July 19, 2012

News Briefs

  1. Settlement Will Allow Merchants to Pass Credit Card Interchange Fees on to Buyers
  2. Gloomy Bernanke Punts on Further Easing
  3. May Exports Hit Second-Highest Total Ever
  4. Whether Selling a Policy or the Benefits of Education, You Have to Sell It to the Higher Ups
  5. U.S. Wins Trade Dispute with China over Electronic Payment Services
  6. Tribune Bankruptcy Saga Essentially Over


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Settlement Will Allow Merchants to Pass Credit Card Interchange Fees on to Buyers

Merchants that accept credit cards for payment may soon be able to pass on interchange fees to their customers in the form of a surcharge.

Visa, Mastercard and a group of large U.S. financial institutions reached a memorandum of understanding (MOU) last Friday, resolving claims from a 2005 class action lawsuit brought by a group of U.S. retailers over the fees charged on merchants to accept credit cards. In addition to providing for a $6 billion payment to retailers, the MOU also imposes policy changes that will allow sellers to charge customers more for paying via credit card.

Though it has yet to be approved by the U.S. District Court for the Eastern District of New York where the case was filed, the MOU has been agreed to by all defendants and the court-appointed class counsel for the merchants, meaning court approval is a mere formality at this point.

Although much of the language surrounding the settlement focuses on consumer transactions, the definitions listed in the MOU state that a "credit card" includes, without limitation, "a plastic card...or any other current or future code, device, or service by which a person, business or other entity can pay for goods or services," which specifies the use of cards by businesses, in addition to consumers. The definition also applies to transactions involving cards "commonly known as credit cards, charge cards, commercial credit cards, corporate credit cards, fleet cards or purchasing cards."

Interchange fees have long been a thorn in the side of any merchant accepting payment via credit cards, whether they sell to consumers or other businesses. In essence, the fee is a percentage of the total value of a transaction that, at least until the settlement is expected to enter into force early next year, had to be borne solely by the merchant. The fees were especially hard on smaller companies, who lacked the technical expertise necessary to navigate through the notoriously complicated process by which these rates are established.

Under the terms of the settlement, however, these companies will be able to recover their interchange fees from their customers choosing to pay via credit card, with some notable limitations. For example, merchants using a surcharge to offset their cost of acceptance can only charge a fee equal to what they pay to accept credit cards. They must also disclose the surcharge to the buyer at the point of entry, point of sale and on the receipt.

The settlement does not apply to debit cards, and doesn't supersede a suite of no-surcharge laws in the ten states where surcharging is illegal: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.

A full copy of the MOU can be found here. Stay tuned to NACM's blog for further updates and analysis on how this ruling will affect commercial trade creditors.

- Jacob Barron, CICP, NACM staff writer

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Gloomy Bernanke Punts on Further Easing

Markets and businesses anticipated that Federal Reserve Chairman Ben Bernanke would illuminate near-term plans for stimulus at his appearance before Congress this week to present the semiannual Monetary Policy report. However, the chairman largely avoided endorsing or denouncing further stimulus actions, instead focusing on decelerating economic activity and the usual side-stepping of partisan-laced, election-year questioning on Capitol Hill.

Bernanke brought the bad news early, as he told members of the Senate Banking Committee of an economy that, while continuing to grow, has seen the pace of advancement shrink and signs that recent employment gains were on a precarious limb, so to speak—particularly in manufacturing.

"Manufacturing production has slowed in recent months. Similarly, the rise in real business spending on equipment and software appears to have decelerated...forward-looking indicators of investment demand suggest further weakness ahead." He added that economic stress in Europe, notably, was contributing to the trend and cutting into previously predicted exporting potential. Bernanke did, however, go to bat for the European Union in sharing that its "authorities have both strong incentives and sufficient resources to resolve the crisis."

And though he reiterated the target for the federal funds rate would remain at the historically low level (between 0% and ÂĽ%) for the foreseeable future and that the Federal Open Market Committee was "prepared" to take further actions if needed, Bernanke gave no indication which way the Fed was leaning on the matter.

The early aftermath of the speech was a bit of an "in the eye of the beholder" situation: Asian markets plummeted, European markets experienced a bit of a short-term surge and the United States noted a mild, positive bump.

- Brian Shappell, CBA, NACM staff writer

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 May Exports Hit Second-Highest Total Ever

Exports continue to be a reliable, optimistic figure for U.S. officials desperately seeking success stories.

The U.S. exported $183.1 billion worth of goods and services in May, according to data released by the U.S. Commerce Department. The all-time high is $184.4 billion, reached in March 2012, making May's the second-highest monthly total on record, "despite some tough economic conditions abroad," observed Acting U.S. Commerce Secretary Rebecca Blank. "We are on track toward exceeding last year's export total of $2.1 trillion, which supported 9.7 million jobs," she added.

May's figure continues an ever-lengthening streak of consistently high export numbers, offering predictability in an economy that's now become infamous for being unpredictable. "U.S. exports have exceeded $180 billion every month this year," said Fred Hochberg, chairman and president of the U.S. Export-Import Bank (Ex-Im). "Exports remain a true bright spot in our economic recovery and are instrumental in creating and sustaining American jobs."

