June 1, 2010
Citing Congressional requests and pending legislative changes, the Federal Trade Commission (FTC) again delayed the enforcement date for their "Red Flags" Rules. Originally, enforcement was to begin today, June 1, but has been delayed through December 31, 2010.
In the FTC's release on the subject, Commission Chief Jon Leibowitz urged Congress to act quickly in passing legislation that limits the scope of the Rules, which were designed to require "creditors" and "financial institutions" to address the risk of identity theft. "Congress needs to fix the unintended consequences of the legislation establishing the 'Red Flags' Rulesâ€”and to fix this problem quickly. We appreciate the efforts of Congressmen Barney Frank and John Adler for getting a clarifying measure passed in the House, and hope action in the Senate will be swift," said Leibowitz. "As an agency we're charged with enforcing the law, and endless extensions delay enforcement."
Frank and Adler originally proposed an exclusion for certain businesses in a bill submitted in the House last May. More recently, a bill proposed in the Senate last week by John Thune (R-SD) and Mark Begich (D-AL) would accomplish the same goals as Frank and Adler's bill. Under the Senate version, health care practices with 20 or fewer employees, accounting practices with 20 or fewer employees and legal practices with 20 or fewer employees would all be exempt from the Rules. The FTC would also grant exemptions to any other business that applies for it, provided the FTC determines that the business knows all of its customers or clients individually, only performs services in or around the residences of its customers, or has not experienced incidents of identity theft and operates a business for which identity theft is rare.
In its statement, the FTC warned that the enforcement date could be moved up, should legislation be passed with a new, earlier date. "If Congress passes legislation limiting the scope of the 'Red Flags' Rules with an effective date earlier than December 31, 2010, the Commission will begin enforcement as of that effective date," said the statement.
In the interim, the FTC has provided guidance, both through materials posted here, and in speeches and participation in seminars, conferences and other training events to numerous groups. The FTC also published a compliance guide for business, and created a template that enables low-risk entities to create an identity theft program with an easy-to-use online form. NACM has also continued to cover the "Red Flags" Rules, and the ways it might affect business creditors, in Business Credit magazine, NACM's eNews Weekly Update, and on its blog.
Jacob Barron, NACM staff writer
Credit Congress '10 Special Section Now Up on the NACM Blog
Miss out on an interesting session at NACM's 2010 Credit Congress in Las Vegas? How could you not have with the various programs, exhibitors, networking opportunities and social distractions of Sin City? Whether you missed one interesting session, several or couldn't make it to Credit Congress at all this year, don't fretâ€”NACM has you covered. Coverage of Credit Congress will be included in the July/August issue of Business Credit magazine. NACM members can also access a wealth of stories from the event right now through the NACM blog, where there is a new special section devoted entirely to Credit Congress coverage.
With Italy now joining Greece and Spain in unveiling new austerity plans to curb debt, belt tighteningâ€”or at least promises to do soâ€”appears to be en vogue among the historically loose spenders of southern Europe. Still, U.S. businesses and credit markets are unlikely to see much of a significant impact as a result anytime soon.
The Italian parliament approved on May 26 a two-year austerity package worth nearly $30 million (USD) to help combat its long-growing budget deficit that, like shortfalls in other "PIIGS" nations Greece and Spain, have frightened investors, creditors and ratings agencies alike in the United States and throughout the world. The Italian plan, already drawing protest from its entitled public sector employees and unions, includes a three-year freeze on public sector wages, cuts for top level ministers and parliamentarians of up to 10% of annual salaries, delays in retirement age eligibility starting in 2011 and abolition of small provincial governments and publicly funded think-tanks.
Spain's plan to reduce its own massive budget deficit was unveiled previously but did not pass its parliament until one day after its Italian counterparts did so. Spain's package, worth $18.4 million (USD), calls for cuts to some public sector jobs, a widespread freeze on public salaries and pensions and an end to various social programs, such as one called "baby checks" that gives a $2,500 payment (euro) to all new mothers. Ratings agencies and markets appear less encouraged by Spain's efforts given that their struggles exceed those of Italy. Granted, they're not quite as skeptical as criticism of the plan announced weeks ago by the Greek government.
Even though the recently struggling euro did rally a bit immediately following the Italian announcement, experts also appear suspicious of Italy's true belt-tightening intentions.
