December 16, 2010
Federal Trade Commission (FTC) Chairman Jon Leibowitz applauded Congress' recent passage of the "Red Flags" Clarification Act of 2010, admitting that, in their original form, the Rules went too far.
"We're pleased Congress clarified its law, which was clearly overbroad," said Leibowitz in a December 9 FTC press release. "Now we can go forward with less litigating and more protecting consumers from identity theft. I want to express my appreciation to Congressmen John Adler (D-NJ) and Mike Simpson (R-ID), and Senators John Thune (R-SD) and Mark Begich (D-AL), for their excellent work in resolving the uncertainty created by Congress."
Leibowitz previously chided lawmakers for taking too long to act on a clarification measure. In a release last May that announced yet another delay in the "Red Flags" Rules enforcement date, the chairman urged Congress to quickly pass legislation that eliminated the Rules' unintended consequences. Lawmakers finally responded in the last two weeks with the "Red Flags" Clarification Act, which passed unanimously in both chambers and limits the definition of the word "creditor" in order to ensure that it doesn't apply to certain services and small businesses.
In its most recent release, the FTC also took the opportunity to reiterate that the Rules were always meant to be flexible. "It gives businesses the flexibility to tailor their written ID theft detection program to the nature of the business and the risks it faces. Businesses with a high risk for identity theft may need more robust procedures—like using other information sources to confirm the identity of new customers or incorporating fraud detection software," they noted. "Groups with a low risk for identity theft may have a more streamlined program—for example, simply having a plan for how they'll respond if they find out there has been an incident of identity theft involving their business."
While the new legislation should, at least theoretically, apply to far fewer businesses, some feel that the bill doesn't go far enough, and fails to exempt trade creditors in any meaningful way. "I don't think this changes a thing for our trade creditors," said Wanda Borges, Esq. of Borges & Associates, LLC. "It's so short and almost nonsensical, I really think they accomplished very little." Borges noted that the bill's adjustments to the definition of what constitutes a "creditor" fail to explicitly exclude trade creditors. Moreover, a provision at the end of the bill serves as something of a catch-all, noting that creditors can be required to comply with the "Red Flags" Rules if they're determined to maintain accounts with a reasonably foreseeable risk of identity theft.
"They may have succeeded in eliminating the need for small law firms and small doctor's offices to have 'Red Flags' programs in place, but that catch-all at the end means our trade creditors aren't exempt," she added. "I think what it does is gives businesses a better opportunity to determine whether or not they're low risk or high risk. It's clear that they have not excluded trade credit."
Stay tuned to NACM's Credit Real-Time Blog for more updates on how this applies to you and your company.
Jacob Barron, NACM staff writer
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Cashier's checks used to be one of the pleasantly reliable standards in the credit industry—to have one was to know without a doubt that payment was guaranteed. But the ever-evolving technological age means that the mostly reliable, safe days of cashier's checks are now threatened, if not over already.
Federal Deposit Insurance Corporation (FDIC) memorandums and media reports in several areas throughout the nation illustrate a growing trend in the use of fraudulent cashier's checks. Examples include a payment from a fake vendor to a creditor for shippable materials to consumers and/or to small businesses for products in their stores. One of the most recent cases comes out of Maryland, where Olney-based Sandy Spring Bank issued a warning that it had been victimized by someone using fraudulent cashier's checks bearing the bank's name and accurate routing numbers. This follows a spate of such incidents reported by the FDIC since summer, which included the likes of Virginia-based Franklin Federal Savings Bank and First Bank Richmond as well as Texas-based Brenham National Bank.
Susan Lujan, CCE, corporate credit manager for Kenworth Sales Co., said the trend is growing and troubling. "You can create all this stuff from just going to a local office supply company," she noted. "So cashier's checks are not always as good as we've been educated to believe." Lujan added that, largely because of technological advances and the Internet, fraudsters can easily go online to find all sorts of key information. This can include signatures, corporate resolutions and much more.
Lujan noted that credit managers need to study such fraud incidents, especially if they have affected their respective companies in any way. It's a sort of a detective-like mentality; if a credit professional is well educated on the scheme and can almost think like the criminal would, one can go a long way toward preventing low level fraud, and perhaps more, from affecting the company bottom line.
