(Stay up to date with transport news: get TTNews in your inbox.)

For some transportation companies, a truck lease-purchase agreement can be a gamble with long-term consequences. But industry leaders noted that when done fairly, these lease agreements can be a game changer for the transportation industry.

At a Truck Leasing Task Force meeting in March, ample evidence of poor lease-purchase deals for trucking companies was presented. Task force members, appointed by the Federal Motor Carrier Safety Administration, heard initial reports from the Consumer Financial Protection Bureau on how lease agreements can be distorted to unfairly benefit the leasing companies.

The CFPB reported troubling provisions in some of the contracts it reviewed that could lead to a vicious cycle in which finance companies lease and then collect, only to lease the same trucks over and over again to drivers who never make enough money to buy the trucks they want to start their own businesses.

This is a false picture of most lease-purchase programs in the industry, says Jane Jazrawy, co-founder and CEO of driver training company CarriersEdge.

“The industry is kind of in the middle,” she told Transport Topics. “The FMCSA looks at these lease-purchase programs with the view that they’re predatory, but at the same time they’re also viewed as a perk and people are asking for it.”

After reading surveys of drivers from companies that rank among the best drivers, Jazrawy sees a common theme.

“Drivers want lease-purchase programs. They see it as a benefit,” she said. Drivers want to have careers and the flexibility of being a self-employed driver, she said. “Transportation companies say they have to offer a lease-purchase program because otherwise drivers will go to someone else.”

In a letter to the task force, the Truckload Carriers Association said independent operators played “a critical role in the American trucking industry” and that lease-purchase agreements were among the financial instruments that enabled that role.

“A leased truck offers exceptional freedom on the road,” wrote Jim Ward, president of the TCA. “Drivers have more flexibility in planning their routes and parking as it promotes the independent contractor business model. Leasing a (commercial vehicle) can help a driver become an independent contractor, which the TCA will continue to support.”

However, not all lease-purchase programs are the same, according to the Owner-Operator Independent Drivers Association. OOIDA also submitted written comments on behalf of its members to the task force ahead of the July 18 meeting.

“Predatory truck leasing schemes are one of the industry’s many long-standing problems,” wrote Todd Spencer, president and CEO of OOIDA. “While traditional leasing agreements can allow truck drivers to operate as independent small business owners, there is a subset of leasing arrangements that almost always exploit drivers.”

“People are doing all sorts of things, but that’s because there are no rules they have to follow,” Jazrawy said. “Maybe people have their own leasing companies, maybe they just do it informally. There’s no model.”

She also pointed out that three aspects need to be taken into account when deciding whether a lease-purchase programme is appropriate for the driver: the operator’s commitment, the entry requirements and the training requirements.

“The carrier’s commitment is about what the carrier does for the driver,” Jazrawy said. “Is it a profit center or are you trying to attract new owners? Are you doing it to grow the industry?”

Industry leaders say lease-purchase agreements depend on the carrier’s commitment and establishing appropriate entry requirements. (OTR Leasing)

Companies with positive driver feedback will not enter into lease-purchase agreements under unfavorable conditions, she said. “If the prices for the equipment are really high and the freight volumes are low, there is no point in doing it because there is no chance of success.”

Next, companies should focus on eligibility requirements when evaluating lease-purchase programs, she said.

“If you just let anyone come in and buy one of your trucks, you don’t know if they’re going to be successful with it or not,” Jazrawy said. The best programs have requirements that drivers have been with the company for a certain amount of time, have good safety and on-time ratings and other factors.

She also said that carriers should provide some sort of ongoing training to prospective owners and operators to ensure they understand the implications for corporate taxes, reporting and maintenance obligations, as well as the terms of their lease.

“The successful programs require drivers to go through training and coaching on financial management and talk to someone over a long period of time,” she said. “Just like coaching to become a safety coach: It’s financial coaching.”

Andrew Winkler, general manager at Chief Carriers Inc. of Grand Island, Nebraska, told TT that his company started its lease-purchase program several years ago.

“We really approached it from a recruiting perspective,” he said, noting that the company received many calls from prospective drivers asking how the company’s program was structured. “It’s really a hot topic now with drivers. They want that independence; they want to be a small business owner.”

Winkler pointed out that the trucking company does not want to miss out on the pool of qualified professional drivers. However, he wants to ensure that the program is structured in such a way that it leads to a high number of self-employed drivers and not a high number of truck returns.

“It’s our responsibility not to just throw them the keys across the counter and say, ‘Here, good luck,’ but to teach them what it’s like to run a small business and what the difference is from being a corporate employee,” he said.

Winkler said that drivers at Chief Carriers only become eligible for the lease-purchase program after a certain length of service. At that point, drivers complete a training program that ensures they understand the ramifications of being an independent contractor. Winkler explained that it’s a process of getting to know the driver to see if they’re a good fit for the fleet and if they have the skills needed to run the small business on their own.

For most fleets, lease-purchase programs have been designed to reduce the number of returned trucks and improve driver retention. (Transervice Logistics)

“One of the things I saw early in my career in these leasing programs was that drivers were living paycheck to paycheck, trying to make as much money as they could, as quickly as they could,” he noted. “Many of them saw the leasing programs and thought it was a get-rich-quick opportunity, but it’s absolutely not.”

As a result of carefully structuring the leasing program, Winkler said, the company has seen a significant increase in driver retention. The company’s overall driver turnover was about 36% over the past 12 months; however, for drivers participating in the lease-purchase program, that turnover was 25.9%.

He expressed his hope that some kind of framework would be created to set minimum requirements for drivers.

“Many programs make it too easy to get started, so you don’t have to put down a down payment, you don’t have to do any credit checks. As long as you have a CDL license, we’ll put you in a truck,” he said. In addition, the equipment drivers need under these programs can be very expensive to operate and maintain, creating further challenges for drivers when they have to meet the terms of the lease.

Chief Carriers requires a small down payment in addition to training. The company also tries to push drivers into trucks that are affordable to operate and maintain.

“I think the lease-purchase model is crucial for the entire industry. If it were to disappear, I think we would have real problems providing sufficient capacity,” said Winkler.

OOIDA’s Spencer wrote to the task force that after surveying members, the organization believes some programs create conditions that make it difficult for drivers to succeed. He pointed out that some programs allow carriers to control drivers’ terms and conditions, including load allocation, working conditions and other costs associated with the lease, such as where maintenance can be performed.

“While there are federal leasing regulations that should protect individuals from such scenarios, these rules are hardly ever enforced. The truth-in-leasing rules are designed to prevent abuse by owners and operators, but in what other industry can you start a business with no money, no credit, no anything, and end up entering into a lease that plunges you into debt,” he wrote. “In our view, there is insufficient federal oversight of these types of contracts.”

Winkler said he believes the task force and FMCSA have a long way to go in policing the problem and that federal oversight is not necessarily the solution.

“I’m not a supporter of the whole idea of ​​a stronger government structure,” he said, adding that the industry may be able to develop its own policies to prevent usurious lending practices.

“I like the idea of ​​certification through the American Trucking Association, or TCA, to protect drivers and ensure that carriers entering into lease-purchase agreements structure them in a way that allows drivers to be successful,” noted Winkler.