May 19, 2009
For credit managers, a consumer credit score isn't only about evaluating the score of potential sole-proprietorship and small business customers. They also have their own personal score to look after. Dan Ridenour, President/COO of NACM Great Lakes, will provide attendees at Credit Congress with a wealth of information on scoring myths and how they can repair and enhance their credit score during his session, "Consumer Credit Scoring is a Must Learn!"
"A perfect pay history will only provide a credit score of 297.50 points," explained Ridenour. "That means 552.50 points come from factors that have nothing to do with pay history. This is why I have come across hundreds of people with perfect credit but low credit scores."
He added, "Most people think that paying their bills on time is all they have to do. But that belief is a myth. Another myth is that my score is high because I pay off my credit cards in full each month. The truth is: the credit scoring system has no idea if you pay the balance in full or not—NONE. By not knowing the facts, many people accidentally lower their own credit scores."
During his presentation, Ridenour will cover why closing out old credit cards will almost always lower a person's credit score and that "90 days same as cash" and other zero interest programs have instant negative impacts. He'll also cover how a person's credit score can be impacted as much as 255 points by credit card balances alone as well as many other mysteries of the consumer credit system. Above all, Ridenour is adamant that learning how to manage a consumer credit score is a must for everyone.
Consumer credit scores can affect interest rates, insurance premiums and even the type of job an individual can obtain. Fortunately, notes Ridenour, there are ways that people can crank up their personal score and can do so in a very short period of time, often in less than 60 days.
"Since interest rates and insurance premiums are determined by the credit score, a person's monthly budget can be a disaster if their credit score is below 700," said Ridenour. "If you want to save money, increase your credit score."
For more Credit Congress information, and to register click here.
Matthew Carr, NACM staff writer
Credit Congress Addresses Economic Situation
When we developed the program for the 113th Annual Credit Congress & Expo, we knew that current economic conditions are drastically affecting each credit professional's daily responsibilities. We understand your need for support and relevant information to make decisions essential to your company's viability.
With this in mind, here are some of the key sessions for the conference:
• Practical Bankruptcy Knowledge for Survival in Today's Troubled Economic Climate
• Leadership in a Tough Economy—And Solving the Toughest Credit Problems
• Working Smarter, Not Harder
• Early Warning Signs of the Major Bankruptcies of 2008-2009
• Liens & Bonds: A Practical Approach in Tough Economic Times
• Advanced Credit Management and Contract Terms
Let the Credit Congress & Expo provide the timely information, vital contacts and service provider alternatives you need.
Amendments to the Fair and Accurate Credit Transactions Act of 2003 (FACTA) that went in effect in January 2008 outlined that organizations must implement a written program to detect, mitigate and respond to the surging risks of identity theft that are plaguing individuals and companies worldwide. In the United States alone, as many as nine million people have their identity stolen each year. The FACTA requirements are part of a multi-agency initiative to ensure that businesses of all sizes are protecting their customers' information from falling into the hands of thieves.
In response, the Federal Trade Commission (FTC) created the "Red Flags" Rule, for which the mandatory compliance date has been pushed back twice, most recently from May 1, 2009 to August 1, 2009. In this interim, to help clear some lingering wording confusion, the agency has released a template for companies that are considered a low risk for identity theft. Titled "Create Your Own Identity Theft Prevention Program: A Guided 4-Step Process," the FTC guide is designed to help develop the necessary written program by providing walk-through instructions. Congress will also be given a chance to review the wording of the "Red Flags" Rule to determine whether the language, originally authored to be flexible, is too broad and ambiguous.
For much of the last year, NACM has worked with the FTC to get the message out to businesses and trade creditors as to their responsibilities under the regulation, as well as what attributes determine whether or not a company is impacted by the rules. As it is written, the definition of "creditor" is extensive and includes businesses or organizations that regularly defer payment for goods or services and bill customers later. Also, "creditor," under the rule, is further defined as "one who regularly grants loans, arranges for loans or the extension of credit, or makes credit decisions," as well as "anyone who regularly participates in the decision to extend, renew, or continue credit, including setting the terms of credit—for example, a third-party debt collector who regularly renegotiates the terms of a debt." This means that any company that extends trade and business-to-business credit is subject to the regulation and must develop a written policy.
