June 9, 2011

News Briefs

  1. Credit Professionals Skeptical of Debt Ceiling Increase in NACM May Survey
  2. Getting in Front of Merger/Acquisition Activity Crucial for Credit Managers
  3. Bills Still Pending to Repeal 3% Withholding Tax
  4. Swipe Fee Delay Legislation Gets Its Day in Senate
  5. Bankruptcy Filings Down Sharply in May
  6. Obama v. Romney Round 1: Bankruptcy and Detroit's Big 3


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Credit Professionals Skeptical of Debt Ceiling Increase in NACM May Survey

Respondents to NACM's monthly survey for May appeared skeptical of any increase in the nation's debt ceiling, only reluctantly offering support if it were paired with deep spending cuts.

When asked "If you were a U.S. lawmaker, how would you respond to the current debt ceiling crisis?," 48% of respondents answered that they would raise the debt ceiling, but only if it was accompanied by a full array of deficit and spending reduction measures. Another 30% answered that they would not raise the debt ceiling, even with spending cuts or other deficit reduction measures like tax increases.

Only 7% of respondents said that they would raise the debt ceiling unconditionally, while another 8% said that they would raise the debt ceiling as long as it included minor deficit-reduction actions. Seven percent answered that they didn't know how they'd respond to the crisis.

"The U.S. needs to start comprehending that we cannot proceed with any degree of conviction as an economic powerhouse if we do not take drastic actions immediately. As we procrastinate in our 'denial state' we are moving swiftly toward our own restructuring, similar to what Europe is experiencing right now," said one respondent, who answered that they would not raise the debt ceiling. "Taxes are going up for everyone; an immediate and coordinated effort in fiscal and monetary policy is our only chance to avoid what right now seems to be an inevitable fate."

A recurring theme in the comments was that since the nation's citizens have to live within their means, the government should have to as well, and allowing an increase in the debt ceiling was letting lawmakers off the hook. "It's sort of the same notion as having a credit limit but regularly exceeding it. What's the point?" said one participant. "I have to live and make do with the money I have coming in each month. It is time for the folks we hired in Washington to do the same or get evicted just the same way we would from our homes," said another.

Others took a softer line toward Washington, noting that while lawmakers must get the nation's debt under control, using the debt ceiling debate to force spending cuts was a dangerous option. "Failing to raise the limit will have a catastrophic effect on our economy and bring us back into the depths of recession," said one respondent. "It isn't the ceiling that's the problem; it's the spending. Deal with them separately," said another.

NACM's June monthly survey is now live and asks about your company's expected travel budget for the coming year. To participate now, click here. All respondents earn .1 CEUs and are automatically entered into a drawing to win a free teleconference registration.

Jacob Barron, NACM staff writer

Newest Beige Book Released

Though the Federal Reserve's newly released Beige Book economic summary found an economy still slowly growing on aggregate over the last six weeks, the pace continues to decelerate in key bank regions including New York, Philadelphia and Chicago. Even the once mighty manufacturing sector, responsible for much of the growth measured in the last year, is starting to see its expansion rate slip in several areas and as concern creeps in, according to Beige Book. Check out NACM's online blog Friday for our popular breakdown of the 12 Fed regions highlighted in the latest Beige Book.

Getting in Front of Merger/Acquisition Activity Crucial for Credit Managers

Don't be fooled by the short-term panic based on one month of bad statistics in areas such as job numbers or the politically-fueled talk focused on inflation and debt, mergers and acquisitions among U.S. businesses are up again. And, said a former NACM Chairman and a future NACM chairman at the 2011 Credit Congress last month, that's very likely to continue and even accelerate over the next couple of years.

Should the prediction hold true, former NACM Chairman Val Venable, CCE, Ascent Performance Materials LLC, said companies, especially credit department managers, have to keep in mind that any of the rank-and-file employees and even some management will likely go into shock mode first upon the announcement of a merger or acquisition involving their company. And that necessitates asking the question, "As two companies are put together, how do you sing ‘Kumbaya' and make nice?"

Venable said there can be quite a culture shock when a merger of credit departments occurs, and it's up to credit managers to keep people motivated and informed. NACM Chairman-Elect Toni Drake, CCE, TRM Financial, agreed, saying extensive and early training are key to combating the "that's how we've always done it" attitude toward change.

"The earlier you can train people, including the decentralized field people, and tell them why they're doing this instead of the cram-down method, the easier it's going to be," said Drake.

Venable also suggested credit professionals do their best to join acquisition teams as it will help them get an in-depth look at receivables, get some of their input into the conversation and raise their own stock amid shrinking job numbers.

