April 10, 2014
A bill before the California State Assembly would impose new regulations on providers of commercial credit reports. Assembly Bill 2564, introduced earlier this year by Assemblyman Brian Nestande (R), was referred to the Committee on Banking and Finance last week and represents the most recent effort by a state legislature to extend consumer credit reporting regulations to their commercial credit counterparts.
AB 2564 closely resembles Virginia House Bill 2198, which Virginia's legislature considered over the course of 2013 before eventually abandoning it. Specifically, AB 2564 would:
- require a commercial credit reporting agency to furnish a source of information to the subject of a commercial credit report upon the request of a representative of a subject;
- require a printed copy of the report to be provided at no cost to the subject of a report;
- prohibit an agency, or a business affiliate of that agency, from assessing a fee upon the subject of a report in connection with ensuring the proper data is contained within the commercial credit report of the subject; and
- require an agency to endeavor to maintain the most accurate data possible regarding the subject of a report.
There are a few key details that separate AB 2564 from Virginia's HB 2198. Whereas the Virginia bill would have required commercial credit reporting agencies to only reveal sources of so-called "negative information," California's bill would seemingly require agencies to provide the subject of a report with a source for any piece of information at the subject companyâ€™s request. There are also uncertainties in the California bill about the definition of the phrase "furnish a source of information," and just how much detail commercial reporting agencies would be required to provide to a subject company in order to comply with their request for a source. Virginia's legislation, on the other hand, specifically referred to revealing the identity of a source of information, whereas the first line of AB 2564 allows commercial credit reporting agencies to "protect the identity of a source of information."
NACM worked successfully to defeat HB 2198 in Virginia last year, opposing the bill on the basis that requiring commercial credit reporting agencies to reveal the identity of their sources would have hindered the free and open exchange of credit information in that state, and will continue to oppose any legislation that threatens the availability of credit information on commercial customers.
For more information, contact NACM Government Affairs Liaison Jacob Barron, CICP at email@example.com
- Jacob Barron, CICP, NACM staff writer
Upcoming Credit Congress Session Highlights: Credit Applications in a Digital World
Speaker: Jeffrey Cohen, Esq., Cooley LLP
Electronic documents and communications have become ubiquitous in the business world, and credit departments are no exception. To be effective in the modern economy, credit managers should be facile with new laws and technologies that affect the way enforceable business and credit relationships are formed through electronic communications. This session will address key aspects of electronic credit applications as well as electronic signature technologies that can create binding digital contracts. The digital world is rapidly evolving. Learn how the law has adapted to embrace new technologies and how to optimize your credit department to take advantage of the benefits of the digital age.
Learn more and register for Credit Congress here.
This month's finalization of a fair trade agreement (FTA) between Australia and Japan that gives the Aussies many of the things its Asian trading partner has been reluctant to offer the US could deflate any sense of urgency for some of the biggest players involved in the Trans-Pacific Partnership (TPP), an Obama Administration priority.
Australia and Japan have been negotiating a bilateral pact since late last decade, but some experts saw the timing of its finalization as a thumb in the eye of American trade officials. Among other key areas, Japan drastically reduced tariffs on various Australian agricultural products, giving them greater access to its home market. NACM Economist Chris Kuehl, PhD is among those who noted that the US is now "furious with both nations" as a result. He believes the deal also suggests the TPP is much further from completion than it once was. "The progress on the TPP has been stalled for months over deep issues between the US and Japan," Kuehl said. "The US wants access to Japan's agricultural sector and Japan is steadfast in its determination to protect the 'five sacred farm sectors,' including beef and rice. Japan essentially wants to keep US farmers at bay."
As the TPP struggles to approach anything resembling a consensus among the dozen nations involved in negotiations, it could signal problems for FTAs that involve so many players going forward. "There is simply too much for these nations to agree on," Kuehl said. "The TPP is in deep trouble and so is the US agreement with Europe."
Such predictions, if true, would be unwelcome news for the Obama Administration, which favors big multilateral deals over bilateral ones and believes such efforts need the support of "a mass" of nations. Additionally, Kuehl has noted for months that the administration, currently, doesn't even seem to have strong support from the Democratic party for big FTAs in a mid-term election year.