"I think the plan is just to forestall the international speculators," said Chmura Economics & Analytics Senior Economist Xiaobing Shuai. "[Despite a massive budget deficit], their situation was not as severe as Greece or Spain. I think they do not want to become a target."
Shuai as well as Zach Witton, an economist with Moody's Analytics, agree the austerity plan could help in boosting confidence in some semblance of European Union stability. However, that impact will only affect the U.S. economy and credit availability in indirect ways, such as keeping the euro from losing further value.
"The three-year civil service nominal wage freeze along with the across-the-board 10% cut in government departments have the potential to put downward pressure on importsâ€”however, the U.S. is not among the top five sources of merchandise imports to Italy," said Witton. Additionally, the top U.S. exported products, related to the pharmaceutical and aircraft industries, are unlikely to be connected to spending from public sector employees.
Witton added that credit flows coming from Italy are just as likely to be affected by what's occurring elsewhere than by the new austerity plan. "Italian banks will not start to ease credit conditions until investor concern about the Greek debt crisis spreading to other countries in the region subsides and Italy's economic recovery gains momentum," he noted.
Brian Shappell, NACM staff writer
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The Government Withholding Relief Commission (GWRC) recently sent a letter to President Barack Obama urging him to overturn a 3% withholding tax set to go into effect in 2012.
Enacted in 2005 as part of the Tax Increase Prevention and Reconciliation Act, the tax would require all federal, state and local governments to withhold 3% of nearly all of their contract payments, Medicare payments, farm payments and certain grants. The money generated from this tax would be used to pay down the tax gap, which is the $345 billion difference between taxes legally owed and taxes collected each year.
The National Association of Credit Management (NACM), included in the list of organizations that signed onto the GWRC's letter, has opposed the 3% withholding tax since its enactment. However, while NACM and the rest of the GWRC have lobbied for a full repeal of the tax, Congress has instead delayed its application, most recently in February 2009 when a provision of the American Recovery and Reinvestment Act (ARRA) delayed the tax until January 1, 2012.
In its letter, the GWRC referred to two other initiatives currently under consideration in Congress that would address tax compliance and the tax gap in a far more effective way than the burdensome 3% withholding tax. "These measures and proposals directly address the legitimate concerns about tax-delinquent government contractors and other entities receiving federal payments. They are a much better approach than the costly, broad-brush mandate of the 3% withholding law," said the letter.
"While the withholding requirement is not scheduled to go into effect until January 1, 2012, it is already proving costly, and such costs will increase exponentially as the implementation deadline moves closer," they added. "Businessesâ€”the vast majority of which do not have tax delinquenciesâ€”and governmental entities are expending resources now in preparation for implementation due to major system and process changes needed for withholding, reporting and reconciling the millions of affected payments annually. These have to be made well in advance of 2012."
Jacob Barron, NACM staff writer
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CFDD exists, in part, to dynamically impact NACM's global vision by being the leader in educational programming and direction, thereby setting industry standards for professional excellence. To learn more about CFDD, click here.
Green building in the commercial real estate sector now has one giant advertisement located in the heart of New York City, and a second will be following closely behind. Both could be foreshadowing a sea change toward a trend of greater sustainability in domestic development.
The 50-plus story, two-year-old Bank of America Tower, or One Bryant Park, this month became the tallest building to earn a LEED Platinum rating from the United States Green Building Council (USGBC). The tower, which includes features such as aÂ natural light maximizing design, rainwater recycling and high-sustainability air filtration, is the first and only commercial high-rise-style building in the nation to earn the LEED platinum distinction, says USGBC. Not to be outdone, the iconic Empire State Building in Manhattan is entering the late stages of a massive sustainability-driven retrofit project aimed at earning a gold level LEED certification through USGBC. The half-billion-dollar effort includes a plan to cluster building tenants as part of its goal to reduce energy consumption by 38%.
Greg Powelson, director of NACM's Mechanic's Lien & Bond Services (MLBS) division, noted, "To see larger projects going through these retrofits and taking advantage of dollars available from the federal government for green construction is a clear indicator this is going to continue for both larger and smaller construction."
