April 14, 2011
Federal Trade Commission (FTC) Attorney Tiffany George, in a recent discussion with representatives of NACM, offered the clearest guidance yet on the extent to which the "Red Flags" Rules apply to business-to-business (B2B) transactions involving trade creditors. The comments by Ms. George are Informal Staff Opinions. The discussion included NACM staff along with NACM lobbyist Jim Wise, and Bruce Nathan, Esq. and Wanda Borges, Esq., both of whom have lectured extensively on the "Red Flags" Rules and their application to trade creditors.
The entire meeting was geared toward gathering definitive answers for trade creditors still uncertain about how the "Red Flags" Rules apply to them. Ms. George addressed these concerns by noting that the process of determining whether or not a trade creditor has to comply with the Rules requires two steps: first, a trade creditor must determine whether or not it is a "creditor" and second, if it is a "creditor," it must then determine whether it has covered accounts that are subject to a reasonably foreseeable risk of identity theft.
Ms. George added that the Red Flag Program Clarification Act of 2010, signed into law at the end of the year, limits the applicability of the "Red Flags" Rules to a creditor, as defined in the Equal Credit Opportunity Act (ECOA), that regularly, and in the ordinary course of business:
|(i)||Obtains or uses consumer reports in connection with a credit transaction;
|(ii)||Furnishes information to consumer reporting agencies in connection with a credit transaction; or
|(iii)||Advances funds to or on behalf of a person based on that person's obligation to repay the funds or repayable from specific property pledged by or on behalf of that person.|
A trade creditor that does not fall into any one of these categories is not a "creditor" under the "Red Flags" Rules.
Ms. George was also very clear that should a trade creditor regularly obtain and rely on an individual credit report in making credit decisions, whether the report is on the principal of a small business or a personal guarantor or a non-corporate entity like a mom-and-pop store or sole proprietorship, then the trade creditor is subject to the "Red Flags" Rules, meaning that, if it has covered accounts based on an analysis of its risk level, it must create its own written program for fighting identity theft.
During the discussion, Ms. George further explained that the terms "advances funds" in the above third category for the definition of "creditor" refers to money, rather than goods or services, narrowing this remaining category of "creditor" only to entities making loans.
If a trade creditor does not meet the definition of "creditor" because, for example, it only deals with established corporate entities and does not rely on personal consumer credit reports or furnish information to consumer reporting agencies or make loans, then the Rules do not apply. A scenario pertaining to fraud was also described during the discussion, wherein a company was selling to a buyer company whose purchase order form was stolen. The buyer's identity had been stolen, a fraudulent order was submitted to the seller and the seller sold goods according to the false purchase order. According to Ms. George, the seller in this instance, who accepted a fraudulent order from a corporate buyer whose identity and purchase order form had been stolen, does not have to comply with the "Red Flags" Rules.
Ultimately, if a company sells on a purely B2B basis, and does not fall into any of the defined categories of creditor, then it does not have to comply with the "Red Flags" Rules.
If you have any lingering questions about the FTC's "Red Flags" Rules, please contact Jacob Barron at email@example.com.
Jacob Barron, NACM staff writer
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Reviews of the most recent economic growth conditions in the 12 Federal Reserve districts and the outlooks for them appear to continue to improve, slowly, but not without some significant shades of gray.
The Fed's latest Beige Book regional conditions roundup found only moderate improvement to the economy but it was an improvement characterized as "widespread across sectors." Perhaps the most enthused about overall recent growth and near-term prospects were contacts in the Kansas City district.
The Beige Book noted that manufacturing continued to lead the way for the rest of the economy with the steadiest improvement and showed long-absent evidence of increased hiring. Ten of the 12 districts (excluding mixed results in Boston and Richmond) demonstrated "robust" manufacturing sector activity, with New York performing exceptionally well. There was even talk of improvements in the long-battered commercial real estate sector, with more than half of the districts noting reasons for an optimistic view.
Granted, there were plenty of worrisome signs in the latest Beige Book roundup, which tracked a period from mid-to-late February through early April. Chief concerns among Fed contacts were the possibility of significant sales and production disruptions stemming from the Japan disasters, elevated commodity prices and the impact of a still dragging residential real estate sector on household wealth/consumer confidence.
For a full, region-by-region breakdown of the Fed's 12 Beige Book districts, visit our NACM Credit Real-time blog for a link.
Brian Shappell, NACM staff writer
Distressed Business Services
Many NACM Affiliates are involved in a national network to provide assistance in the rehabilitation (if possible) or liquidation (if necessary) of businesses in severe financial difficulty.
While courts can take several months or more to start a reorganization plan, NACM Affiliates can assist in getting a plan approved in as little as 30 days. Most helpful is the knowledge that experienced professionals are ready to step in at the most difficult time. NACM Affiliate staff members can serve as secretary to creditors' committees, provide other needed advisory services and are fully aware of the prevailing laws and regulations relevant to each situation.
