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.