The FTC and NACM have held two joint teleconferences on the responsibilities of business creditors under the "Red Flags" Rule and NACM has published several articles in both eNews and Business Credit magazine, doing the same. The association has also provided its own teleconferences on the subject to keep members on the road to compliance for the May 1, 2009 deadline. With the new three-month delay, credit managers will have the chance to strengthen the written program they should already have in place by visiting the FTC's release on the issue, which can be found here, or by browsing the agency's template, located at
Create Your Own Identity Theft Prevention Program: A Guided 4-Step Process.
Matthew Carr, NACM staff writer
Making Credit Professionals Heard on Capitol Hill
Check out NACM's advocacy page to find out about the association's efforts to ensure today's lawmakers consider the needs of B2B credit professionals. Several issues have been proposed and discussed on the Hill and NACM's Government Affairs Committee is keeping a close eye on them and the potential ramifications any legislation might have on the extension of trade credit. Information on NACM's bankruptcy reform efforts , the FTC's "Red Flags" Rule and several other relevant issues can all be found here.
For more information, or to share your own experiences and concerns, email email@example.com.
In a recent letter to U.S. Treasury Secretary Timothy Geithner, several senators requested that the nation's latest changes to its telecommunications policy toward Cuba be used as an impetus to expand export opportunities for U.S. small businesses in the Caribbean nation. Specifically, the letter was signed by Senators Byron Dorgan (D-ND), Jeanne Shaheen (D-NH), Maria Cantwell (D-WA), Ron Wyden (D-OR) and Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu (D-LA).
"As the Administration negotiates with the Cuban government and comes up with new regulations, we would respectfully request your consideration to make U.S. small business interests a priority in these discussions," said the senators. "Small businesses are the engine of the American economy and now more than ever, deserve a level playing field for new opportunities in Cuba."
In April, President Barack Obama announced a number of changes to limits on travel and gifts from the U.S. to Cuba and authorized the creation of greater telecommunications links between the two countries, which have remained diplomatic and economic foes since the 1960s. In the past, when an administration loosened trade restrictions on the communist nation, U.S. exporters received a quick boost in profitable overseas opportunities. For example, the U.S. decision to ease restrictions on medical and agricultural products sales to Cuba resulted in $438 million in food and ag shipments from the U.S. in 2007 alone. The senators' letter aims to continue this tradition while also aiding American small businesses struggling in the recession. "The recently announced changes present additional business opportunities for U.S. companies and another avenue to improve the quality of life for the Cuban people," they said.
In the letter, the senators asked about five policies relating to small business participation in expanded telecommunications activities in Cuba, most notably whether U.S. Small Business Administration (SBA) and Export-Import (Ex-Im) Bank loans would be eligible for authorized small business activities with Cuba and whether the Obama Administration, as provided by the Regulatory Flexibility Act when a trade is likely to have a significant economic impact on a substantial number of small companies in an industry sector, will work with the SBA Office of Advocacy to seek streamlined rules and licensing requirements for U.S. small business activities to Cuba. The letter also asked about a forthcoming guide to help small businesses hoping to take advantage of the policy change's export opportunities, the role other U.S. agencies will have in this process and the administration's future dialogue with the Cuban government and how it will support further joint ventures between the two nations.
Jacob Barron, NACM staff writer
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Last week, the White House announced a revision to its deficit projections for the next several years. The Office of Management and Budget (OMB), after coming to terms with the collection of weaker receipts as well as outlays for financial stabilization efforts and other federal programs, believes the deficit will be around $90 billion higher this year, rising from the $1.75 trillion projected in February to $1.84 trillion. The OMB sees 2010 experiencing the same, with revisions from $1.17 trillion to $1.26 trillion. This raises the projections to 12.9% and 8.5% of gross domestic product (GDP) respectively, and many Democrats are using these new projections to reiterate how severe of an economic crisis President Barack Obama has inherited.
"It took eight years for the previous administration to dig this hole. It is going to take time to climb our way out," said Senate Budget Committee Chairman Kent Conrad (D-ND). "Congress has already adopted a budget resolution that begins to do just that. We cut the deficit in half by 2012 and by two-thirds by 2014, to 3% of GDP."
Conrad touts that the new, recently passed budget resolution preserves President Obama's original budget priorities—investments in education, healthcare, reducing dependence on foreign oil—while continuing to lay the foundation for long-term economic growth.
"It is clear that much more will be needed to address the nation's long-term budget imbalance," explained Conrad. "The budget plan Congress has adopted provides a good start, dramatically reducing the deficit over the next five years. It is responsible, it begins to pull us out of the mess we've inherited and it reflects the priorities of the American people."
