Who's Got the Gear?

No lender expects or wants it, but every now and then a borrower or leasee stops paying. When and how you go about collecting or recovering can have surprising implications affecting liability risk, potential customer estrangement and wider reputational damage.

Alarming stories from the field have important lessons for any leasing company and lender.

One construction equipment lender was experiencing higher than usual fraud rates, and was determined to find and recover the assets. It was later found that the fraud was perpetrated by organized criminals who were enabled by the lender's practice of using only soft credit checks and its acceptance of personal guarantors.

This difficult situation was exacerbated by poor record keeping resulting in unreliable Vehicle Identification Numbers to aid in recovery efforts.  So when the lender’s legal department provided ACS with identification numbers to assist in tracking down the equipment. we determined that the lender was not only exposed to fraud related financial losses, but to a range of other liabilities including wrongful repossession, fraud of its own, and potentially catastrophic financial and reputation damage. 

This is, of course, an extreme example. The lender in question has since hardened its policies and procedures to help ensure that circumstances like these don't occur again. But this cautionary tale provides lenders and lessors with some time-tested advice they can rely on in any market conditions to help protect their financial performance and their reputations. 

Walking through this experience with our lender client, ACS leadership pointed out the importance of the following best-practice principles...

• Haste makes waste – Some companies make inadvisable loans in the rush to write attractive new business. When it comes to evaluating credit worthiness, rigor pays.
• No detail is too small – Background checks, personally validated VINs, hard credit checks, reference interviews all matter. Just because they appear clean in one area doesn’t mean you won’t find red flags somewhere else
• Know your collateral – Recovery is a tricky business, fraught with legal risk and emotionally charged interactions. Skill and style matter. Make sure you’re working with professionals who are as invested in your brand as you are.

Happily, despite some modest financial losses and the hassle of prosecuting the fraudulent borrower, the lender resolved these issues. But what could have been a catastrophic case could have been prevented with more rigorous business practices designed to help lenders and borrowers alike. Here at ACS, we're just happy we were able to help write a happy ending to what could have been a nightmarish story.