A leasing nightmare
Leasing can be a very frustrating experience. I once called a dealer who had 3 different leases and wasn’t even sure what they were for. By looking at his business checking account statement, I was able to help him identify who owned the leases and what they were tied to.
It turned out that he had a lease for his terminal, another separate lease for a pin pad, and a third lease for $89 a month that he had been paying for 6 years and wasn’t even sure what it was for. This particular lease had expired after 5 years, but she still hadn’t gotten the leasing company to stop taking money from her checking account.
How can this be, you ask?
That is a good question, one that you will be able to answer when you have read this entire post.
Your processor is not your leasing company
Many merchants are surprised to learn that the credit card processor and the leasing company that owns the lease a merchant signs are two completely different business entities.
This means you can switch processors at any time (unless your card processor has locked you into one of those manipulative “Early Termination Fee” contracts I often object to), and it won’t affect your card at all. your credit card terminal. Your new processor will simply download new software to your existing terminal.
Why is it so difficult to get out of leases?
One thing merchants don’t stop to consider when signing a business agreement (especially if it’s the first time), is that the lease they are signing is non-cancellable, with very few exceptions. What this means is that you WILL make payments for the full amount of the installment, unless you break the contract or negotiate your way out.
Why?
One reason is that the leasing company has already paid an up-front commission, which can be as much as $1,000 or more, to the seller who got you to sign the lease. So they will definitely get back what they have paid. But it goes beyond that.
Another reason it’s so difficult is because they have a recording of you over the phone agreeing to the terms of the contract, before you can get the equipment.
I hate leases. Yes, he would make a large commission up front. But if I did that, I would also be forcing my dealer to pay up to 10 times the value of the equipment before the lease expires. Forget it. I still want to be friends with my clients 5 years from now.
The eternal lease
Not only will you pay for the full term you agreed to for your lease, but most leases will never end unless YOU STOP THEM. This is true even after the initial term of the lease has ended. Timed out.
How can this be?
Easy.
The contract generally states that it will remain in effect for ____ years, and will continue beyond that until stopped by either party. Often, they will insert a clause stating that it will automatically renew in 1-year increments, unless stopped by the merchant, in writing, at least 30 days before the expiration date. Which means that the contract will be renewed in perpetuity, until the merchant ends it.
This means that unless you have read your contract and noted when it ends, you may end up being “forever bound” to it. (What an ugly way to do business).
How to legally get out of the lease
To end the lease, you will need to know the terms and exactly what is written in the lease. Here are 4 ways most leases I’ve come across are structured to free you from more obligations, from “good” to worse.
- A $1.00 purchase. This means that when the lease expires, you can get out of it by paying $1.00 and you now own the equipment. As far as leases go, this is the fairest (apart from owning it outright, which some rare contracts allow)
- fair market value This means that at the end of the lease term, the leasing company will determine the current market value and require you to pay it to keep the equipment and end the lease.
- return it. I find this particularly disgusting. After paying possibly 10 times the value of the machine over a period of 4 or 5 years, the leasing company demands that you return the equipment to them or they will continue to debit your checking account, “forever”.
- lease purchase This is where they want you to pay for the remaining months of the lease and then the lease ends. I’ve listed this as the worst, but it’s only the worst if you’re just starting your lease, which means it can cost thousands of dollars, and again, up to 10 times (or more) the value of the terminal. .
In summary
With options like the ones listed above, it’s no wonder they make sure to register your voice over the phone by agreeing to the terms they state before you get the equipment. Unfortunately, they do not reveal all the facts. If they did, you probably wouldn’t.
Basically, they just make you verbally commit to a “non-cancelable” lease, at “X“dollar amount, per”X” number of months.
My suggestion? If I were bound by an equipment lease, I would immediately get out of my contract and do the following:
- Understand the terms of ending it… ie $1 purchase? Fair Market Value? Equipment return? etc.
- I would find the exact month the lease expired, and
- I’d pull out my calendar and mark it 60 days before the due date, at which point I…
- Send a certified letter stating that I want to get out of the lease on the expiration date
NOTE: One thing most merchants don’t understand is that in most cases the lease WILL NOT END UNLESS YOU TAKE ACTION. That means that even if it is called a “36 month” or “5 year” lease, the timeline is only to indicate when you are eligible to end it, not when it will end.
Just writing about how these companies do business is almost enough to make my blood boil. And it should be enough for you to proceed with caution when leasing credit card equipment!