- Brian Shappell, CBA, CICP, NACM staff writer
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Need information? How do you find your way between fact and fiction, hope and charity, and faith and foolishness?
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Industry credit groups open communication lines for the exchange of credit information. Credit executives receive invaluable factual credit information upon which to base independent decisions with respect to the extension of credit.
Managed and operated by NACM Affiliates nationwide, credit groups:
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Contact your local NACM Affiliate to learn more about NACM credit groups and to find the group for your industry.
The nation's banking regulators adopted a final rule this week to strengthen the leverage ratio standards for the largest, most systemically important US banking organizations.
The rule's approval on April 8 by the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) is the next step in the US' implementation of the Basel III accord, which generally has aimed to require large financial institutions to fund their business through more reliable sources of capital, rather than through accumulating debt. The leverage ratio in particular represents what percentage of a bank's total, rather than risk-weighted, assets it must keep in reserve in order to be considered financially stable by US regulators.
Under the final rule, the nation's eight largest banks will have to hold enough capital in reserve to cover at least 6% of their total assets. Covered bank holding companies (BHCs) with more than $700 billion in consolidated total assets or more than $10 trillion in assets under custody must maintain a buffer greater than 2% above the minimum ratio of 3%, meaning a total of more than 5% of their total assets in reserve.
The new rules will require JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street to collectively raise another $68 billion by January 1, 2018 in order to comply. The leverage ratio requirements are also stricter than Basel III's, meaning similar entities based in other countries won't have to hold as much capital in reserve. "This rule puts American financial institutions at a clear disadvantage against overseas competitors,â€ť said Tim Pawlenty, CEO of the Financial Services Roundtable. "It is disappointing this proposal wasnâ€™t further examined by economic experts and will likely result in tighter access to loans for businesses across the country."
Regulators, however, countered that the rule ensures the continued viability of these institutions as sources of lending, even in the instance of another financial crisis. "Stronger capitalâ€¦will increase the ability of these firms to continue to serve as a source of credit to the economy during periods of economic adversity," said FDIC Chairman Martin Gruenberg. "In short, this is a rule of significant consequence. In my view, this final rule may be the most significant step we have taken to reduce the systemic risk posed by these large, complex banking organizations."
- Jacob Barron, CICP, NACM staff writer
Now Surveying: North America and Oceania
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In September, Industries to Watch spotlighted increased government regulation and the booming natural gas/shale industry that faced US coal producers. This week saw the filing of the first significant Chapter 11 in the coal industry since then, and itâ€™s expected to be a recurring event in the future due to the newest trend in the energy industry.
James River Coal Company filed for bankruptcy on April 7 in the US Bankruptcy Court for the Eastern District of Virginia. James River plans to reorganize and begin operating in a vastly different manner as is needed in a new landscape, said Peter Socha, the company's chairman and chief executive officer. "Some of these changes are cyclical due to continued weakness in the real economy. Other changes are more permanent like changes in government environmental regulations, improved methods to produce natural gas and switching between coal basins by domestic power utilities," he said. "We need to adjust our balance sheet and debt structure to align ourselves to the new industry."
Socha hinted that James River is not the only company feeling the pinch. In March, the latest Federal Reserve Beige Book roundup noted coal production among the industries posting the most significant and notable activity declines, especially in the Eighth District based in St. Louis.
Apparently, the decrease in demand for coal from both the US and China because of the latter's slowdown in growth is having an effect throughout the world. China's coal prices have dropped to a six-year low, with some industry experts and even one of the nation's top producers saying that some small companies are already on the brink of insolvency. Meanwhile, New World Resources in the Czech Republic announced that it will slip into bankruptcy soon unless it can secure of loan of nearly $150 million (USD), as a huge drop in demand at the end of 2013 led to its worst quarterly loss ever.
Several experts have warned of the potential for deep financial problems in the US coal industry in the short term. Among them, Adam Rosen, director of PricewaterhouseCoopers LLP's financial restructuring group, called natural gas a permanent threat to coal producers and predicted it might not be until mid-2015 that higher demand from buyers in China and Australia, among others, could inspire some pricing improvements for companies.
- Brian Shappell, CBA, CICP, NACM staff writer
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A total of 9,048 commercial bankruptcies were filed in the first three months of 2014, representing a 22% decrease from the 11,611 filings during the same period in 2013.