The emergence of green building in commercial real estate has, however, sparked some debate as to whether the use of new technologies and methods could lead to construction defects and/or unfamiliarity that will lead to the underperformance of so-called green buildings. Such a debate is explored at length in the June issue of Business Credit magazine ("Green Pastures: Commercial Real Estate's Growing Crush on Sustainable Construction a Risk/Reward Proposition," pages 36-38).
In the article, Steven Charney, Esq., a partner with Peckar & Abramson PC, said the unfamiliarity with green development represents a tangible risk for those who gravitate toward it. "In many respects, green is driving us to design and build yet again with new systems, new materials and new approaches," he argued. "As a result, the potential for us to trigger another wave of defect [legal] claims is very real."
Other magazine sources, as well as Powelson, argue there is risk with any new technology, green or not, and that risk isn't at all new to commercial developers. The key, oftentimes, comes down to doing one's homework and hiring well. "It's always come down to hiring solid trades and people who know what they're doing," said Powelson. "I think owners of pieces of property have to rely on the engineers and architects to get stuff right, whether you're talking about green or even just making sure a building is safe and sound."
For more on the growth and risk of commercial green building, check out the latest Business Credit magazine issue in print or online at www.nacm.org. For more on our MLBS offerings, email Powelson at email@example.com.
Brian Shappell, NACM staff writer
MLBS Offers Complete Lien and Bond Services and More
NACM's Mechanic's Lien and 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.
In their "Hot and Emerging Legal Issues" session at last month's NACM Credit Congress, Bruce Nathan, Esq., of Lowenstein Sandler PC, and Wanda Borges, Esq., of Borges & Associates LLC, noted that, as one would expect, bankruptcy filings tend to be directly proportional to preference claims.
"If bankruptcies go down, preferences go down," said Nathan, "but they went up in 2008."
Indeed, bankruptcy filings began to increase rapidly in 2008 as the recession tightened its grip on the entire economy. The statute of limitations in the Bankruptcy Code is two years, meaning preference claims can be brought for up to two years following the filing of a petition. "2008 plus two equals 2010," Nathan noted, warning creditors that 2010 could be a long year when it comes to preference claims. "Wanda and I have seen an explosion in preferences," he added.
In preparation for the coming wave of preferences, Nathan will deliver a 90-minute, Added Advantage NACM teleconference on how creditors can defend themselves from these damaging claims. "The Preference Onslaught," set for June 9 at 3:00pm EST, will focus on the elements of and defenses to preference claims and discuss the checklist that credit professionals should follow to eliminate, or at least reduce, their exposure on these claims.
The presentation will also include a discussion of the following hot preference issues:
- Whether the new value defense to preference claims includes paid for new value;
- Whether the new value defense includes Section 503(b)(9) "20-day goods" priority invoices;
- Whether applied credits received within the 90-day period before bankruptcy are preferences;
- Whether preference claims are a defense to Section 503(b)(9) priority claims and other administrative priority claims;
- The impact of a recent 4th Circuit U.S. Court of Appeals decision that subjects construction suppliers with bond and mechanic's lien rights to preference exposure; and
- The assertion of preference claims in state assignment for the benefit of creditors and other proceedings.
Nathan will also discuss the ordinary course of business and other preference defenses and will encourage the audience to ask questions and share their own preference experiences.
To learn more, or to register, click here.
Jacob Barron, NACM staff writer
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Part of NACM's ever-evolving Credit Congress this year in Las Vegas included what was perhaps the biggest hit of 2010's Credit Congressâ€”the new forum-style Executive Exchange Sessions.
The Executive Exchange Sessions gave attendees a chance to attend a three-hour session on one of six topicsâ€”bankruptcy, building and construction, credit and collections, international issues, performance metrics and agriculture/steel/commoditiesâ€”during the second day of the happenings at this year's host venue, the Rio Hotel. The sessions drew large crowds and, by all accounts, the highly interactive format of each left attendees feeling more engaged with panelists than ever.
One of the top draws was the Executive Exchange session on credit and collections, moderated by former NACM Chairman Mark Tuniewicz, CCE. The session was comprised almost entirely of answering direct questions from the audience. Not surprisingly, the question "What is the next big thing in credit and collections?" was among the highlights.