On May 7th, the Congressional Budget Office (CBO) noted in its Monthly Budget Review that the federal government racked up a deficit of close to $800 billion in just the first seven months of FY 2009, which is $646 billion more than the deficit recorded through April 2008. Federal receipts for April were down almost $140 billion, or 35%, from April 2008, in part because first quarter tax payments by corporations declined $29 billion, or 69%. More than half the total decline was due to non-withheld receipts for individual income and payroll taxes, which fell $84 billion, or 36% from April 2008. During most years, April is a plumb month for the government because of the large inflows of tax payments, but the CBO is estimating that the Department of Treasury will report a deficit of $19 billion this year.
Unfortunately, with rising inflation, unemployment, the updated costs to undertake financial stabilization efforts like the Troubled Asset Relief Program (TARP) and increasing the funds for the Federal Deposit Insurance Company (FDIC) from $30 billion to $100 billion, the Treasury is now predicting that overall federal revenue will decline from projections issued in February by between $30-$50 billion for 2009 and 2010. Over the next decade, cumulative budget deficits will increase by $140 billion from what was originally projected earlier this year.
"Beyond the near-term deficits, the bigger picture is even more worrisome. The administration clearly plans to aggressively expand the size of government regardless of the cost," charged Senate Budget Committee Ranking Member Judd Gregg (R-NH). "We simply can't maintain this rate of spending and it's driving us, and our children, deeper into debt—we are on track to double and then triple the public debt over the next 10 years alone." He warned, "Like fast-growing weeds, these deficits and debt threaten to choke off the growth of a healthy economy."
The president has announced a number of reductions, including slashing $17 billion by eliminating more than 100 programs that the administration has deemed as not working or "excessive."
Matthew Carr, NACM staff writer
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A subcommittee in the House Financial Services Committee recently announced it would host a hearing to examine the need for more effective regulation of the nation's credit rating agencies. These efforts would work to increase transparency in the industry, improve accountability and seek to restore investor confidence in the U.S. financial market.
The hearing was called by Rep. Paul Kanjorski (D-PA), chairman of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. "Many experts believe the decisions of credit rating agencies exacerbated our current financial crisis. Too often, they issued inaccurate ratings by failing to adequately assess the creditworthiness of certain bonds and debt instruments," said Kanjorski. "In some cases, they misjudged the performance of an entire industry or an innovative financial product."
Indeed, as the financial crisis has unfolded and authorities continue to discuss the causes, credit rating agencies, and specifically their pricing structure, have made regular appearances on the list of those responsible. Conflicts of interest arose in the industry due to the widely-held practice of companies paying for the ratings themselves, leading to instances where the more a company paid, the higher rating they got, not to mention the fact that some credit rating agency employees were also associated with other companies seeking ratings. The Securities and Exchange Commission (SEC), in addition to authorities in the European Union (EU), has sought to more harshly regulate the credit rating industry and reduce conflicts of interest, but many believe more should be done.
"Not only were investors misled by the agencies' actions, innocent bystanders ultimately suffered as our markets plummeted," said Kanjorski. "At the hearing, I will inquire into what degree of oversight of the credit rating agencies is now needed to avoid a repeat of these past mistakes and to ensure that they issue fair and responsible ratings going forward."
Jacob Barron, NACM staff writer
The Credit Managers' Index Has Been on the Rebound
The Credit Managers' Index (CMI) for April posted the third consecutive month of improvement. However, the economy's not out of the woods yet. "There are no index values above 50 as of yet, so are all still in the contraction zone, but the trending is in the right direction," said Chris Kuehl, Ph.D., NACM economist.
With the ongoing economic problems that have wilted worldwide financial stability and put a stranglehold on liquidity, it's no surprise that more and more companies have started searching for new tools to achieve a more efficient cash management structure. A recent survey by Vengroff, Williams & Associates, Inc. (VWA) found that a large number of companies concerned with cash flow and tight liquidity are inspecting credit terms and corporate credit risk more closely, and are looking for a jump on their competitors with supplements to industry standards such as past due percentages and days sales outstanding (DSO).
"Using historical indicators alone, such as DSO and percentage past due to measure success is akin to driving while looking in the rear-view mirror," said Robert Sherman, president, VWA. "When cash is otherwise locked in due to disputes, it is time for companies to tighten credit practices and optimize cash inflow to ensure that DSO, DDO and Collection Effectiveness are not negatively affected."
