It’s a question often voiced by would-be owner-operators: To lease, or not to lease?
The Federal Motor Carriers Safety Association’s Truck Leasing Task Force says no.
In a report released Jan. 17, the FMCSA stated in its conclusion, “inequitable leasing agreements and terms in the motor carrier industry,” 119 with noted differences between truck leases and auto financing that may create significant financial risks for drivers. Those financial risks may in turn lead to potential safety risks by not “properly incentiviz[ing] the safe operation of vehicles.”
The report was prepared for the Department of Transportation’s Truck Leasing Task Force (TLTF), which the Consumer Financial Protection Bureau (CFPB) serves as a technical advisor. The findings of this report are primarily based on contract text from truck lease-purchase agreements combined with experiences shared by truck drivers working under such agreements, which were received through a request for information (RFI) issued by the TLTF, supplemented with industry research where relevant. The truck leases supplied through the RFI differ from conventional financing agreements for automobiles and other light vehicles in significant ways, including:
1. Potentially confusing earnings and expenses projections: The information provided to drivers about predicted earnings and expenses may be confusing or potentially misleading.
2. Absence of comprehensible financial disclosures: Drivers may sign leases without ever being informed of basic financial information about the cost of financing, such as annual percentage rate (APR) equivalents or finance charges.
3. Broad default provisions: Default provisions in truck leases may be triggered for reasons beyond missed payments, insurance lapses, or imperiling the collateral, at any time, and in some cases for no reason at all.
4. Expansive remedy provisions: Most auto finance remedy provisions allow for repossession and acceleration of payments due upon default, but truck leases may define “damages” as large sums of money unrelated to actual losses realized by the finance company.
5. Use of escrow accounts and personal guarantees: The use of sizable escrow accounts and personal guarantees may enable the truck financing company to ensure payout for damages assessed in default.
6. Ease of inducing driver to relinquish truck: If driving the truck fails to generate revenue that exceeds the costs of the lease and operation of the vehicle, drivers may opt to relinquish the trucks rather than wait for repossession. RFI responses also suggest the threat of significant costs imposed under contracts signed by drivers may disincentivize the safe operation of vehicles in the following ways:
1. Driver compliance with the hours of service regulations and laws governing speed and safety: Drivers may be pressured to haul loads in violation of laws governing speed and safety by motor carriers affiliated with their finance company.
2. Pressure to operate unsafe equipment: Drivers may be pressured to haul loads even when they have deemed the equipment to be unsafe.
3. Timely repair and maintenance: Drivers may be pressured to choose between making expensive repairs needed to maintain a safe vehicle and the imperative to continue hauling loads.
The Owner-Operator Independent Driver Association (OOIDA) issued its response to the report which it states, “unequivocally calls for an end to predatory truck lease-purchase agreements. During several meetings hosted by the Federal Motor Carrier Safety Administration, the Task Force characterized these programs as fraudulent and oppressive, concluding that they are irredeemable and should be banned. OOIDA agrees and has voiced similar concerns for decades.”
Bruce Guthrie is an award-winning journalist who has lived in three states including Arkansas, Missouri and Georgia. During his nearly 20-year career, Bruce has served as managing editor and sports editor for numerous publications. He and his wife, Dana, who is also a journalist, are based in Carrollton, Georgia.
