October 27, 2009
The House of Representatives recently passed a bill that exempts certain firms from the Federal Trade Commission's (FTC's) "Red Flags" Rules.
Passing unanimously in a 400-0 vote, H.R. 3763 amends the Fair Credit Reporting Act (FCRA) to exclude certain businesses from the "Red Flags" guidelines. Specifically, the legislation exempts any health care, accounting or legal practice with 20 or fewer employees from the meaning of creditor used in the FCRA and thus the "Red Flags" guidelines. Additionally, the act excludes any other business that the FTC determines "(1) knows all of its customers or clients individually; (2) only performs services in or around the residences of its customers; or (3) has not experienced incidents of identity theft, and identity theft is rare for businesses of that type."
The bill now awaits approval from the Senate and has been referred to the Senate Committee on Banking, Housing and Urban Affairs. It was originally introduced by Rep. John Adler (D-NJ) and was cosponsored by four other congressmen, Rep. Paul Broun (R-GA), Rep. Christopher Lee (R-NY), Rep. Ron Paul (R-TX) and Rep. Michael Simpson (R-ID).
"Today's vote was an important recognition that the Federal Trade Commission's interpretation of the 'Red Flags' Rules over-reaches and its application to lawyers is unnecessary," said Carolyn Lamm, president of the American Bar Association (ABA), which has lobbied heavily against the Rules' application to lawyers. "More work remains. Today's legislative solution is incomplete and would burden large segments of the public and the FTC with unwarranted bureaucratic procedures. We look forward to working with the Senate to fine-tune this legislation and further remove confusion and over-regulation."
NACM has repeatedly covered the "Red Flags" Rules and worked with the FTC on clarifying the Rules' application to business-to-business creditors. In addition to having hosted two separate joint teleconferences on the subject with FTC staff, several articles have been published in NACM's eNews and in the March and May 2009 issues of Business Credit magazine. NACM hosted another "Red Flags"-centric teleconference on Monday, October 26th, entitled "'Red Flags' Rules and Guidelines Simplified" and led by Bruce Nathan, Esq. and Wanda Borges, Esq.
NACM members who missed this "Red Flags" presentation can contact Tracey Flaesch at 410-740-5560 or firstname.lastname@example.org for an opportunity to listen to a taped version of the teleconference.
Jacob Barron, NACM staff writer
A Seller's "20-Day Goods" Administrative Priority Claim, Reclamation and Other Collection Remedies: The Silver Lining
With corporate bankruptcies continuing to plod upwards, business-to-business and commercial trade creditors need to be knowledgeable of the routes available to them to avoid losses in case of a customer's insolvency. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") had a profound impact on creditor's rights. One of the most significant has been the creation of the 20-day administrative priority claim. Bruce Nathan, Esq., partner, Bankruptcy, Financial Reorganization and Creditors' Rights Group at Lowenstein Sandler PC has continually proven his expertise on reclamation and all things BAPCPA. On October 28th, as part of NACM's Added Advantage teleconference series, members can hear Nathan discuss state law reclamation and stoppage of delivery rights of trade creditors and how a trade creditor's exercise of stoppage of delivery might result in expedited payment of claims. They can also discover how trade creditors have asserted this priority claim and have taken advantage of their expanded rights to significantly enhance their recoveries. Participants will also learn about the battle of reclamation rights versus the "prior inventory security interest defense," which continues to make reclamation a difficult remedy to enforce.
Members interested in gaining an advantage with these BAPCPA provisions can register here.
Corporate oversight has been a popular platform for congressional action. Economic boom times are hailed as golden ages, while financial crashes are booed as the result of too much greed. It is a balancing act between allowing commerce to flow efficiently for benefit of the country, while providing enough oversight to prevent criminal and deceitul acts.
During its brief existence, the Public Company Accounting Oversight Board (PCAOB) has been met with mixed emotions, especially since it was created as part of a broader, controversial piece of oversight legislation: the Sarbanes-Oxley Act of 2002 (SOX). SOX has done little to make friends, while PCAOB has been met with constitutional challenges that began in February 2006.
