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August 1, 2009updated 12 Apr 2017 4:34pm

Fresh BVRLA, FLA rule changes raise eyebrows

Broker-to-broker deal sharing could be formalised in UK equipment finance Also, over many months this magazine has reported on widespread allegations by lessees of over-pricing, insufficient due diligence and questionable deals involving undisclosed services wrapped up within leasing transactions

By Brendan Malkin

Broker-to-broker deal
sharing could be formalised in UK equipment finance

Fraud and malpractice appear to be
at an all-time high in UK equipment finance. Also, over many months
this magazine has reported on widespread allegations by lessees of
over-pricing, insufficient due diligence and questionable deals
involving undisclosed services wrapped up within leasing
transactions.

On top of this, examples of multiple financing
of single pieces of equipment continue to emerge.

Another problem has been business sharing
among brokers. Broker-to-broker business sharing, for instance, was
also a key practice of the lease brokerage Kingdom Finance – whose
director, Paul Cope, pleaded guilty in recent weeks to conspiracy
to defraud (for full story see Barclays and BoS among victims
of broker
).

Surprisingly, however, it emerged last month
that the BVRLA might formally allow broker-to-broker deal
sharing.

This practice, while taking place informally
over many years, is generally frowned upon by lessors – not least
as it drives up prices because it involves more commission
payments, and also because it means there is another layer of
bureaucracy between the lessor and the customer.

This is not good news at a time when leasing
companies are trying to do more client due diligence – and reduce
spiralling bad debt levels.

Nikki Cann, Business Moneyfacts
editor and associate director of the National Association of
Commercial Finance Brokers, told Leasing Life: “Funders
have traditionally rejected the broker-to-broker model as they
believe the lack of transparency leads to a greater incidence of
fraud.

“Funders are not able to carry out their own
due diligence on the originating broker which makes them
understandably nervous. It does seem unusual then, for vehicle
funders to be encouraging this as a way forward, and passing the
due diligence buck back on to the larger broker.”

Talking to Leasing Life last month,
the BVRLA said it was looking into the idea of formally allowing
some of its 172 member brokers with good funder relationships to
act as conduits for other brokers who have been unable to find
business.

This conduit broker would then be responsible
for the due diligence requirements of the secondary introducer, and
would presumably split commission with them.

The Finance & Leasing Association also
reviewed its business code last month – including getting rid of
the rule that lease prices must be set at fair market value.

This decision might come as a surprise to
readers of this magazine, who will be aware of the accusations of
overcharging that have appeared in the Global Telecoms &
Technology scandal. This involves allegations that lessees were led
to believe that their leases of telecoms equipment included
services.

Overpricing claims have appeared in a number
of other cases recently.

In fairness to the FLA, it has replaced this
rule, however, with a new one which states lease agreements must be
“clear and fair”. Nonetheless, as asset finance remains
unregulated, the greatest sanction the FLA can impose for breaches
of the “clear and fair” rule is a ban from FLA membership.

In the last two years, not a single member has
been banned.

Topics in this article:
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