Lujan discusses emerging trends in fraud, as well as best practices to fight them, in "Opportunity Knocks: Fraud, From Career Criminals to Good Employees-Turned Bad, Often a Matter of Opportunity," in the upcoming January issue of Business Credit. NACM members can expect to see the print version delivered soon, or login in to view a click-through version of the most recent issue.
Brian Shappell, NACM staff writer
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FCIB's latest webinar, which concluded today, discussed the new batch of Incoterms set to take effect in the new year. Led by Laura Pedersen, CDCS, CICP, the three-part webinar titled "The New Incoterms 2010" gave attendees an easily understood breakdown of what's changing in the new Incoterms as well as how they specifically affect creditors and payment terms.
A number of terms will remain the same under Incoterms 2010, said Pedersen, including the Ex Works (EXW), Free Carrier (FCA) and Carriage Paid To (CPT) terms. Taken as a whole, however, Pedersen noted that the new regime places a great deal more importance on what constitutes delivery according to the various terms. "Delivery is the most important term," she noted.
Changes can be found in Section D of Incoterms 2010, wherein the Delivered At Frontier (DAF), Delivered Ex Ship (DES), Delivered Ex Quay (DEQ) and Delivered Duty Unpaid (DDU) terms are replaced by two, simpler catch-all terms. "Delivered At Terminal (DAT) and Delivered At Place (DAP) have replaced DAF, DES, DEQ and DDU," said Pedersen. "Under both DAT and DAP, delivery now also occurs at the named destination," she added, meaning that while DAF, DES and DEQ all stipulated a specific form of shipping, DAT and DAP can apply to freight shipped in any fashion, whether that's over ground, air or water.
"Under the former DEQ, the seller would get the goods to the port and unload the goods to the quay or the port or the wharf," said Pedersen. "Under DAT, it can still be used for ocean shipments, but can also be used for air freight and other modes of transportation."
DAT gives the seller responsibility over the shipment until it gets to the stipulated place within the buyer's country, meaning they are liable for whatever happens to the shipment until it arrives. "This does not go any further inland," Pedersen noted. "It stops at the airport or the port or whatever the case may be. If you want to go further inland you're going to have to use DAP, which means the same thing that DDU (Delivered Duty Unpaid) meant."
With DAP in effect, it's the seller's responsibility to get the shipment to the named place of destination, while the buyer must handle clearing customs. Pedersen noted that this can pose problems should the buyer have difficulty, or little interest in, negotiating the shipment through customs. In one instance, she noted that "the buyer couldn't get the custom clearance done for six months. A huge storage fee was incurred and the seller was responsible because [under DAP] he was responsible until [the shipment] made it to that installation."
Pedersen also described which payment terms were ideal under each specific Incoterm, and discussed the varying responsibilities of buyer and seller.
To learn more about FCIB's webinar training series programs, or any of FCIB's other educational offerings, visit www.fcibglobal.com.
Jacob Barron, NACM staff writer
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Increased talk that provisions of a tax deal hammered out by President Barack Obama and suddenly-powerful Congressional Republicans will place upward pressure on inflation failed to register with a Federal Reserve still stoically focused on elevated unemployment levels and, to a lesser extent, tight credit conditions.
The Fed's Federal Open Market Committee (FOMC) emerged from its economic policy meeting Tuesday with word that it would not increase the near 0% target for the federal funds rate or alter its plan to boost the economy by purchasing another $600 billion in Treasury securities through spring of next year. Despite noting that the economy continues to improve, FOMC's voting members—with the notable exception of Thomas Hoenig, who continues to beat the drum for a rate increase on inflation fears—remain highly concerned with the amount of people out of work and perceived continuing inability for businesses and consumers to get access to favorable loan terms. Although many analysts believe that provisions within the extension of Bush-era tax cuts for the wealthy, passed by the Senate Wednesday, will cause a noticeable increase in inflation, few at the Fed appear ready to do anything about it:
"The committee will maintain the target range for the federal funds rate at 0% to 1/4% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate."