The Competitive Enterprise Institute (CEI) and the Free Enterprise Fund (FEF) are continuing to push their case against PCAOB, with the U.S. Supreme Court ready to hear it. Three former U.S. Attorneys General have also recently thrown their weight behind CEI's anti-PCAOB position.
CEI has argued that PCAOB's structure and the method used to appoint its members violates the Appointments Clause of the U.S. Constitution, circumventing the separation of powers. CEI's largest objection is that though PCAOB has vast oversight control, its members are not chosen by the president of the United States, but rather by the five members of the Securities and Exchange Commission (SEC). Under the Appointments Clause, the president is to have the power to appoint the nation's principal officers, and allows low-ranking officers to be picked only by the president, a court, or by a single head of a cabinet-level department. From CEI's perspective, the five commissioners from the SEC don't fall into any of these categories. And both the president and Congress lack the power to remove PCAOB members.
An amicus brief filed by Roberta Karmel, a former SEC commissioner and current professor at Brooklyn Law School, sided with CEI. Meanwhile, former Attorneys General Edwin Meese, Richard Thornburgh and William Barr, as part of the Washington Legal Foundation-submitted brief, said that "in creating the PCAOB, Congress ignored the Supreme Court's warning that extraordinary conditions do not create or enlarge constitutional power."
The trio also stated, "This Court must vindicate the Executive's removal power in this case in order to prevent PCAOB from continuing to wreak havoc on public companies, small businesses and shareholders—indeed, on the economy as a whole—because the PCAOB is unresponsive and unaccountable to the body politic."
"These briefs are especially important in that they coincide with recent academic research showing that Sarbanes-Oxley adversely affects business investment and research and development spending and a just-released SEC study showing that [SOX] compliance costs have not decreased for many of the smaller public companies," said John Berlau, CEI Director of the Center for Investors and Entrepreneurs. "[SOX] is a significant cost factor holding back job growth and a stronger economy."
Matthew Carr, NACM staff writer
Get Published. Get Cash.
There's less than one week left to submit a story to this year's Credit Words: Stories of Victory and Defeat contest. The deadline to submit is November 2.
"After getting a commitment from John Doe's finance director that they would overnight payment for their outstanding invoices in exchange for letting two more truckloads of products ship, I approved the new purchases. As one can guess, the overnight did not arrive. One truck had already delivered; the other was in transit and I had no way to stop the delivery. No one was taking my calls—not even the finance director who made the promise the day before. 'John Doe'd again!'" —Excerpt from one of last year's winning stories.
Every credit manager has a story to share, a tale brought out while networking with colleagues. It's that humorous anecdote about an on-site visit that is sure to get a laugh or that harrowing yarn of outwitting a company dodging payment. Share your experience with other credit professionals in Business Credit's Credit Words short story contest for a chance to earn Roadmap points and a cash prize.
President Barack Obama recently proposed an increase in the limit of loans to the nation's smaller businesses under the Small Business Administration's (SBA's) 7(a) program.
The 7(a) program, the SBA's most popular, currently has a loan maximum of $2 million, which Obama suggested should be raised to $5 million. Additionally, the president also proposed increasing the size of SBA's less prevalent 504 loan from $2 million to $5 million for standard borrowers, which would support total projects of $12.5 million, and from $4 million to $5.5 million for manufacturers, which would support total projects of $13.75 million.
The SBA's Microloan Program would also get a boost under the president's proposal, bumping the maximum from $35,000 to $50,000.
Obama's proposal was quickly picked up in the form of legislation, proposed by Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu (D-LA). "As Chair of the Senate Small Business Committee, I have held several hearings, roundtables and other events and have heard from lenders and small business owners that the current loan limits do not adequately meet their needs," said Landrieu. "That is why today I am introducing legislation to raise the limits on small business loans to as high as $5.5 million. Coupled with lower-cost capital available to community lenders, these higher loan limits will spur small business growth and aid in our nation's continued economic recovery."
