December 9, 2010
President Barack Obama is expected to sign a bill that would amend the application of the Federal Trade Commission's (FTC's) "Red Flags" Rules. The bill, dubbed the Red Flags Clarification Act of 2010, passed the Senate unanimously last week and was quickly picked up and approved by the House earlier this week.
Specifically, the bill addresses the definition of the word "creditor," which confounded many businesses and industries concerned about whether or not they were included within the regulations' reach. In the bill, a creditor is more clearly established as any entity that, in the ordinary course of business, obtains or uses consumer reports in connection with a credit transaction; furnishes information to consumer reporting agencies in connection with a credit transaction; and advances funds "based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of that person."
The bill was designed to exempt law firms, accountants, doctors, nurse practitioners and other service providers from the "Red Flags" Rules, but also to render the regulations inapplicable to a broad swath of the nation's small businesses. However, the bill includes a provision that empowers agencies to create rules that makes the regulations apply to creditors operating in an industry within their jurisdiction that offer or maintain accounts that are subject to a reasonably foreseeable risk of identity theft, leaving the door open to future changes in applicability.
Both chambers of Congress cheered the legislation's swift passage, and applauded its narrow definition of "creditor."
"I commend my colleagues in the House of Representatives for wasting no time in passing the Thune-Begich legislation clarifying the â€˜Red Flags' Rules to protect our nation's small businesses from unnecessary and burdensome federal regulation," said Sen. John Thune (R-SD) after the bill was approved by the House. Thune introduced the original bill along with Sen. Mark Begich (D-AK). "Instead of worrying about being punished under the FTC rule that was set to take effect on January 1, small businesses can now breathe a sigh of relief."
"The bill targets the very heart of identity theft, the use of consumer credit reports instead of lumping all small businesses as having the same risk of identity theft," said Begich. "This bill was carefully crafted, and I am proud to work with my colleagues on this issue."
After passing a series of delays, the "Red Flags" Rules were set to be enforced by the FTC after December 31, 2010. They would require any creditor with accounts facing a "reasonably foreseeable risk" of identity theft to design and implement a written program that details how the creditor would detect, prevent and mitigate identity theft.
To learn more about how the new legislation affects creditors, be sure to tune into Bruce Nathan, Esq. and Wanda Borges, Esq.'s new NACM teleconference, "'Red Flags' Rule and Guidelines Simplified," scheduled for December 13 at 3:00pm EST. To register, click here.
Stay tuned to NACM's Credit Real-Time Blog for further updates and analysis.
Jacob Barron, NACM staff writer
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NACM's November Monthly Survey indicated that in addition to extending credit and collecting payments, most credit or accounts receivable departments are also charged with maintaining their company's master list of customers.
When asked "What department in your company is charged with maintaining and updating its master list of customers?," 64% of respondents answered that the customer list was their credit/collections or A/R department's responsibility. Approximately 13% said it was the customer service department's responsibility, while 7% said it was the sales department's job. Only 5% of participants put the customer list within their accounting department's wheelhouse, and the remaining 11% answered other. A negligible percentage noted that maintaining the customer list was their company's tax department's job.
Some creditors expressed displeasure that maintaining such a list was their department's job, noting that it took time away from other more profitable, and more appropriate, activities. "This takes a great amount of time out of the collection process," said one respondent. Others noted that their credit department serves only as a supervisor, ensuring accuracy in the master list that is more directly altered by other parties. "Although we have a designated person in customer service responsible for setting up customers in SAP and making changes, the credit department is still heavily involved in providing information on new customers and reviewing changes to ensure it is done correctly," said another respondent.
Several participants added that their company's enterprise resource planning (ERP) system, like SAP or Oracle, dictates how this process is conducted. "We have a master data group, changes are submitted to them electronically, approvals are electronic and then the changes are updated to SAP," said one respondent. Another, who noted that the customer service department maintains the customer list in their company, said this was the case because "that is the way Oracle has this set up."
Respondents who answered "other" indicated that maintenance of the customer master list either belonged to IT, marketing or an offsite services provider, or was ultimately shared among multiple departments. "There are too many parts to a customer record to say that only one department has responsibility," said one respondent. "We update credit, collections and A/R information. Customer Service handles orders, shipping, et cetera." Other participants echoed this comment, noting that "it is a combined effort by credit/sales/customer service/accounting," and that "both the credit department and our marketing department are responsible."
NACM's December survey asks about which you'd prefer in a bankruptcy reform bill: the maintenance of Section 503(b)(9) 20-day administrative priority claims, or new preference changes that put the burden of proof on the trustee instead of the creditor. Click here to participate today and be automatically entered in a drawing to win a FREE teleconference registration!
