Customer confusion at the end
of a lease can be mitigated by good relationships. Fred Crawley
reports.
Go deeper with GlobalData
As just about anyone on the
collections end of a leasing business will know, good customer
contact through the length of an agreement is vital to avoiding
headaches at the end of term.
In some cases, this can be as
simple as giving a customer regular reminders of just what kind of
financial product they signed up to in the first place.
Martin Smith, risk and compliance
director at Close Credit Management, says that confusion over
product is most common in smaller SMEs, often with three or fewer
staff.
Some of these customers, when
coming to the end of a leasing agreement, are often surprised to
learn they are not in a hire purchase (HP) agreement, and must make
a balloon payment to own their vehicle.
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By GlobalDataThis may happen due to the employee
who originally signed the lease having left the business, or as a
result of a business having signed onto a lease purely on the basis
of low rates without understanding the crucial differences from
hire purchase.
Whatever the reason, this mistaken
belief can cause a potential problem when a lessor raises fresh
billing in expectation of a vehicle return, only to find a lessee
who fully expects to keep hold of their asset at no additional
cost.
In some cases, Smith says, SMEs are
no longer even in possession of the original lease documents.
“Often, the first time the customer
realises that there is a substantial amount still to be paid is
when we produce the original documentation from the lessor,” he
says.
While the problem is not a new one,
instances of lease misidentification have become more time
consuming as customers are becoming more likely to raise
complaints.
“Customers have become more
aggressive in pursuing what they perceive to be their rights” says
Smith, adding that this is “especially true of smaller SMEs”.
Countdown
correspondence
From the point of view of a
collections agent, he feels that the easiest remedy for the
situation would be countdown-type correspondence campaigns between
lessors and lessees, involving letters sent quarterly or even
monthly during the final years of agreements, and detailing any end
of lease payments.
“This sort of procedure is not
standard practice by any means, but would allow any lease-end
problems to be flagged up long before a balloon payment is being
sought,” Smith says.
And while he says that new lease
documentation across the industry is arguably clearer than it was
three years ago, there is still room for lessors to revisit their
documentation and make the essential facts of agreements more clear
from the beginning of the sales process.
Smith says: “Being in the industry,
it’s easy to forget how things can not make sense to a consumer or
small business, even when printed in black and white.
“For many customers, the focus is
on acquiring the asset cheaply, and the nature of the agreement is
not uppermost in their mind.”
Claiming
ignorance
Simon Shuttleworth, managing
director of collections agency Peak Collections, argues that many
customers claiming ignorance of leasing arrangements are “not
taking a credible position.”
In many cases consumers claiming to
think they are in an HP agreement rather than a lease are those who
thought they would be able to make the eventual balloon payment
three years ago, but are now struggling to do so.
While some of Peak’s lessor clients
send 90 days’ notice of balloon payments, a method which
Shuttleworth says is a “responsible approach” to the issue, it is
not always enough to avoid a potential conflict when the time
comes.
Peak’s answer, in line with its
overall strategy of maintaining a “sales culture” within
collections activity, is to treat claimed product misunderstanding
as an exercise in objection handling.
“In talking with the customer, we
ask them to look at the difference between the sum total of
payments made over 36 months and the value of the vehicle. At this
point, they tend to realise they have to make the payment, or admit
they never read the original contract,” he says.
This approach, according to
Shuttleworth, avoids potentially time-wasting allegations of
mis-selling from consumers – a tactic which he says is becoming
more common in an “increasingly litigious” culture.
“Our view is to treat customers
with respect in these situations, even if we have to repossess,” he
says.
“They may have been good clients for 20 years who have been
suddenly affected by circumstance, and as such they may be good
potential lessees in future.”
