How to spot a bad lease-purchase agreement

It’s a familiar story in trucking. A carrier trains a new driver and then offers them a choice: work as a company driver or be an “owner-operator.” The company offers what sounds on the surface like a sweetheart deal. Perhaps they’ll finance a new or late-model tractor, which the driver can lease to own.

For a fortunate few drivers dealing with a handful of reputable operations, this can be their ticket into becoming true owner-operators. According to data from the OOIDA Foundation, about 28% of Association’s members who are owner-operators have entered into a lease-purchase agreement at some point. Of those, about 60% say they obtained the title to the vehicle.

But for many drivers, lease-purchase agreements can be a pitfall – one that can be avoided if drivers know what red flags to look for in the contract language and sometimes in the attitudes and actions of the carrier leading up to the signing of any agreement.

OOIDA’s Business Services Department offers a complimentary review of lease-purchase agreements for members. A trio of OOIDA’s compliance and regulatory specialists weigh in with their recommendations for what drivers need to be wary of when considering such arrangements.

The Association also offers a lease-purchase calculator online. The calculator considers many of the variables that will affect the success of a lease purchase, including compensation, direct costs like repairs, tires and taxes, as well as insurance and indirect costs.

One of the most egregious examples of an unscrupulous lease OOIDA representatives have seen is an agreement that forced the driver to accept responsibility for all the repairs and upkeep on the tractor, as well making weekly payments of $650 for three years. The payments were required even if the truck was no longer running.

Red flags

“If it had ‘lease purchase’ in the program title, chances are it’s probably predatory.”

That’s what Tom Crowley, a regulatory specialist at OOIDA, says after having spent years reviewing agreements on behalf of Association members.

His colleague Jim Jefferson, a compliance specialist, agrees.

“‘Lease purchase’ in general is a red flag,” he said. “They are usually predatory and only in the best interest of the leasing company.”

Both Crowley and Jefferson said that anyone considering a lease-purchase should take the time to read the entire contract and make sure they understand what they’re agreeing to.

But a carrier refusing to provide that time, or in some cases even provide a copy of the lease agreement, can be another telltale sign of trouble, warns Jill Thorne, another OOIDA compliance specialist.

All three said that anyone considering a lease purchase should take the time to read the entire contract and make sure they understand what they are signing.

“The first sign of a predatory lease is a driver asks for a copy to be sent to look over before they go to orientation and the carrier won’t send it,” she said.

“If a carrier won’t even allow you to have time to read and understand the contract, there is a reason why,” Crowley said.

Other “buyer beware” warning signs may include multiple escrow accounts, a fee assessed to the driver if they quit within a certain timeframe, a lease that frequently mentions owing the company money, and any plan that calls for the driver to be paid on “adjusted revenue” rather than gross.

OOIDA says watch for anything that sounds “too good to be true,” such as the owner-operator getting a large percentage of the freight rate. Thorne warns that there may be an addendum to the contract that lists lots of hidden charges, such as factoring, Comdata or EFS fees, advance fees to pay for fuel, bank charges, equipment fees and more.

Some leases may even have provisions such as “guaranteed payments,” which means the driver could be on the hook for paying for a truck they no longer possess.

“Many carriers have a lease-purchase option available, and if the carrier refuses to give you the contract up front for you to decipher prior to signing it, run away,” Crowley said.

Run from the ‘walk-away lease’

Another trick unscrupulous carriers may deploy is the so-called “walk-away” lease.

The walk-away lease is usually proffered as an outlet for the driver to turn in the truck with no big money owed. In practice, Jefferson says the opposite often occurs.

“Usually they are on the hook for the entire lease amount they agreed to,” he said. “If the leasing company says it is a ‘walk-away lease,’ tell them to show you where it is in the contract.”

Crowley says such offers are usually “B.S.”

“First, I have never seen the words ‘walk away’ in a lease,” he said. “Second, if you run up a bill for repairs and such on a truck, then you are liable for that bill. I don’t know what folks are thinking when they think they can walk away from their obligations.”

Are they all bad?

While Crowley, Jefferson and Thorne all have plenty of horror stories to tell about some lease-purchase agreements they’ve seen, they do acknowledge that some can be more promising than others.

Crowley specifically mentioned the lease purchase agreements he’s reviewed from Dart Transit. But he says those are the exception, rather than the rule.

“With Dart, you have some skin in the game,” he said. “They require a down payment or deposit, and your name goes on the title with Dart showing as a lien holder.”

Making sure your name is on the title is key if you ever hope to own the vehicle someday, Crowley said.

“I have told many, many drivers that unless your name is on the title with the carrier as a lien holder, you may not be buying a thing,” he said. LL