Jacob Barron, NAC M staff writer
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Days after word came down that a new tax information exchange agreement renders the finalization of a U.S.-Panama free trade agreement imminent, an accord has been reached in a long-delayed pact with South Korea.
Widespread reports surfaced Friday that the U.S.-South Korea free trade agreement (FTA) was completed, though pending ratification. Sticking points involving the auto industry, including plans to phase out the United States' 2.5% tariff on South Korean-produced vehicles within five years, appeared to have been ironed out. For years, the U.S. auto lobby and trade unions staunchly opposed the agreement, calling it imbalanced, while critics called the objections protectionist. But groups such as the powerful United Autoworkers got behind the agreement in recent days after South Korean officials agreed to allow U.S. auto exports into the Asian nation, which had halted them in the past, purportedly over the alleged higher pollution levels American vehicles emit. Meanwhile, the United States agreed to drop a tariff on South Korean exports being shipped here with the caveat that they could be quickly reestablished should U.S. companies suddenly find it difficult to get their auto products into the South Korean market.
President Barack Obama estimates the trade deal will increase exporting totals by $11 billion and "support" upwards of 76,000 jobs.
Economists and trade experts question just how large of an impact the deal will have outside of industries such as automotive production and agriculture, areas that South Korea has been very protective of in the past. Chmura Economics & Analytics Senior Economist Xiaobing Shuai told NACM the FTA "should help American businesses but, relatively speaking, South Korea is such a small market compared to China and Europe. So don't expect this to significantly boost growth here."
Business analysts had considered the president's November trip to Asia a litmus test of the administration's interest in trade and perhaps even the president's once-strong international influence. The agreement holdup was a major talking point in the run-up to the G20 meeting in Seoul, and helped ensure Obama's trip to Asia was largely seen as a disappointment.
Obama, for his part, said the Korean agreement was not something he wanted to rush into unless a deal was "mutually beneficial." Unfortunately for the president, who has been branded by some industry experts as anti-trade and anti-business, it did not help his image among U.S. businesses that his declarations that the FTA would be finished before the G20 were not realized. Whether or not the pending ratification of the deal, as well as one with Panama (detailed in last week's eNews), changes Obama's business image remains to be seen.
Brian Shappell, NACM staff writer
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Sen. Mary Landrieu (D-LA) is the latest high-ranking official to wade into the blame game over efforts to repeal the health care bill's 1099 mandate.
Tucked away in the massive bill is a provision, set to go into effect in 2012, that would require companies large and small to issue 1099 forms to all companies and individuals from whom they purchase more than $600 of goods or services annually. The provision is a widely unpopular revenue generating measure, especially during a time of economic struggle. However, neither the Republicans nor the Democrats can agree on how precisely to repeal it.
Most recently, a duo of votes on amendments that would've repealed the 1099 requirement, among other provisions, both failed to produce any consensus on the matter. Proposed by prominent Democrats Max Baucus (MT) and Chuck Schumer (NY), many Republicans voted the amendments down, with Baucus' amendment failing 53-36 and Schumer's amendment failing 53-37.
"Every day we hear from Republicans and Democrats about the importance of small businesses," said Landrieu in a press release after the votes. "Unfortunately, Republicans have decided to hold these same small businesses, the job creators in our weak economy, hostage. The Senate has voted three times to repeal a burdensome Form 1099 reporting requirement that small businesses are pleading for us to remove, and each time it has been blocked. The American people have made it clear that this kind of gridlock and lack of progress will not be tolerated. We have a responsibility to the people and small businesses back in our home states, and it is disappointing that we are forced to ignore their calls for help yet again."
Other provisions included, at least in Baucus' amendment, were a one-year extension of the 100% capital gains tax exclusion for investments in certain small businesses, a one-year extension of the deduction for health care costs for payroll tax purposes for the self-employed and an extension of the increased deduction for start-ups. Many of these tax cuts were originally enacted in the Small Business Jobs Act of 2010.
"Tax cuts for small businesses will allow entrepreneurs to create jobs and expand their businesses," she added. "With nearly two-thirds of this country's new jobs coming from small firms, I am committed to lowering the regulatory burdens that take up their time and resources and I am focused on cutting taxes to allow them to invest in their businesses and lead our economic recovery efforts."
Repeal efforts continue, although they may be delayed until early next year.