The size of the increases proposed by the Obama administration were identical to those proposed in legislation earlier by Landrieu's Republican counterpart on the Senate Small Business Committee, Olympia Snowe (R-ME). "These actions will help satisfy the capital needs of small businesses looking to start or expand their operations," she said. "They were good ideas when I introduced them nearly a year ago, they were good ideas when I reintroduced them in August, and I am pleased that others, including the president, are on board with these critical initiatives."
Many other parties have advocated an increase in SBA loan limits, including representatives from groups of manufacturers in a recent Senate hearing on restoring credit to their sector. The SBA itself pledged its commitment to increasing its loan limits and also to separate proposals by Obama to encourage banks to increase lending to the small business sector. "The president also announced additional support from the Treasury Department for smaller community lenders that are committed to increasing their lending to small businesses," said SBA Administration Karen Mills. "[U.S. Treasury] Secretary [Timothy] Geithner and I will host a conference on small business lending with members of Congress, regulators, lenders and the small business community. The conference will discuss additional efforts that can be taken to provide small businesses with access to credit. These steps, coupled with SBA's ongoing efforts, will help small businesses grow and create jobs throughout America."
Jacob Barron, NACM staff writer
Doing Business With Minority Business Enterprises
In the current recession, private construction activity has fallen off. Meanwhile, federal stimulus money is increasing construction in the public sector. During the next few years, public procurement may be the only game in town.
Public projects often require or promote minority business participation, but these enterprises often lack the experience or financial strength of more traditional players. Contractors and suppliers must be creative and flexible to capture public work and increase minority participation while minimizing the chance of default and avoiding insolvency issues. To find out what kind of arrangements contractors and suppliers can make that will be recognized as legitimate minority participation, join construction law expert Jim Fullerton, Esq. on November 2nd at 3:00pm EST for his upcoming NACM-sponsored teleconference, "Doing Business with Minority Business Enterprises." Fullerton will give attendees the tools they need to make themselves viable for public projects while still providing the security manufacturers and suppliers need in order to supply materials at their best pricing.
To learn more, or to register, click here.
The U.S. economy continues to inch toward more solid ground. The stock market topped 10,000, retail sales are continuing to show gains and, though the unemployment rate is still increasing, the pace has slowed noticeably. It's a time to let some of the unease felt about the financial future of the nation to relax.
Even though there's plenty to be optimistic about, there is still a nagging gap in recovery between large U.S. businesses and their small- and medium-sized counterparts, as evidenced by payments trends.
When looking at the payment activities of approximately 260,000 small businesses, Cortera Inc., in its September 2009 Small Business Index (SBI), found that there is a widening disparity between the payment behaviors of large and small enterprises. According to the September SBI, small businesses are paying invoices 25% slower than a year ago and are paying at a rate 20% slower than the overall business average.
Prior to the recession, small and large businesses were paying at approximately the same rate. Now, the nation's small businesses have a 55% higher days-beyond-terms (DBT) rate caused mainly by larger companies stepping up their collection initiatives against smaller companies, while at the same time pulling back on paying their own invoices.
"While the economy is steadily improving, we are still seeing numbers that show small businesses are feeling the aftereffects of tough terms by their larger suppliers and a tight overall credit market," said Jim Swift, president and CEO, Cortera. "As a result, small businesses are suffering from reduced and much needed working capital—a credit crunch that impedes their ability to plan, grow and in some cases survive."
Cortera has also found that geography is playing a considerable role in how companies are paying. In its October Past Due by States report, the company found that for the ninth month in a row, Nevada is the worst in paying bills on time. According to Cortera, 25.55% of Nevada-based business accounts are past due, which is 50% higher than the national average of 16.99%. Utah is a relatively close second with 24.38% past due, followed by Minnesota with 24.02%.
Of the top ten states with the slowest payment of accounts receivable, seven were west of the Rocky Mountains.
The worst part of the country for past-due accounts is the American Southwest. Of the top ten states with the latest A/R, all six states of the southwestern region of the U.S. were listed, including being four of the top five worst states—Nevada, Utah, Colorado and Arizona.