Click here to learn more about NACM's Distressed Business Services.
Following a meeting of leaders at the White House on April 7, the long-delayed free trade agreement (FTA) between the United States and Colombia looks to be on the way to completion, much like the agreement worked out with South Korea before it.
President Barack Obama and Colombian President Juan Manuel Santos reached an agreement on labor improvements, such as the rights of those who unionize and labor workers' safety in once crime-plagued Colombia, long seen as a significant stumbling block to completing the FTA. Perhaps hurried along by China's attempts earlier this year to build trade inroads with the nation, it's now the second of three trade agreements started during the Bush Administration to be finalized. The framework of the Colombian FTA was forged in 2006.
"The United States has an enormous interest in the development of Latin America and an enormous interest in progress in Colombia," said Obama. "President Santos, I think, is at the forefront of a progressive and thoughtful agenda within Colombia. He's obviously initiating a whole range of reforms...This [FTA] represents a potential $1 billion of exports, and it could mean thousands of jobs for workers here in the United States. And so I believe that we can structure a trade agreement that is a win-win for both our countries, and I'm looking forward to working with President Santos to ensure that both countries benefit. And this will help me meet my goal of making sure the United States has doubled exports over the coming years and that we're as competitive as we can be in a global marketplace in the 21st century."
To view the White House-approved details of the now imminent FTA, see the fact sheets.
Brian Shappell, NACM staff writer
FCIB at Credit Congress
Don't miss the five-part International Track at NACM's 115th Credit Congress. Learn the essentials of Doing Business in Brazil, Canada, Chile, China and Venezuela. . Designed specially by FCIB for Credit Congress, these sessions will also explore the due diligence efforts required to conduct in-country business successfully.
Plus, don't miss networking with global practitioners from various industries at FCIB's International Luncheon on Monday, May 23.
The Obama administration, U.S. businesses and domestic analysts alike have been pining for a narrowing of the domestic trade gap. Although that just occurred in February, the news was overshadowed greatly by statistics indicating the first decline in exporting activity in six months and a worrisome price spike on both exports and imports.
Newly unveiled Commerce Department statistics indicate that the trade gap narrowed in February to $45.8 billion from $47 billion. However, both importing and exporting activity were down, by $3.6 billion and $2.4 billion, respectively. The drop in exporting activity, despite a doubling-down by the Obama administration to make trade more of a priority in recent months than in any previous stretch of this presidency, came as an unsettling surprise to analysts and economists. The knee-jerk response has been one of renewed uncertainty regarding the continued strength, or lack thereof, of what has already been considered a lackluster and disappointing economic recovery over recent months and years. Still, panic hasn't exactly set in, either.
Meanwhile, Bureau of Labor Statistics numbers on import and export price indexes, also announced Tuesday, show higher fuel prices causing a surge in the cost of various products and materials worldwide. Import prices increased by 2.7% between February and March. The index for the important fuel category alone jumped 9%, the largest advance since June 2009, the bureau noted.
Export prices also increased by 1.5% from February to March, similar to the previous month's uptick. Of particular interest is the continued rise in agricultural exports. Those increased another 2.3%, with spikes coming within the corn (9.2%) and cotton (10.5%) commodities. The bureau noted Ag prices have surged by 34% over the last year. Much of this is attributable to droughts and wildfire catastrophes in places such as Russia as well as supply damage caused by out-of-season freezes in some key growing areas. While the high prices are helpful for those producers who evaded crop damage and saw quality yields, the price surge certainly is a double-edged sword that could cut other businesses deeply.
Brian Shappell, NACM staff writer
MLBS Offers Complete Lien and Bond Services and More
NACM's Mechanic's Lien & Bond Services (MLBS) brings best-in-class service options to today's construction credit professional.
MLBS' Lien Navigator is a web-based service that provides up-to-date information for all 50 states and Canada, including notice, lien, payment bond and suit timelines, procedures and other relevant information in a state-by-state/province-by-province format.
MLBS also offers two preliminary notice to owner (NTO) services, deadline tracking, a lien and bond filing program, and a suit against bond and foreclosure service. Both NTO services include, at no additional charge, a Next Action Notification Email. These reminders are sent automatically to ensure that your lien and suit deadlines are met during each step of the lien process.
For more information on NACM's MLBS, click here.
Meet Greg Powelson, Director of MLBS in Nashville during NACM's 115th Credit Congress & Expo. Greg will be presenting "Mechanic's Liens & Bonds: Critical Elements for Every Construction Credit Manager."
Look out, suppliers and subcontractors.