Scott Tillesen, CCE, director of credit for the Florida-based Tech Data Corp, said the future of the industry is all about increased productivity and automation. He said businesses need to find ways to reduce the number of traditional, paper-based files they're hanging on to and implement systems that allow important data to be continually piped in, instead of being researched when needed. Tillesen noted, "Data is cheap once you have a system in place."
"It all goes hand in hand," said Tillesen. "Automation in a way gets rid of the paper and looks for data flow that isn't human intensive. You don't want to spend one minute looking for information that could come to you automatically."
Tuniewicz commented that having an adaptive, flexible policy could and should be big in credit and collections moving forward. He said there are many benefits to being able to segment one's customer base into categories such as who is profitable and who isn't as well as who is trending up and who is trending down. Such policies can greatly help anticipate when a customer might be about to fall on hard times.
The following is just a small sample of other topics covered during the session:
Question from attendee: "I have $150 million in A/R with no credit checks on file. Where would you start to implement a credit investigation?"
Answer: Said Stanford Cramer, corporate VP of IAB Solutions LLC, "[Conduct] an ABC analysis and segment it into larger balances and work your way down. And you may want to hire some more staff, too." Said Tilleson, "If you have that much, go out and buy some data quickly. For three or four bucks a piece, you can score the whole portfolio and find out where the largest risks are."
Q: An attendee asks about the trend of outsourcing in credit and collection.
A: Said Tuniewicz, "In fairness, I'm aware of a lot of firms that outsourced their A/R and brought them back. What we do is personal. What we do is different. What we do is about touch."
Q: What are the best practices for processing credit cards?
A: Said Tuniewicz, "Find a processing firm that works for you. My advice, stay away from the huge ones...you're likely to be a speck. Find one with an office near you. They have incentive. They will walk you through the steps."
Q: An attendee asks about ways to spot fraud before it's too late.
A: Tilleson talks about having a good frontline defense, which starts with having the sales department trained to spot "red flags" (not the Federal Trade Commission kind): "We're subject to a lot of fraud... If someone's not negotiating on the price, you've got to wonder why they're even placing the order with you. Check orders outside of their normal buying patterns. We still want our sales staff to be the first line of defense against fraud." He added that someone buying sophisticated gear is less likely to be planning fraud because such items can't easily be sold "at a flea market," for instance. Now, items like printer cartridges, for example, are a totally different story, Tillesen said.
Most Credit Congress sessions can be ordered on CD-Rom. To get your desired sessions, order today by clicking here.
Brian Shappell, NACM staff writer
Spring 2010 has been a successful season for construction industry advocates of retainage and prompt payment reform as governors from several states have signed legislation into the books.
The most recent signing came in mid-May, when Arizona Gov. Jan Brewer (R) signed S.B. 1375 into law. The new law, effective Jan. 1, requires prime contractors to submit timely application for payment according to project billing cycles, project owners to approve within 14 days and pay within seven days on invoices, and owners to make prime contractors' invoice final payments within 21 days. Among other provisions are rules protecting subcontractors from withholdings for defective work that was not their doing. American Subcontractors Association (ASA) of Arizona President Jeff Banker calls the law "the most significant construction legislation improving subcontractor rights within the last 10 years." The Arizona legislation was one of four reform packages relating to retainage and/or prompt pay measures signed into law within a four-week span:
- In Oklahoma, Gov. Brad Henry (D) signed S.B. 1012 into law on May 5. S.B. 1012 requires specified time tables for payments to prime contractors and from prime contractors to subcontracts. Another newly signed bill, S.B. 573, reduces retainage limits on public construction projects to 5% from the previous 10% cap.
- In Tennessee, Gov. Phil Bredesen (D) signed H.B. 3159 into law on May 3. H.B. 3159 subjects companies that do not make proper retainage deposits on public and private construction projects to a $300 per day fine. ASA of Tennessee President Mark Lanius said that, during a time when subcontractors are struggling because of economic woes, the bill "will help keep the doors of good firms open."
- Kansas Gov. Mark Parkinson (D) signed S.B. 377 into law on April 19. Like the new Oklahoma mandates, S.B. 377 caps retainage at 5% for "properly performing contractors and subcontractors." It also requires retainage to be released within 30 days of "substantial completion as part of the regular payment cycle."
Brian Shappell, NACM Staff writer
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