Sunday, March 11, 2007

The Lease Acquisition Fee…the Bank’s “Gotcha”

You may have read my columns denouncing the “dealer fee” which is a charge car dealers add to the price they have already quoted you on the car. They refer to it as a fee to fool you into thinking it’s a legitimate fee like sales tax or a license fee. What it is, is profit to the dealer. That’s exactly what banks and leasing companies do when they lease you a car. They most commonly label their “fee” the “lease acquisition fee”, but all it is is profit to the bank or leasing company, and in some cases a smaller portion is kicked back to the car dealer. This fee is also called by different names like “administrative fee”.

Yesterday I got a complaint letter from a customer in North Palm Beach who was a reader of this column. He had just discovered that he had paid an $895 “lease acquisition fee” when he leased his new Toyota from my dealership. I called him, apologized, and told him that I agreed with him that this was not the right thing for banks to do, but that they all did it. I also agreed with him that the “lease acquisition fee” should be disclosed and explained on the lease contract. It should be called “profit to the bank” and in cases where the dealer gets a portion of this fee, “profit to the bank and dealer”.

When a car dealer sells you a car, you expect him to make his profit by adding a markup to the wholesale price he paid the manufacturer. You expect and understand this. Therefore you can shop and compare prices between different dealerships. You expect a bank or a leasing company to make their lease profit by marking up the cost of their money during the time you drive their car. On a lease, it’s called a lease factor and on a purchase it’s called an interest rate. The bank owns the car because they bought if from the dealer. If you drive their car for 36 months, your monthly payments must cover their costs of depreciation, money, overhead and also pay them a profit. You expect and understand this. Therefore you can shop and compare lease factors and residuals. The residual establishes the cost of depreciation and the lease factor establishes the cost of money. The mark up over these two costs should be the profit to the bank. The “lease acquisition fee” does not appear on the contract. It is disclosed on a separate form which includes everything in the “capitalized cost” of the car you are leasing. Most people understandably think that the capitalized cost of the car is just for the car, not some extra profit for the bank.

I don’t know any bank or leasing company that does not charge a lease acquisition fee. This fact is often used to legitimize it. When a customer does object, the answer is “all banks charge this fee”. That doesn’t make it right! That’s the same explanation that car dealers give when they get caught charging their “dealer fee”. Just because almost everybody does something does not make it right. These fees vary over about the same range as dealer fees…from about $495 up to about $895.

Oh, there are some other fees that the banks and leasing companies charge you when you lease a car that you probably didn’t know about when you signed in. If you buy your car at the end of the lease, there is a “purchase option fee”. If you don’t buy it there is a “lease disposal fee”. These vary from $150 to $450. The bank knew in advanced that you were either going to buy the car or not buy the car at the end of the lease. Their efforts associated with your choice are simply the overhead cost of operating a leasing company and should be built into their rates. When you quote your customers a price and then increase the price after the purchase or lease where will it stop. How about a “fuel adjustment fee” because of rising gasoline prices or a “power fee” to help the banks pay their light bills?

Pricing of products should be transparent, up front, and not convoluted so that the consumer can easily shop and compare. Costs of doing business should be included in the pricing of products, not tacked on after the price is quoted and/or the contract is signed. Of course, that’s exactly why banks and car dealers have obscure fees like this, so you can’t easily shop and compare. Right now there isn’t much you can do about the lease acquisition fee except voice your opinion to your bank and your congressman.

7 comments:

  1. I just want to take a moment and thank you for all your great insights and tips for buying a car. Following your suggestions, I spent a little more time and effort on research, and ended up getting a much better deal on a used Honda, with no morning-after regrets.

    It would be nice if the majority of dealers had your level of fairness and class- the business of buying a car would be much more pleasant. In the meantime, thank you for taking some time to put the focus on the customers' well-being.
    -Jeremy Tollberg
    P.S. If you're looking for more fodder to write about, I'd love to hear your thoughts and suggestions on the Service Dept. part of a dealership.

    ReplyDelete
  2. Joy in warcraft leveling living comes wow lvl from having wow lvl fine emotions,wow power level trusting them,power leveling giving them power leveling the freedom of wrath of the lich king power leveling a bird in the open.wlk power leveling Joy in living can age of conan gold never be assumed as a pose,or put on from guildwars gold the outside as a mask. People who have this joy don not need maple story mesos to talk about it; they radiate it. wow gold They just live out their joy and let wow power leveling it splash its sunlight and glow into other lives as naturally as bird sings.

    ReplyDelete
  3. Dear Car Leasing,

    Thanks very much for you kind words.

    ReplyDelete
  4. Hello from Russia!
    Can I quote a post "No teme" in your blog with the link to you?

    ReplyDelete
  5. My wife just leased a car from Roto in arlington heights Illinois they charged her a 895.00 lease aquisition fee.Is there any way I can get any of this fee back?? What state agency would I register a complaint with that would care??Thanks for your insights wish she would have investigated this first.
    Rich

    ReplyDelete
  6. Not only do you have to pay the lease acquisition fee, dealerships often sneakily mark them up to snag even more profit. Most people don't even question, and they laugh out loud behind our backs.

    ReplyDelete
  7. You're right that banks do allow and encourage dealers to mark up the "Lease Acquisition Fee" also known as "Administrative Fee". This depends on the bank and its lease contract. Whether this is "sneaky" or not depends on the dealer.

    Another "fee" that is marked up by dealers and definitely should be considered "sneaky" is the "electronic filing fee". This is an outside service commonly used by dealers that prepares all of the license tag and registration work. The cost to dealers is $12 in Florida and most dealers mark it up. I know one dealer who marks his up to $485! Legally, this should be disclosed as part of his "dealer fee", but it's not. In fact, no Florida dealers that I know of legally disclose this electronic filing fee markup.

    ReplyDelete

Earl Stewart On Cars welcomes comments from everyone - supporters and critics alike. We'd like to keep the language and content "PG Rated" so please refrain from vulgarity and inappropriate language. We will delete any comment that violates these guidelines. Oh yeah - one more thing: no commercials! Other than that, comment-away!