"You become more valuable to the company; I've been on an acquisition team, and it's a fascinating adventure," Venable said. Drake quipped not to wait to be asked but rather to offer and/or insist, professionally of course, to "let me be there to review receivables...let me be part of this."

Brian Shappell, NACM staff writer

Bills Still Pending to Repeal 3% Withholding Tax

Despite a recent delay in implementation, Congress is still considering bills to repeal the 3% withholding tax, set to go into effect on a large portion of local, state and federal government contracts in 2013.

A total of three measures that would completely eliminate the tax, rather than simply delay it, are pending in both chambers of Congress. The most popular is H.R. 674, which was introduced by Rep. Wally Herger (R-CA) and has garnered 148 cosponsors. The other two bills exist in the Senate and haven't received as much in the way of additional sponsorships.

Following the Internal Revenue Service's (IRS) delay, which pushed the implementation back from 2012 to 2013, several lawmakers have stepped out on the issue, especially in the House of Representatives.

"Since the 3% withholding tax was enacted in 2006, it has continuously been deferred," said Rep. Mick Mulvaney (R-SC). "It's time to stop deferring and repeal this onerous law once and for all. Repealing instead of deferring will also give small business owners the confidence they need to grow their business and create jobs without wondering if they will be burdened by another tax."

Mulvaney's comments are notable as he leads the Contracting and Workforce Subcommittee in the House Small Business Committee, which hosted a hearing on the 3% withholding tax late last month.

"It is said that the intent of this tax is to close the 'tax gap,' but punishing law-abiding small business owners is not the way to go about it," he added. "Many small business contractors work for the government for less than a 3% margin. So a crushing tax of this magnitude will cause a severe cash flow problem and force many contractors to wait until the end of the year to recoup expenses, take home profit and pay subcontractors."

"No small business should have to take out a loan in order to do business because they're being forced to float the government money," said Mulvaney.

In the hearing, lawmakers and witnesses observed that some contractors are already declining to bid on long-term contracts due to the uncertainty surrounding the provision, thereby inhibiting competition in the bidding process. Many contractors are also already expending funds to prepare for the 3% tax's implementation.

NACM has opposed the 3% tax since it was enacted into law in 2006 by the Tax Increase Prevention and Reconciliation Act (TIPRA). As a member of the Government Withholding Relief Commission (GWRC), NACM has lobbied for a full repeal and encourages Congress to act quickly to prevent further delays and eliminate this potentially harmful provision once and for all.

Jacob Barron, NACM staff writer

Industry Credit Groups

Credit groups are an effective management tool. They permit credit professionals of different companies servicing the same customer, regardless of industry or trade, to compare information on collection history and provide a forum for the exchange of data as to the most recent payment practices. The purpose of exchanging information is to help group members segregate fiction from fact, so competent and realistic credit decisions about a customer can be made.

Managed and operated by NACM Affiliates nationwide, NACM-Canada and FCIB internationally, credit groups:

  • Provide unparalleled networking opportunities
  • Assist in the exchange of credit information on common customers
  • Facilitate the receipt and analysis of information to make unilateral credit decisions
  • Provide a forum to discuss the latest developments on credit department procedures,
    equipment and other credit management functions
  • Support the discussion of account information and delinquent account reports
  • Adhere to federal antitrust guidelines

Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.

Swipe Fee Delay Legislation Gets Its Day in Senate

It appeared the powerful and well-funded banking lobby was on its way to yet another victory, this time on the long-debated "swipe fee" issue. However, an effort, which had been gaining traction, to delay implementation of caps on interchange fees somewhat surprisingly was turned back in the Senate Wednesday.

Though mandated as part of the sweeping Dodd-Frank Act's attempts at financial reform, the Federal Reserve's proposal to cap interchange fees placed on retailers who accepted card payments appeared well on its way to facing a 12-month delay, at minimum. Following an intense lobbying effort from the banking sector that flipped several senators who voted for the caps initially, legislation by Sens. Jon Tester (D-MT) and Bob Corker (R-TN) calling for said delay to the caps' implementation, as well as require a six-month economic study to weigh issues such as unintended consequences on smaller banks and credit unions, came up for a vote. The Senate voted 54-45 to defeat the effort Wednesday, clearing the way for the caps to go into effect this summer.

The mere attempt infuriated Sen. Richard Durbin (D-IL), who spearheaded the swipe fee cap legislation as an amendment to the Dodd-Frank Act last year before it was passed and inked into law. He characterized the move as capitulation to the mega-banks and credit card companies on the backs of smaller business and financial institutions as well as consumers.