On a monthly basis, however, filing rates in all categories in March experienced increases over February. The 3,319 total commercial filings last month increased 18% over the 2,821 filings in February 2014, but were still 20% fewer than the 4,127 commercial filings in the same period last year. Total bankruptcy filings recorded in March hit 91,234, representing a 26% increase over February's total of 72,207 filings, but an 11% decline from the 102,696 filings in March 2013.
The jump in filings for March echoed the slight decline in the filings for bankruptcies factor in the most recent Credit Managers' Index (CMI) report from NACM. The March reading saw that figure slip slightly from 58.5 to 58.4, signifying more bankruptcies, after taking a significant dive in February from 60.5 to 58.5.
Nonetheless, filings remain at historic lows and are expected to stay that way for the foreseeable future. "Bankruptcy filings continue to fall due to persistent low interest rates, sustained deleveraging by businesses and households and the high cost of filing," said Samuel Gerdano, executive director of the American Bankruptcy Institute (ABI), which publishes the monthly filing data with Epiq Systems, Inc. "Declining year-over-year bankruptcy totals will likely extend through 2014 as companies and families remain committed to cutting costs and shoring up their balance sheets."
On a nationwide per capita basis, the bankruptcy filing rate for the first quarter of 2014 increased to 2.98 total filings per 1,000 people from the 2.71 filing rate for the first two months of the year. States with the highest per capita filing rates for the first quarter were Tennessee (6.25), Georgia (5.30), Alabama (5.13), Illinois (4.84) and Utah (4.65).
- Jacob Barron, CICP, NACM staff writer
What Do These Jobs Have in Common?
Credit and Collections Manager - Domestic and International at Bridgewell Resources LLC in Tigard, OR
Corporate Credit Manager at WSM Industries in Wichita, KS
Credit Manager at Richmond International Forest Products in Richmond, VA
Credit Representative at Bauer Hockey Inc. in Exeter, NH
Credit/Collections Specialist at Barron's Educational Series Inc. in Hauppauge, NY
There are all listed right now, and many more, on NACM's Credit Career Center!
A state bill is expected to drop in Oklahoma this month that could set up a registration system for contractors and suppliers and call for drastic changes to the pre-lien notice statutes in the state, according to Paula Black, credit manager with Dolese Brothers Co., and James Vogt, Esq., managing partner at Reynolds, Ridings, Vogt & McCart PLLC.
Black, a member of NACM MidAmerica, said the coming proposal in its earliest form was an attempt to change lien laws to be more favorable to general contractors (GCs). At present, suppliers have 75 days from last delivery to file a lien, which GCs believe is a long time for them to be exposed. GCs also oppose Oklahoma's rare "double jeopardy" status, where sub-tier suppliers or subcontractors can put a lien on the owner or the GC if money paid to either doesn't make it downstream, said Black.
Now, a task force consisting mostly of GCs that consulted with Dolese Brothers about wording is releasing a legislative proposal that would create a registration system for all GCs, subcontractors and suppliers. It would be similar to an existing system in Utah. Black called the first version cumbersome and difficult for subcontractors and suppliers and said she hopes the proposed changes will make it into the version presented to the Oklahoma legislature. Vogt was critical of the potential changes to pre-lien notice statutes, noting "everyone was comfortable with what we had and set it up in their systems."
Meanwhile, a decision out of the United States District Court for the Western District of Arkansas serves as a reminder of the importance of officially binding contracts when dealing with GCs, subcontractors and owners. In Spencer Ondrisek and Seth Calagna v. Bernie Lazar Hoffman aka Tony Alamo (Ondrisek v. Hoffman), Judge Barry Bryant threw out the mechanic's liens of five people almost solely because they did not provide evidence of a formal contract with the defendant. "Without evidence of a contract, these individuals have no enforceable mechanic's lienâ€¦even if there was an 'understanding,' such an indefinite agreement would be unenforceable," his ruling stated. It reinforces just how important the basics of contracts and lien law are, no matter how simple, and how the basics are often overlooked or ignored.
- Brian Shappell, CBA, CICP, NACM staff writer
NACMâ€™s Secured Transaction Services customers can access more information on these stories and more in the News Makers section at www.nacmsts.com. Developments in and analyses of lien and bond laws for all 50 states can also be found on the website.
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