A Leasing Nightmare
Leasing can be a very frustrating experience. I once called on a merchant who had 3 different leases and he was not even sure what they were for. Upon examining his business checking account statement I was able to help him identify who the leases were to and what they were attached to.
It turns out he had a lease for his terminal, another separate lease for a pin pad, and a third lease of $ 89 a month which he'd been paying for 6 years and was not even sure what it was for. This particular lease had expired after 5 years, but he was still unsuccessful getting the leasing company to stop taking money out of his checking account.
How can this be, you ask?
That's a good question, one you'll be able to answer by the time you've read all of this post.
Your Processor Is Not Your Leasing Company
Many merchants are surprised to learn that the credit card processor and the leasing company which owns the leasing contract a merchant signs are two entirely different business entities.
This means you are free to switch processors at any time (unless your card processor has you locked into one of those manipulative "Early Termination Fee" contracts I often rail against), and it will have no bearing whatsoever on your credit card terminal. Your new processor will simply download new software into your existing terminal.
Why Leases Are So Hard To Get Out Of
Something merchants do not stop to consider when signing a merchant agreement (especially for the first time), is the lease they are signing is non-cancellable, with very few exceptions. What this means is you WILL make the payments for the full amount of the term, unless you violate the contract or negotiate your way out of it.
One reason is because the leasing company has already paid an upfront commission, which can be as high as $ 1,000 +, to the salesperson who got you to sign a lease. So they're definitely going to recoup what they've paid. But it goes beyond that.
Another reason it's so hard is because they have a recording of your voice over the phone agreeing to the contract terms, before you can get the equipment.
I hate leases. Yes, I'd make a great upfront commission. But if I did that I'd also be forcing my merchant to pay as much as 10 x's the value of the equipment by the time the lease expires. Forget that. I still want to be my clients friend 5 years down the road.
The Eternal Lease
Not only will you pay for the full term you agreed on for your lease, but the majority of leases will never end unless YOU STOP THEM. This is true even after the initial term of the lease has expired.
How can this be?
The contract usually states it will remain if effect for ____ number of years, and continue beyond that until either party stops it. Often, they'll insert a clause stating it will automatically renew itself in 1 year increments, unless the merchant stops it, in writing, at least 30 days prior to the expiration date. Meaning the contract will perpetually renew itself, until the merchant ends it ..
This means that unless you have read your contract and written down when it ends you can end up being "eternally 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's written in the contract. Here are 4 ways most of the leases I've encountered are structured to release you from further obligation – from "good" to worst.
- A $ 1.00 buyout. This means 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 one that's the most fair (other than outright owning it, which a few rare contracts allow)
- Fair market value This is saying 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.
- Send it back. I find this one particularly disgusting. After paying possibly 10 x's the value of the machine over a 4 or 5 year period the leasing company demands you return the equipment to them or they'll continue to debit your checking account – "eternally".
- Lease buyout This is where they want you to pay for the remaining months of the contract and then the lease is over. I've listed this as the worst, but it's only the worst if you've just started the lease, meaning it can potentially cost thousands of dollars, and again – at up to 10 x's (or more) of the value of the terminal .
With options like those listed above it's no wonder they make sure to get your voice on record over the phone agreeing to the terms they state before you get the equipment. Unfortunately, they do not disclose all the facts. If they did you probably would not go through with it.
Basically, they only get you to verbally commit to a "non-cancellable" lease, at "x" amount of dollars, for "x" number of months.
My suggestion? If I was obligated to an equipment lease I would immediately get out my contract and do the following:
- Understand the terms of ending it … ie, $ 1 buyout ?, fair market value ?, return equipment? etc.
- I would find the exact month the lease was scheduled to expire – and
- I'd get out my calendar and mark it for 60 days before the expiration date, upon which time I'd –
- Send a certified letter stating that I want out of the lease on the expiration date
NOTE: Something most merchants do not understand is that in the majority of cases the lease WILL NOT END UNLESS YOU TAKE ACTION. That means even if it's called a "36 month" or "5 year" lease the timeline is only to state 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!