As part of the Dodd-Frank Act, the Fed unveiled a proposal that would set a maximum cap on swipe fees at $0.12 per transaction. The Fed estimated that merchants were charged, on average, $0.44 per transaction, and that revenue from those fees comprised somewhere between $12 and $16 billion for the financial industry in 2009 alone. The Fed noted the proposed regulations would establish standards that are more "reasonable and proportional to the cost incurred by the issuer for the transaction." But amid pressure for lawmakers like Tester and Corker, the Fed was forced to postpone the original deadline to have the final swipe fee proposal written, late April.

Capping swipe fees is seen as a significant victory for small businesses that views the fees as unfair and a serious financial burden. Subsequently, the move, at best, would leave uncertainty at corporations such as Visa, MasterCard and backing financial institutions and, at worst, would have a severely negative impact on their revenue streams. For what it's worth, the thinly-veiled message from the financial titans continually has appeared to be "we'll get that money in one way or another."

Brian Shappell, NACM staff writer

Why Join CFDD?

  • 25 chapters operating throughout the United States
  • Fostering educational opportunities, networking, professional certification and scholarships
  • Designed to aid the beginning credit professional as well as those at the mid- and executive-levels
  • Membership available to all credit professionals who are members of NACM or CRF; direct membership available in areas with no CFDD chapter

To learn more about CFDD, click here.

Bankruptcy Filings Down Sharply in May

The downward 2011 trend in bankruptcies continued last month, as consumer filings fell 16% from last year. The overall consumer total for May reached 114,803, down from the 136,142 filings recorded in May 2010.

Bankruptcies in May also fell when compared with April, even when accounting for seasonal variations. Traditionally, filing totals are slightly lower in May than they are in April, but even when this is factored into the statistics, May filings are down by at least 10%.

According to data released by the National Bankruptcy Research Center (NBKRC), filings for the first five months of 2011 are down 8% from the same period in 2010. "Looking over an even broader time period: for four years in a row (from 2007-2010), every month's filings were higher than the filings for the same month in the previous year, but we have now had five consecutive months in which filings were down from the previous year," they said. "The worst is behind us."

"The continued drop in bankruptcies during 2011 reflects the pull back in consumer credit over the past year," said Samuel Gerdano, executive director of the American Bankruptcy Institute (ABI), "and a reduction in household debt."

Locally, Nevada and Georgia still have the highest number of filings nationwide. When adjusted for population, Nevada has almost exactly twice the national filing rate, with Georgia, Utah, Tennessee and California following, in that order. Nevada, although it still retains the highest filing rate of any state in the union, has actually seen a 17% fall in its filings from 2010, which does more to illustrate how high its filing rate was in 2010 than it does to illustrate much improvement. Still, other states are seeing heavy increases in filings, as opposed to Nevada's reduction; filings rose by 11% in Delaware and by 8% in Utah.

Jacob Barron, NACM staff writer

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Obama v. Romney Round 1: Bankruptcy and Detroit's Big 3

It remains to be seen whether former Massachusetts governor Mitt Romney can best other Republicans trying to garner the party's 2012 nod as the GOP's candidate for president, but that hasn't stopped him from engaging President Barack Obama and loyalists on the issue of bankruptcy's role in the comeback of companies like Chrysler and General Motors, as well as whose idea it was in the first place.

Very soon after announcing his official candidacy for the Oval Office, Romney set out to champion himself as part of the solution to the automakers' ills in recent years. The GOP hopeful asserted that his pro-bankruptcy restructuring ideas, outlined in part during a widely read 2008 op-ed piece in the New York Times, were eventually adopted by the Obama administration, making the businesses' successful rebounds possible. His recent statements were also set up to paint himself as a friend, not enemy, of the auto industry in Michigan suggesting that his NYT comments were pro-reorganization, never pro-failure and liquidation. Portions of the 2008 Times piece are as follows:

"If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye...A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs...In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check."

Obama and Democratic loyalists returned Romney's volley by saying he is revising history, focusing on comments such as Romney's call to "Let Detroit go bankrupt." Obama and company also reiterated that the restructuring efforts would not have been nearly as successful without some financial assistance from the federal government, of which Chrysler paid back $5 billion late last month, and its plan to handle the bankruptcy. That's an assertion shared by Bruce Nathan, Esq., of Lowenstein Sandler PC.

"If that bankruptcy had dragged out for GM or Chrysler, it could have died; it was bankruptcy at its best," Nathan told NACM. "Both came out of it having fixed a lot of their problems. Give credit where credit is due to Obama as well as [President George W.] Bush. They actually started and implemented a strategy [respectively], and it worked. There's a big difference between that and second-guessing."

Brian Shappell, NACM staff writer

To view past eNews issues or to visit the NACM Archives, click here.



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