"It's no coincidence that states hit particularly hard by the economy, like Nevada, show the most stress when it comes to paying bills in a timely manner," said Swift. "It is positive to note that the latest data shows a plateau in such delinquencies, suggesting that while some states may not yet be benefitting from a slow recovery, conditions don't appear to be worsening."
States with the lowest percentage of A/R debt past due were mainly on the East Coast. Alaska, with only 7.05% of corporate A/R beyond terms, was the top state in the country. Maine, with 7.25%, was a close second, while Kansas, with only 8.50%, rounded out the top three. The rest of the top ten states for the lowest percentage of accounts beyond terms were South Dakota, Wyoming, Montana, New Hampshire, Vermont, Louisiana and West Virginia.
Matthew Carr, NACM staff writer
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For nearly two decades, Chile was under the thumb of dictator Augusto Pinochet. In the decades since Pinochet stepped down, Chile has blossomed into one of the strongest and most stable economies in South America. In 2005, the country signed a multilateral free trade agreement with Brunei, New Zealand and Singapore, all of which went into force in May 2006.
The P4, or the Trans-Pacific Strategic Economic Partnership (TPP), looks to rid 90% of all tariffs among the countries and to wind all trade tariffs down to zero by 2015. It's an attractive agreement that has sparked the interest of the United States, Peru, Vietnam and Australia—with all four countries announcing that they have begun negotiations to join the bloc. The U.S. was scheduled to begin the first round of talks in March of this year, but those were postponed due to the delays in the appointment of U.S. Trade Representative Ron Kirk.
Chile and the United States already have a free trade agreement in place, which was passed in 2004, and has the same tariff reducing goals as the TPP. The U.S. is the number one importer into Chile and is the number two market for Chilean goods and already has a trade presence with Brunei, Singapore and New Zealand.
Though international markets have helped the United States from plunging deeper into an economic crisis than already experienced, as the recession and subsequent downturn took hold with the rest of the world, U.S. foreign trade suffered. During the first quarter of 2009, international trade contracted at an annual rate of 54%. During the same time, both domestic demand and consumption fell sharply. Plus, the agricultural economy in the United States, which was coming off a record-breaking year in 2008, suffered a hard landing this year, particularly with the dairy industry collapse.
Much of the United States' economic recovery is hinged on expanding foreign trade and U.S. business access to markets overseas. And both Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Chuck Grassley (R-IA) are pushing for President Barack Obama to shore up the TPP negotiations.
"As we recover from this Great Recession, the partnership has the potential to further open new and emerging Asia-Pacific markets to U.S. exporters," said Baucus. "It will allow us to build a high-level trade framework in this vital region."
Though they are often seen as barbed issues, trade agreements have considerable power to bolster trade, and that's what Baucus and Grassley want the U.S. to take advantage of. For example, since the United States signed a free trade agreement with Australia in 2005, trade between the two countries has increased 51%, hitting nearly $33 billion in 2008. U.S. exports represented $22.2 billion of that total and were up 16% in 2008 from 2007, and are up 56% since the trade agreement inception.
"[The TPP] agreement would open new markets for American exporters in an important part of the world," said Grassley. "That's more important than ever as we try to get out of the recession. Trade needs to be part of the economic recovery effort, and finalizing the agreement would send a message to the world that U.S. trade policy is back in business."
Matthew Carr, NACM staff writer
Look for the "A" Players
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C4F: Employment Connections for the Business Credit Community
A recent report from the U.S. Government Accountability Office (GAO) urged Congress to update the nation's ruling collection law to account for changes in both the industry and the technology available to third-party debt collectors.
Of greatest concern to the GAO were the problems caused by the dearth of information collectors often have about targeted credit card accounts. "State and federal enforcement actions, anecdotal evidence and the volume of consumer complaints to federal agencies—about such things as excessive telephone calls or the addition of unauthorized fees—suggest that problems exist with some processes and practices involved in the collection of credit card debt, although the prevalence of such problems is not known," said the report. "One issue is that collection agencies and debt buyers often may not have adequate information about their accounts—sometimes leading the collector to try to collect from the wrong consumer or for the wrong amount—or may not have access to billing statements or other documentation needed to verify the debt." The report goes on to note that as the prevalence of debt-buying increases, accounts for collection can often be sold and resold, making verification even more difficult as the debt moves further and further away from the original parties.