Despite the relative economic malaise found in other sectors, exports have continued to grow on a year-over-year basis. Over the last 12 months, exports of goods and services have totaled $2.152 trillion, which is 36.3% above the level of exports in 2009. At an annualized rate, over the last year exports have been growing at 13.7%, again when compared to 2009.

Major export markets with the largest annualized increases in U.S. goods purchases were Panama (37.5%), Turkey (31.5%), Argentina (30.1%), Chile (29.1%), Hong Kong (29.0%), Honduras (27.8%), Peru (26.3%), Russia (26.2%), Brazil (23.5%) and Ecuador (22.7%).

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- Jacob Barron, CICP, NACM staff writer

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Whether Selling a Policy or the Benefits of Education, You Have to Sell It to the Higher Ups

NACM's 2012 Mentor of the Year Larry O'Brien, CCE, ICCE of Potash Corporation certainly turned a lot of heads this year at FCIB and NACM events, not the least of which was Credit Congress, with his talk of advancing the role of credit. A big part of that is working your way as a credit manager into the front-of-mind of upper management, especially the chief financial officer (CFO), with topics like education as well as general credit policy.

O'Brien noted the increased importance of having support and buy-in throughout the company on credit policies as well as arming the credit decision-makers with the proper tools to make strong decisions the first time. But simply saying that these are good things, especially if you (the credit manager) don't have the ear of the CFO or other top managers, isn't necessarily going to fly without a push.

"Basically, you have to sell the job sometimes and help him [the CFO] understand how important it is to have a credit staff that is well-trained," said O'Brien. "It's your job to bring things up to management. You're responsible for alerting management to what's happening, why it's important and giving a blueprint."

Granted, if you're not in the inner circle, you might need to start small. But key to establishing the importance of advancing the credit role is reliability and accuracy. In short: be sure to do your homework before walking into that corner office.

"Know everything about the topic; have the facts to back it up," he implored.

Once a credit manager has the ear of the top brass, being a little more direct with a message, especially the need for more or continuing education for credit department staff, becomes all the more effective. One gem O'Brien imparted was: "If you think education is expensive, try ignorance."

- Brian Shappell, CBA, NACM staff writer

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U.S. Wins Trade Dispute with China over Electronic Payment Services

The U.S. prevailed in one of its many World Trade Organization (WTO) disputes with China this week. Specifically, the global trade body found that China's policies toward foreign suppliers of electronic payment services (EPS) were discriminatory, as the U.S. had alleged in its original complaint.

China's trade policies have often been criticized for being borderline nationalistic, heavily favoring state or domestic suppliers while hamstringing their foreign equivalents. But as the country's role in the global market continues to expand, the pressure to create fair and open markets has increased, most notably from the U.S., which has used WTO disputes to challenge Chinese policies on everything from sales of rare earths, to American automobiles, and now, to electronic payment options.

"This decision will help U.S. companies and increase American jobs as a more efficient credit and debit payment system in China enables consumers to buy more goods, including quality, made-in-America products," said U.S. Trade Representative Ron Kirk. "The WTO panel agrees that China's pervasive and discriminatory measures deny a level playing field to American service providers, which are world leaders in this sector."

Each year well over $1 trillion worth of electronic payment card transactions are processed in China, nearly all of them through China's state-owned company, China Union Pay (CUP). The People's Bank of China, which regulates EPS in China, issued a series of measures dating back to 2001 that discriminate against foreign suppliers of EPS at every stage of a payment card transaction, imposing requirements on institutions in China that issue payment cards, on all point-of-sale terminal and payment card processing equipment in China, and on the institutions in China that have the relationship with the EPS supplier and handle payment card transactions for Chinese merchants.

"Open financial services markets are critical, and China should honor its WTO commitments and eliminate this discrimination," said Kirk.

- Jacob Barron, CICP, NACM staff writer

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Many sections within the chapters have also been reworked, including those covering cellphone-based collection efforts, FTC rulemaking in terms of decedent estates and data security/breach initiatives at the federal government level.

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Tribune Bankruptcy Saga Essentially Over

In a case that highlighted some of the problems with the bankruptcy system and the delays that infighting among stakeholders can cause, struggling newspaper publisher Tribune Company appears to have finally satisfied a Delaware-based bankruptcy judge with its Chapter 11 reorganization plan. Still, it did so after exhausting a significant amount of financial resources from an already inadequate pool available for its creditors.

U.S. District Court Judge for the Third Circuit Kevin Carey approved Tribune's plan to exit Chapter 11 almost four years after its filing and noted he will confirm the plan following a few minor changes. The plan will leave the company essentially under the control of three parties: Oaktree Capital Management, JPMorgan Chase and Angelo, Gordon & Co. The same judge had rejected three prior plans and noted in November that he wanted significant concessions for lower level creditors and bondholders who were left with little to nothing in the ownership's original plan and first follow-up. Granted, Carey dismissed some lingering complaints by creditors in last week's hearing.

Tribune became a dubious symbol of the massive problems facing publicly-held media and publishing organizations and was dealt a number of setbacks in its languishing Chapter 11 reorganization process. Tribune was particularly exposed during the process for what was described as a reckless, "good-old-boys' club" mentality in internal policies and in its botched leveraged buyout about four years ago.

- Brian Shappell, CBA, NACM staff writer


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