According to the VWA survey, 90% of companies are constantly examining ways in which they can get cash flow under control, while 89% are looking for proactive ways to head off receivables disputes before they erupt into issues. The vast majority of companies polled agreed that effective dispute and deduction management could help them improve customer service, as well as free up time to conduct sales, order entry and cash collection. As in most companies, efficiency increases as a result of reduced operating costs, and as such, 72% of VWA's survey respondents said that their company reviews the balance of overdue receivables on a weekly basis.
Some interesting findings from the survey were that 68% of respondents had requested credit from a vendor or credit resource within the past 90 days, which was the same percentage that had tightened their respective corporate credit policy as a result of the current economic crisis. Also, 87% said that their company will not be facing financial issues due to lack of working capital within the next three to six months.
As is true throughout the credit industry, the VWA survey reiterated the changing nature of the corporate structure, with 76% indicating the single biggest challenge their company is facing is handling their current work load with limited resources.
Matthew Carr, NACM staff writer
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A quick poll conducted by the American Bankruptcy Institute (ABI) showed that a majority of respondents believe that Section 526(a)(4) of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which restricts attorney advice to debtors, is unconstitutional. Fifty-nine percent disagreed with the statement that "the restriction within the BAPCPA on attorney advice concerning a debtor's acquisition of pre-petition debt is not unconstitutional on its face," with 50% saying they "disagreed strongly" and 9% saying they "somewhat disagreed."
The issue regarding Section 526(a)(4) comes down to what constitutes a "debt relief agency," defined under the statute as "any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration." Under BAPCPA, a "debt relief agency" may not advise a client to incur more debt leading up to the filing of a bankruptcy case, or advise a client to pay an attorney or bankruptcy petition preparer for preparation services or representation in a case under Title 11 of the Bankruptcy Code during the same period.
In Hersh v. United States of America, a case in the U.S. Court of Appeals for the Fifth Circuit that came down in December 2008, the court broke with prior rulings from the U.S. Court of Appeals for the Eighth Circuit and several lower courts and established that Section 526(a)(4) passes constitutional scrutiny and that even attorneys could be considered "debt relief agencies," which, as the poll indicated, many attorneys believe is unjust.
A minority of respondents believed that the statute was constitutional, with 27% of participants agreeing strongly and 6% somewhat agreeing that the provision was correct according to the Fifth Circuit's ruling.
ABI's Quick Polls are available to the public and can be found at the organization's website (www.abiworld.org).
Jacob Barron, NACM staff writer
The Supreme Court recently announced it would hear a case brought by the Competitive Enterprise Institute and the Free Enterprise Fund challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB).
The Appointments Clause of the Constitution requires that "officers of the United States" be appointed by the president and confirmed by the Senate. But the officers serving on the PCAOB, with tremendous power to impose criminal and civil penalties on people and companies accused of violating accounting regulations, were not appointed that way.
"The Founding Fathers wanted powerful government officials to be vetted by the president and the Senate, to help ensure agencies remain accountable to elected officials and ultimately the American people," said Sam Kazman, CEI General Counsel. "The PCAOB imposes massive regulatory burdens on public companies, under threat of criminal and civil penalties, yet the regulators are unaccountable to the people, the president or the Senate."
"The PCAOB has been very bad for the economy," said Hans Bader, a CEI attorney. "The biggest beneficiaries of the law have been the big accounting firms that failed to warn the public about Enron and similar scandals, which are charging record fees to help businesses comply with the mountain of red tape created by the PCAOB."
The Sarbanes-Oxley Act of 2002 created the PCAOB, giving it authority to set accounting standards, impose its own set of taxes and open investigations of accounting firms big and small. Yet unlike counterparts wielding similar authority, such as the IRS commissioner and Federal Reserve governors, PCAOB members are never vetted by the president or by the Senate, as neither has a say in who will be appointed.
The PCAOB's interpretation of Sarbanes-Oxley's Section 404 has cost public companies more than $35 billion a year, has proved especially burdensome to smaller public companies and has cost the economy as a whole over a trillion dollars, according to a Brookings-AEI study. Bipartisan critics have observed that the PCAOB standards have burdened firms with minutiae while overlooking many of the practices that led to the subprime shenanigans.
"The decision by the Supreme Court to hear the case is good news for American investors and prospects for economic recovery, since a victory in this case will give the president an added incentive and ability to adopt policies that foster economic growth," said Bader.
CEI is acting as co-counsel in the case and Michael Carvin of Jones Day is the lead attorney.
Source: Competitive Enterprise Institute
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