The FDCPA, enacted in 1977, also lacks provisions that pertain to several technologies now ubiquitous in America's business world. Email, voicemail and mobile telephones were all non-existent at the time, and some of the Act's precepts reflect this; the GAO report notes that, in some instances, a debt collector may technically be in violation of the FDCPA if someone other than the debtor overhears a voicemail message revealing the debt collection effort. Other technologies that may have FDCPA ramifications for collectors are caller ID machines and predictive dialers, which can violate the Act's provisions prohibiting harassment by an overabundance of calls.
The GAO's recommendation was for Congress to update the legislation to account for both the absence of information and the new technologies now used by debt collectors. Additionally, and perhaps more practically, the GAO suggested giving the Federal Trade Commission (FTC) rulemaking powers. When the legislation was first passed, it withheld this authority from the agency, which has limited its ability to address concerns such as the ones listed in the GAO report.
A full copy can be found by clicking here.
Jacob Barron, NACM staff writer
MLBS Lien Navigator
Lien laws are continuing to evolve and change. Both Pennsylvania and Arkansas introduced changes to their statutes in recent months. Texas recently adopted considerable changes that affect minor lien notice errors or omissions and their relationship to the Fraudulent Lien Act. Colorado has passed legislation that affects two sections of the Colorado Revised Statutes and ultimately all lien waivers entered in the state as of July 1, 2009.
For construction credit professionals, tools like NACM's MLBS Lien Navigator—a credit professional's guide to notice, lien, payment bond and suit time requirements—gain prominence in this changing environment. MLBS Lien Navigator is already the leading source of information on when action needs to be taken to protect lien rights across the 50 states and D.C. and is updated as new regulations are passed and affect lien rights.
Members who are interested in learning more about the benefits of NACM's MLBS Lien Navigator and who would like to try a free demo should click here.
U.S. containerized imports were down 19.3% in second quarter 2009 compared with the same period last year, a slight deceleration from the previous quarter's decline of 20.8%, according to PIERS Trade Horizons.
U.S. containerized exports declined 14.1% in the second quarter compared with second-quarter 2008. While still a decline, the downward momentum is slowing: the previous quarter's drop was 21.9%. Second-quarter export volumes exceeded earlier forecasts by more than 300,000 TEUs (twenty-foot equivalent units, the standard measure in containers). According to PIERS Trade Horizons, most of the increase is due to improving economic conditions in Asia, where trade volumes from the U.S. were down just 5.5%—a nearly 15 percentage point improvement over the first quarter's dismal 20.2% drop.
Strengthening exports to Asia are a sure sign that U.S. trading partners are building inventories of industrial inputs to ramp up manufacturing in the second half of the year, says PIERS Trade Horizons. This interpretation is supported by gains in key export commodities.
Ranked third by volume among U.S. exports, cotton and fabrics exports inched up by 0.5% as global apparel producers took advantage of the cheap dollar to rebuild inventories. In addition, industrial resins posted a 10.9% increase. Miscellaneous plastic products, often used in packaging materials, were up 16.3%.
As for U.S. imports, top-ranked furniture continued to tumble in the second quarter, down 19.8% from a year ago. Toys were down 18.6%, reflecting retailers' pessimism about the holiday season.
Of the top 25 import commodities, only four showed positive growth: bananas rose 3.1%; miscellaneous fruits, 4.5%; medical equipment and supplies, 0.8%; and wines, 7.5%—this last a reflection of consumers' shifting to lower cost producers such as Chile and Australia (while shipments from Italy, southern France and Spain fell).
Based on the trade data and current economic trends, PIERS Trade Horizons projects a 17.1% drop in containerized imports for the year as a whole. Positive growth is expected to resume in 2010, reaching 12.7%, and a further 8.7% expansion in 2011 is anticipated. U.S. exports will have dropped 11.8% when the numbers are tallied at year's end, PIERS Trade Horizons forecasts, while exports will grow 6.0% in 2010 and 5.2% in 2011.
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