Gripes Against American Capital Growing Too

After five years of heady growth in leasing heavy equipment, computers and other gear to businesses, American Capital Group has learned that customer complaints add to its growing pains.

The company, part of a vast but little-scrutinized national industry, said it handled more than 5,000 applications for leases last year--10 times as many as in 1995, its first year of operations.

But Orange-based American Capital also faces increasing allegations that it delays action on requests for leases, tries to change terms midstream and won’t return hefty deposits when deals don’t shape up as envisioned.

The company maintains that the number of dissatisfied customers is relatively low when its rapid growth and the volume of business it handles are taken into consideration.

But scores of complaints about American Capital and similar companies have led the Better Business Bureau of the Southland to call for more oversight of the leasing industry. Leasing companies play the same role as lenders but aren’t regulated as such because the transactions are structured as equipment rentals.

“We believe there’s a loophole here that should be closed,” said Gary Almond, the bureau’s general manager.

Almond said his agency will ask the state attorney general’s office to lobby for regulation of the industry, which, Almond contends, displays a “definite ability” to victimize small businesses.

The bureau most wants rules forcing equipment lessors to fulfill their obligations within a set time--or return advance deposits from customers.

“If you’re going to take some money from people, it would seem fair and reasonable to perform within a given time frame,” he said.

Small businesses, as well as big corporations, rely on leasing companies to arrange needed equipment, everything from computers to backhoes. The industry accounted for $200 billion in revenue two years ago and should reach $233 billion this year, according to the Equipment Leasing Assn. trade group.

The Better Business Bureau dealt with 47 complaints about American Capital over the past four years--33 last year alone. The company resolved most of the cases, but never answered two complaints. Four more remain disputed even after it responded, bureau officials said, and five more are pending.

Because of the number and similarities of the complaints, the bureau classifies American Capital as unsatisfactory, a rating shared by just 5% of the 17,000 businesses in its Southern California databases.

And American Capital has been sued more than two dozen times in state courts, a check of records shows. Most are small-claims actions over unreturned deposits.

The company’s chief executive, Carl J. Heaton, said he’s been unable to keep customer service perfect during the company’s rapid growth, but contends that his company’s ratio of complaints to customers is understandable--and acceptable--under the circumstances.

“In the last five years we’ve processed 15,000 lease applications,” Heaton said. “We feel that under 50 complaints [to the bureau] is not that bad.”

Heaton also defends the practice of charging hundreds of dollars to thousands of dollars in nonrefundable upfront fees.

It’s necessary, he says, because businesses comparison-shop among equipment-leasing companies, often pulling out of a deal at the last minute after the lessors invest considerable time and money checking credit histories, appraising equipment and handling other underwriting tasks. Even then, they sometimes wind up owning equipment they were supposed to have leased.

“It’s like if a deal to buy a house falls out of escrow,” he said. “The guy who appraised the house isn’t going to return the fees he charged you.”