Economists Ken Goldstein, of The Conference Board, and Chris Kuehl, PhD, of Armada Corporate Intelligence, suggest the Fed's strategy of 2010 might soon take a backseat to fiscal policy on the part of a more GOP-influenced Congress. Remember, new members with voting privileges on 2011's FOMC are regarded more as "inflation hawks" than some presently in the committee's mix, and Fed Chairman Ben Bernanke will undoubtedly have to deal with headaches as the House committee charged with watching the Fed will be headed by Rep. Ron Paul (R-TX). Paul has written books calling for the Fed to be dismantled and recently went so far as to call it a "cartel." So, in essence, perhaps staying the course on rates and securities purchases is a last gasp for the Fed before it finds itself in a more public fight with politicians and central banks of the world that believe the Fed is playing a dangerous game with inflationary pressures on the dollar that carries global implications.
"It may not seem like it, but there are still some real concerns about inflation and the new members of the FOMC will be watching very closely for signs that all this loose monetary policy doesn't set up another set of bubbles," said Kuehl, who is also NACM's economic advisor. "The comments from the other central banks in the world suggest that this is a major ongoing concern. The Fed of 2011 looks set to be a little less omnipresent. This will put them closer to the pattern pursued by other central banks, and that is considered positive as far as the world economy is concerned. Critics point out that the Fed really has little alternative to this role given that they have done about all they can to boost the economy at this stage."
Brian Shappell, NACM staff writer
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Use of the U.S. Bankruptcy Courts' Electronic Bankruptcy Noticing (EBN) service rose by about 5% in 2010, accounting for 25% of the 170 million notices sent out this year.
Bankruptcy courts are statutorily required to notify all interested parties when a case is commenced, as well as when certain subsequent events occur in the course of the filing. As in nearly every other corner of the business world, paperless electronic notices are increasingly being used as a faster, cheaper alternative to snail mail and other less reliable forms of communication.
"The courts have been converting the delivery of bankruptcy notices from paper to electronic for some time, an important, ongoing initiative that benefits both the Judiciary and the creditor community," said Glen Palman, chief of the Administrative Office for the U.S. Courts' Bankruptcy Court Administration Division. "Bankruptcy courts are encouraging all businesses to make the switch from paper to EBN. We hope to see the number of recipients continue to rise."
Palman noted that more than 20,000 companies currently receive electronic notices, which are sent by the courts on the same day they're produced. In addition to being faster, the EBN service also ensures that users have access to these documents at anytime during the day. "Whether you receive two or 150 notices a month, the free EBN service is something from which any business can benefit," said Palman.
The EBN service also allows businesses to route notices directly to a centralized email address, making it easier to organize this information in an electronic setting. Formerly, these items may have been mailed to multiple locations.
To learn more about EBN, or to sign up for the free service, visit http://ebn.uscourts.gov.
Jacob Barron, NACM staff writer
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The latest gauge of confidence within the small business community appears to indicate the brightest outlook in several years. Of course, not everyone is sold on the news.
The National Federation of Independent Business' (NFIB) Index of Small Business Optimism rose again in November to a level of 93.2. The fourth consecutive increase in the index brings it to the best level since December 2007, even though the reading remained slightly short of what is considered a neutral outlook (100).
The study indicated employment levels have held stable, though sales and earnings levels slipped a bit from October. Still, firms appear much more amenable to the idea of capital spending, as more than half reported higher frequency of such financial outlays, the NFIB noted. The study also noted that 91% of small businesses included in the study had access to all the credit they needed. Granted, 53% reported they did not want to take on new loans, an NFIB record, and only 4% reported tight credit as the most significant challenge facing their respective businesses.
The three-year high in the overall optimism level may be seen as encouraging, but even NFIB officials are quick to note the recovery is still "tepid." And despite mainstream media headlines that appeared to be filtered through rose-colored glasses, not everyone is so impressed that small businesses are feeling all that confident.
"Small business optimism is rising? Rodney Dangerfield would have asked for a second opinion," joked Ken Goldstein, an economist with The Conference Board.
Still, that levels are not receding like they did earlier this year is being welcomed as a positive sign. Similarly, another study this month tracking activity among mixed-use, apartment and condominium builders found a rosier view. The National Association of Home Builder's Multifamily Production Index rose nearly one-third in the second-quarter, also settling at its highest level since 2007. Also like NFIB, the study's authors acknowledge the index is rising from historically low levels and has a long way to go before any developers in the industry feel comfortable, or even neutral, in their outlooks again.
Brian Shappell, NACM staff writer
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