State LegislationState Legislation Update

Government Impact on the Equipment Finance Industry

State Legislation

Dennis BrownVice President

State Government RelationsEquipment Leasing & Finance Association

Texas Victory

Texas Heavy Equipment Inventory Tax

•Defined Lease Finance Companies as Equipment Dealers•This Outcome Unintended by Proponents of the Law•Would Require Monthly Tax Payment•ELFA Drafted Legislation to Clarify The Law•House Bill 826 is not retroactive •Effective on January 1, 2014

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Automatic RenewalsFew Sponsors Know Our Industry Exists

Usually Targeting Service Contracts / Consumer Protection• Magazines, Health Club Memberships, Soda/Candy Machines,

Cleaning Services, Candle of The Month Club

Some Motivations Are Business Related• Trash Removal, Especially Right To Match Competitor Price• In Wisconsin a Seven Year Software Renewal on Car Dealers• In Pennsylvania a Soft Drink/Candy Machine Contract

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Automatic Renewals

Some Legislative Proposals Faced by ELFA

•If Lessor Violation – Lessee Keeps Equipment•Notice by Certified Mail/Hand Delivery – No Internet•Notice Is Retroactive to Existing Contracts•First 90 days is a ‘Trial Period’ Allowing Return of Equipment•Renewal only if lessee has more than 7 employees or 9 phones•Negative Option at End of Term Requiring Written Consent Prior to Any Renewal. Month to Month Renewals Would Need Written Permission Every Month.

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Wisconsin Automatic Renewal law• Notice Required if:

1) Initial term is more than one year, AND2) Auto-renewal term is more than one year

• Notice Requirements:• When: Between 60 and 15 days before Customer election deadline• What: Written notice containing the following:

Statement Contract will be renewed Deadline to decline renewal Statement whether increase in charges during renewal Action required to decline renewal

• How: Notice may be given: Regular US mail (unless Contract requires certified mail) By registered or certified mail In person to a principal of Customer On the first page of an invoice (bold, 12pt font) By fax, email, overnight courier if Contract permits

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Louisiana Automatic Renewal lawThe sponsor insisted on “consumer” including commercial contracts despite objections it contradicts state law.

Sponsor testified this law resolves problems farmers have with implement dealers.

•Exemptions: Banks, trust companies, savings and loan associations, savings banks, credit unions, finance or credit companies, industrial loan companies, or any other financial institution licensed or organized under the laws of any state or the United States

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New York and Rhode Island Automatic Renewal laws

New York: Notice is due at least fifteen days and not more than thirty days previous to the time specified for the furnishing of such notice but not applicable to an automatic renewal period of one month or less.

Rhode Island: Notice is due notice between forty-five and ninety days prior to the expiration of the lease term. Not applicable to any lease having a term of less than one year.

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Automatic RenewalsELFA explains automatic renewal provides lessors

Time to prepare for the return / remarketing of equipment Helps protect lessor’s residual investment Lessor bears the economic risk if its remarketing activity cannot recover investment plus carrying costs and targeted returnProvides lessees the terms of renewal in the event equipment is not prepared for return, or returned timelyClear definition of lessor’s rights in the case of lessee’s failure to return equipment provides clarity of economics to lessor Ability to offer most favorable pricing at lease inception with larger residual investment

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Automatic Renewals

ELFA Board of Directors

Established an Automatic Renewal Task Force

Survey of ELFA Members and ELFA BoardSupport

ELFA Code of Fair Business Practices

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Automatic RenewalsELFA Policy Statement on Automatic Renewals

The ELFA believes that all contract terms, including automatic renewal terms, should be properly and adequately disclosed. In fact, our Code of Fair Business Practices states that while “different companies appropriately employ different business practices depending on a variety of factors … ELFA Members believe that all business agreements, arrangements and transactions should be conducted with transparency with respect to the roles and responsibilities of all parties. Full disclosure in and clarity of transaction documentation is a key element of such transparency.” Further, our Code of Fair Business Practices states “[m]embers shall conduct their activities in the spirit of full disclosure. All relevant information as to the terms and conditions of a transaction, relationship or service that may affect … the customer's ongoing obligations under the contract, shall be disclosed clearly to the customer prior to closing. Notice, return and end of term provisions of a lease shall be reasonable in light of the structure of the transaction, the type and use of equipment leased and the secondary market….”

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Hot Topics For The Non-Lawyer Executive

Texas Heavy Equipment Inventory Tax

•Defined Lease Finance Companies as Equipment Dealers•This Outcome Unintended by Proponents of the Law•Would Require Monthly Tax Payment•ELFA Drafted Legislation to Clarify The Law•House Bill 826 is not retroactive •Effective on January 1, 2014

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Hot Topics For The Non-Lawyer ExecutiveProcurement Compliance with State Laws

Procurement sales people must register as lobbyists in some states and localities because they influence agency policy or procurement decisions just as advocates do in the legislature

Have You Created a Compliance Plan for Your Company?

Compliance at Key Equipment Finance is administered by KeyBank Public Entities Compliance Officer Julie Lady

Julie_a_lady@keybank.com

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Hot Topics For The Non-Lawyer Executive

State by State Licensing of Commercial Sales Finance Companies State Bank Commissioners use online Nationwide Mortgage Licensing System (NMLS) administered by Conference of State Bank Supervisors Target: Non-Mortgage & Non-Depository Financial Services

Penalties for not registering

ELFA Work Group Formed

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Data Security

– Sponsors concern: security of private information retained on Equipment Data Storage

– Focus intentionally undefined or broadly defined to include a wide range of equipment

– Data security liability is assigned broadly to include and/or target lessors of equipment

– Safeguarding information in data storage seen as too much responsibility to place on lessees

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Data SecuritySponsors In Different States Communicate

Arizona Sponsor Contacted New Jersey Sponsor

Both Bills:•Assigned liability for data security as widely as possible with civil and criminal penalties

– Arizona: “individual or entity capable of holding a legal or beneficial interest in property”

•Lack definition of digital copy machine aside from ability to store “records”

– “Records” means any material recorded or preserved by any means

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Data SecurityFlorida Legislation•Bill Drafted as a Middle School Class Project •Define copy machine as “any device used to copy, print, scan, or fax documents”•Make a “vendor” (undefined) that sells/rents/leases/purchases a copy machine responsible for:

– Data destruction– Warning labels on all equipment in Florida with data storage– Customer education

•Agreed to withdraw the bill if ELFA and the Business Technology Association would talk to the Middle School students

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Data SecurityOregon Legislation Focused on Government Leasing

•Entities “engaged in the sale or distribution of used copy machines” must remove or erase data•A “public body” may only use photocopiers & scanners “owned by the public body” – no leased copiers•Establish Task Force to protect personal health care information on “equipment that stores print or electronic data”

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Data Security

Colorado Bill Defeated In Committee On Tie Vote

•Businesses maintaining computerized data must be audited & approved by a state certified “qualified information technology security auditor” to gain civil liability immunity•Data Security Standards would change yearly•Inspections of equipment yearly•A “qualified information technology security auditor” could shut down any business entity found out of compliance•Sponsor was a trial lawyer•He testified this bill would attract business to Colorado

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Data Security

Nevada Proposal

•Required Lessor of a “copier, facsimile machine, or multifunction device which uses a data storage device to store, reproduce, transmit or receive data or images” to ensure personal information on the data storage device is destroyed.•Responsibility may not be assigned to lessee in contract•"Data storage device" defined as any device that stores information, specifically including a computer.

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Government Impact on the Equipment Finance Industry

State Legislation

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