Truth in Leasing: Basics for Contractors & Owners of Equipment

Whether you’re an owner/operator of a commercial vehicle or are leasing a vehicle from a commercial motor carrier, it can be tough to fully understand the complex legal landscape around leasing and insurance in the transportation industry.

The federal Truth in Leasing law—which regulates truck leases—is a multifaceted regulation that lessors and lessees need to understand before finalizing lease contracts.

Leasing typically needs to be accompanied by supplemental insurance policies, which will vary based on the type of vehicle and the freight it will be carrying. On the other hand, owner-operators have even greater insurance needs, since they own their own equipment

Sound confusing?

Don’t worry! We’re going to clarify all of this and more in this post. After you read this, you will be a truck leasing and insurance whiz!

Lessor vs. Lessee

Before diving too deep into the truth in leasing regulation, it’s important to understand how the parties in the agreement are referred to in lease contracts.

In all lease contracts, the lessor is the entity that owns the equipment, while the lessee is the motor carrier.

Another quick note: The information provided in this article is for informational and educational purposes only. While it’s accurate, and sure to be helpful, please don’t use this as a substitute for legal advice!

What Is The Truth In Leasing Regulation?

The truth in leasing regulations are a detailed set of rules that accompany any situation in which owner-operators lease onto a carrier.

It essentially ensures that there will be no confusion among the parties and that factors such as payment methods, the equipment being leased, and the lease term are clearly specified.

Specifically, The Truth In Leasing Regulations Require That Written Lease Agreements Must Contain The Following:

1. Clear identification of the parties involved as well as signatures
2. Clear identification of the lease duration
3. Clear identification of the equipment involved in the lease
4. A statement that the carrier has “exclusive possession” and “control” of the equipment specified in the agreement, for the entire term of the lease.
5. A clear description of the procedures necessary to terminate the lease, including a process for removing the carrier’s name after the end of the lease.
6. Specification of the payment rate to the owner-operator and the method in which this compensation will be provided. This payment period cannot exceed 15 days from the submission of proof of delivery.
7. An explanation of all chargebacks paid by the carrier and then charged against the owner-operator.
8. A clause explaining that the purchase of services or equipment from the carrier is not a condition of the lease agreement. If there is a prior relationship, and the owner-operator does purchase equipment or services from the carrier, the lease agreement must specify this and describe the terms under which the purchases will continue to be made.
9. A clear statement specifying that the carrier is legally obligated to maintain public liability and required cargo insurance.
10. Identification of which party will be held responsible for purchasing other types of insurance, if they are necessary, such as bobtail coverage.
11. A specification of when owner-operators will be charged in the case of damage to property or cargo.
12. An explanation of escrow funds, including whether or not they will be used, the amount withheld, and the items that the escrow is applied to.

In Addition To These Requirements, The Truth In Leasing Regulations Require That Lease Agreements Address The Following Responsibility-Based Factors:

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• Who will be responsible for violations? Carriers are required to assume responsibility for fines related to trailer size and weight, and overweight and oversized loads. The carrier is also responsible for the reimbursement of any owner-operator payments of these fines. If this is not specified in the agreement, the owner-operator can be held responsible.
• Who will pay for license plates, permits, and fuel tax reporting?
• Who will pay for fuel costs?
• Who will cover the cost of empty miles?
• Who will pay for all costs related to tolls?
• Who will load and unload the vehicle, and how will they be compensated?
• Who will be responsible for maintaining and repairing equipment? This is normally the responsibility of the owner-operator, but needs to be specified regardless.

Ultimately, the truth in leasing regulations are designed to protect both parties by specifying and assigning responsibilities while ensuring that all necessary requirements are completed.

Types Of Truck Insurance

Here is a list with descriptions of all of the types of insurance that can be applicable to lease agreements under the truth in leasing regulation:

Bobtail Truck Insurance

Bobtail truck insurance is coverage for any bodily injury or property damage caused by a truck that is operating without a trailer. An 18-wheeler operating without a trailer is known as bobtailing or deadheading. Carriers often want to make sure their owner operators or lessors are equipped with supplemental insurance for these instances.

Cargo Truck Insurance:

Cargo truck insurance is a requirement for all motor carriers. It accounts for the loss of non-owned truck cargo that is in their care and control.

Commercial Auto Truck Insurance

Motor carriers need their drivers to have a commercial auto liability policy. This policy provides coverage for bodily injury and property damage.

Contingent Liability

A contingent liability policy can take effect in defending a lease agreement when an owner/operator with occupational accident truck insurance decides to attempt to collect workers’ compensation benefits.

Leased Operator Truck Insurance

Leased operator truck insurance is a type of supplemental insurance designed to protect independent drivers who are leased to motor carriers. This type of insurance offers equipment and personal injury beyond what would be provided through a carrier’s liability insurance.

Non-Trucking Liability Insurance

Non trucking liability insurance provides coverage for property damage or bodily injury to a third party. Most motor carriers require owner operators to be covered by this type of insurance.

New Authority Truck Insurance

If you decide to become an owner operator and seek authority—meaning the FMCSA will recognize you as an independent entity and allow you to transport freight as a motor carriers—you need to be equipped with the right insurance coverage.

Often, that will be a combination of the following:

• Primary Liability
• General Liability
• Physical Damage insurance (Collision insurance and Comprehensive insurance)
• Cargo Insurance
• Non Trucking Liability
• Occupational Accident Insurance
• Umbrella insurance

In order to obtain your own authority, you are required to have three advisers who are familiar with the trucking industry: an attorney, and accountant, and an insurance agent.

Occupational Accident Truck Insurance

Trucking occupational accident insurance is designed to cover many of the needs drivers require in order to get well after they have suffered a work-related injury.

Physical Damage Truck Insurance

Physical Damage coverage for a truck provides 24-hour collision coverage for physical damage to the vehicle such as rollover, theft, vandalism, collision or fire.

Why Contract With Winnesota?

The truth in leasing regulation creates a fair environment for owner-operators and carriers alike to thrive.

If you’re a driver, it’s important to choose a company that embodies those those same qualities—as well as safety, fair earnings, and consistent scheduled and on-demand work.

Winnesota offers non-CDL and CDL vehicle leasing opportunities in the Midwest. Learn more about driving opportunities with us!