A new ruling out of the U.S. District Court for Nevada allows a surety to expressly limit the duration of a payment bond issued under the Miller Act. This means that subcontractors and suppliers on federal construction projects can no longer assume that payment protection under a Miller Act payment bond will remain in effect throughout the duration of the project.
In U.S. ex rel Russel Sigler, Inc. v. Associated Mechanical, et al., the court held that Sigler, a supplier, had no legitimate claim on a bond because the bond had expired before Sigler's work on the project began. The bond clearly stated that it terminated at the end of the project or 12 months after its effective date, whichever came first.
"Previously, as long as you claimed within 90 days of last furnishing, you were protected," said Greg Powelson, director of NACM's Mechanic's Lien & Bond Services (MLBS). "Now, a bond can expire prior to a trade completing that trade."
This, said Powelson, makes it extremely important for subcontractors and suppliers to acquire the payment bond beforehand to see how far payment protection extends into the project. "It now has become critically important for credit managers to make sure that they're not only confirming that the Miller Act bond exists, but they also need to get a copy of that bond and they need to read that bond to see they have protection," he noted.
The parties most likely to be affected by the ruling are suppliers and subcontractors whose work is typically performed later in a project's lifespan. "It would primarily affect those who were later in the cycle," said Powelson. "Assuming that the project lasts longer than the duration expressed in the bond, their rights could be limited under the ruling."
In addition to the ramifications the ruling has for subcontractors and suppliers, the shift in payment protection rights could have a broader effect on credit extension, according to Powelson. "It increases risk and obviously if you're increasing risk, you're decreasing the likelihood that a manufacturer can provide a line of credit," he said, adding that the ruling currently only affects federal projects, but could eventually trickle down to states and municipalities. "The federal Miller Act has been a model for state bond claims statutes," said Powelson. "Does this mean that it could eventually affect state and municipal projects? It's going to make it very, very difficult for later trades to determine if they're covered under the bond."
Whether or not the ruling seeps into state construction laws will be seen in time, but until then suppliers and subcontractors, if they haven't already been doing so, need to start seeking and reading a copy of their bonds. "The folks toward the end now have some jeopardy and the only way they can determine if they have jeopardy is to get a copy of the bond and see if it has an expiration date," said Powelson. "It's a whole new ballgame."
For more information on NACM's MLBS, click here.
Jacob Barron, NACM staff writer
Why Join CFDD?
- 25 chapters operating throughout the United States
- Fostering educational opportunities, networking, professional certification and scholarships
- Designed to aid the beginning credit professional as well as those at the mid- and executive-levels
- Membership available to all credit professionals who are members of NACM or CRF; direct membership available in areas with no CFDD chapter
To learn more about CFDD, click here.
Meet fellow CFDD members during NACM's 115th Credit Congress & Expo in Nashville...and join us for a special CFDD Luncheon on Tuesday May 23....the perfect place to learn all about CFDD!
After months of speculation, denials, finger-pointing and debate, it has been confirmed that Portugal is ready to accept a financial bailout from the European Union (EU) and hard at work negotiating the final terms with the EU and the International Monetary Fund (IMF). It now is the third of the so-called "PIIGS" nations (Portugal, Italy, Ireland, Greece, Spain) to accept a bailout in less than one year amid crushing debt loads. Greece was the first, followed by Ireland.
The (EU) issued the following brief comment on the matter on April 7:
"The Portuguese Prime Minister, Jos√© S√≥crates, today informed the president of the European Commission, Jos√© Manuel Dur√£o Barroso, of the intention of Portugal to ask for the activation of the financial support mechanisms. The president of the European Commission assured that this request will be processed in the swiftest possible manner, according to the rules applicable. The president of the European Commission reaffirms on this occasion his confidence in Portugal's capacity to overcome the present difficulties, with the solidarity of its partners."
It has been speculated that such a bailout could reach upwards of $120 billion (USD) and almost certainly will come with forced austerity measures. Again, European economic stalwarts Germany and France are expected to do most of the heavy-lifting, so to speak, in footing the bill for the bailout, and will likely seek significant belt-tightening guarantees from the Portuguese.
Freddy Van den Spiegel, chief economist and director of public affairs for BNP Paribas Fortis, told NACM that Portugal's action was a necessary step but far from a panacea for deep problems in the Iberian nation or the rest of the EU.
"The bailout is not really a surprise; it demonstrates the political agreement to rescue the euro," said Van den Spiegel, a speaker at this weekend's FCIB I.C.E. Conference in Chicago. "In the short run, this is positive as it restores some confidence in the EU. However, the existing problems are not resolved, and this remains a challenging problem for the future."
Registration for the 2011 I.C.E. Conference will remain open through the weekend and onsite at Chicago's historic Drake Hotel. For more information or to register, click here.
Brian Shappell, NACM staff writer
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