" or "you can cancel anytime you want".  If you believe this, when the lease paperwork clearly states that it is "NON CANCELABLE", maybe you deserve what you get.  Remember, only an officer of the lease corporation can amend their contracts, and it must be in writing.  Many lease agreements even state that the lease terms cannot be changed verbally, but that will not stop a sales rep looking at $2000 in profit on a $350 terminal!


Another common tactic is to tell you that you will own the equipment at the end of the lease.  That would be a LOAN, not a lease.  At the end of your term, you normally have to pay 10% of the total Lease amount, plus a buyout fee.  Some leases will even automatically "roll over" meaning you have to make another full year's worth of payments, because you forgot to terminate the lease after 4 years! 

Some reps will even go as far as telling the merchants that if they want to get out of the lease, they will "re-assign" it to another merchant.  Considering he can soak a new merchant another $2000, it is unlikely he would even try, and lease companies would rather write a new lease while keeping you on the hook as well.  This is just another dishonest technique to get your signature on the line.

Most leases do not allow you to change service providers during the duration of the lease, so even if your service provider has a short minimum contract (like one year), a 4-year lease will act like a 4-year contract with the service provider!   No wonder these reps love leasing!

While much of the lease abuse happens (unfortunately) in the merchant services industry, you should evaluate the cost vs. lease on any equipment.  Sometimes, with large items that will wear out, like copiers or company vehicles, the lease can make sense, but small electronic items can be bought for a fraction of the lease costs.  Needless to say, we refuse to get involved in these practices.

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