Jacob Barron, NACM staff writer
NACM's Credit Real-Time Blog More than Quick, Breaking News
As readers have hopefully come to learn, NACM's regularly updated blog, Credit Real-Time, is filled with breaking news pertinent to credit professionals at all levels. But did you know the blog often includes extended versions of our eNews stories? Take, for example, last week's Federal Reserve release of the Beige Book, a roundup of economic and industry conditions in each of the 12 regions in the United States. Every six to eight weeks, NACM writers break down every Fed region to provide NACM members only with summaries of information that are highly useful to them. Call it cliff notes for credit managers, if you will. But don't just take our word for it, check our Beige Book coverage out now by clicking here.
Last week was not a good one for Portugal. Not only did its combined bid with Spain to host the World Cup soccer tournament in 2018 over Russia flop resoundingly, but all eyes appear to be focused on the nation as the next to require some type of financial bailout from the European Union.
When Ireland announced it would cave to international pressure and accept a bailout from the EU and International Monetary Fund for about $90 billion, analysts' focus quickly turned toward Portugal. After official bailout acceptances this year from Greece and Ireland, Portugal is widely seen as the next European debt-saddled nation to stumble toward the need for a lifeline.
The outlook update from at least one ratings agency this week did not help matters. Standard & Poor's, which moved to cut the credit ratings of both Greece and Ireland months before their official requests for bailout loans, placed the republic "on CreditWatch with negative" implications:
"'The CreditWatch placement reflects our view of increased risks to the government's creditworthiness,' said Standard & Poor's credit analyst Frank Gill. â€˜These risks stem from uncertainty about the government's possible recourse to official funding and the consequences that obtaining such funding could have for the position of private-sector creditors vis-a-vis official creditors after 2013.' In 2011, Portugal's minority government is set to implement an ambitious fiscal austerity program with an emphasis on reducing expenditures. However, we see the government as having made little progress on any growth-enhancing reforms to offset the fiscal drag from these scheduled 2011 budgetary cuts. In particular, we believe that policies the government has pursued have done little to boost labor flexibility and productivity. As a consequence of the Portuguese economy's structural rigidities and the volatile external conditions, we project that the economy will contract by at least 2% in 2011 in real terms. The downward revision to our growth projection also reflects the fact that Portugal has not reduced its large external current account deficit during 2010."
Despite the deepening concern, Conference Board Economist Ken Goldstein suggested that there are far bigger fish to fry.
"Portugal, as well as Spain, Italy, Hungary and even France, may need to draw on capital from the ECB [European Central Bank], though I suspect that it won't amount to loans the size of Ireland or Greece. And they won't call it a bailout," Goldstein told NACM. "Portugal itself is a minor issue."
Those bigger issues include the potential need for a bailout of Spain, which would be significantly more troublesome given the size and importance of its economy, and when/where the proverbial bailout buck will stop. "That brings up the question, at what point do the Germans get fed up and walk away [from the EU]? I think the chance of that happening is perhaps less than one-in-four but, a year ago, it would have been unthinkable," said Goldstein.
Brian Shappell, NACM staff writer
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Managing credit hasn't been the easiest of tasks during the last year, or the last few years for that matter. So, as year-end looms, along with the hustle-and-bustle associated with the holiday season, perhaps professionals need to realize credit isn't the only thing they should be trying to manage more effectively at present. Says Ohio-based clinical counselor Susan Fee, they should be managing stress as well.
"Stress is personal," said Fee. "What one person finds overwhelming can be a non-issue for another. But one thing we know is true for all: stress is unavoidable. In fact, a certain level of stress is healthy and productive. Unhealthy levels of stress though can make us feel drained, irritable and physically sick." All of that often amounts to poor performance in the workplace.
Fee, a past Credit Congress speaker and author of "68 Coping Strategies for Surviving and Thriving During Adversity," will present "Stress Management," an NACM teleconference on December 15 at 3:00pm EST. The teleconference is designed to help professionals learn and apply practical skills for how to manage their stress personally and professionally, discover how to interrupt the stress cycle, understand the effects of chronic stress on brain functioning, establish reasonable relationship boundaries with difficult people and choose healthy coping strategies.
Fee has long been a believer that simple changes can be crucial and immensely beneficial. Failing to make changes in one's professional and/or personal approaches will often lead someone to the same, stagnant results, whether in the area of stress or otherwise.
"Is your life a scene straight out of Groundhog Day? Same stuff, different day? As writer Molly Ivins said, 'Rule number one about holes: when you're in one, stop digging,'" Fee noted on her website. "If you're stuck in a rut, you've developed deeply-entrenched patterns. If you want to make a change in your life, but just don't know how, it's time to shake it up. Learn how to break free of old habits, and make room for new passions."
Brian Shappell, NACM staff writer
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