N.Y. Judge Rules Card Surcharging Illegal Despite Antitrust Settlement Elsewhere

The Second Circuit Court of Appeals ruled in late September that imposing a surcharge for payment by credit card is still illegal in New York even though the settlement of the antitrust litigation against MasterCard and Visa permits the imposition of such a surcharge. Nevertheless, 11 states, including New York and the Commonwealth of Puerto Rico, maintain that declaring such an imposition of a surcharge is illegal—eight of those specifically refer to "consumer" transactions, but it is questionable whether the remaining states' laws also apply to commercial ones.

Five businesses banded together and commenced a lawsuit in New York's federal district court seeking to have the New York State law deemed unconstitutional, vague and in violation of the First Amendment. New York permits a merchant to offer a discount for cash, but that same merchant may not impose a surcharge for payment by credit card. On Oct. 3, 2013, U.S. District Court Judge Rakoff ruled that the New York law on surcharging was unconstitutional. Among his reasons for the ruling was that surcharges are perceived negatively, while discounts are looked upon as a bonus or gain.

"[I]n terms of their immediate economic consequences, surcharges and discounts are merely different labels for the same thing—a price difference between cash and credit," the judge said. "[T]his virtually incomprehensible distinction between what a vendor can and cannot tell its customers offends the First Amendment and renders Section 518 unconstitutional."

Attorney General Eric Schneiderman appealed that decision to the Second Circuit Court of Appeals. The Second Circuit noted that the original ban on surcharging was enacted by federal law in 1976 and expired in 1984. Immediately upon its expiration, 11 states adopted their own anti-surcharge laws. The Circuit Court cited New York's statute which states, in pertinent part, "no seller in any sales transaction may impose a surcharge on a holder who elects to use a credit card in lieu of payment by cash, check, or similar means. ..." The court noted that "Section 518 does not prohibit all differentials between the price ultimately charged to cash customers and the price ultimately charged to credit card customers; it forbids charging credit card customers an additional amount above the regular price that is not also charged to cash customers, but it permits offering cash customers a discount below the regular price that is not also offered to credit card customers." The Second Circuit ruled on Sept. 29 that Section 518 is neither unconstitutional nor does it violate a merchant's freedom of speech.

In the meantime, antitrust litigation relating to credit cards against American Express is not only still ongoing, but has taken a unique turn. A settlement that received preliminary approval in February 2014 failed to achieve final approval, and it appears that such approval may not happen in the near future. Several parties objected to the settlement on numerous grounds. In the interim, it been determined that there was egregious behavior on the part of co-lead counsel for the Class Action Plaintiffs. This included improper communications and dissemination of confidential information. The court concluded that "the improper and disappointing conduct of ... counsel has tainted the settlement process." The court found that confidentiality may have been breached and confidential communications shared. The lead attorneys for the plaintiffs have been removed, and the settlement has been denied. As a result of this ruling, the American Express litigation remains in flux—hearings to decide where and how this case will continue are already tentatively scheduled.



It Only Takes a Minute!

It doesn't take much of your valuable time to complete the monthly Credit Managers' Index (CMI) survey. There is no math involved—just indicate if something is better, the same or worse than the month before. That's it!

Most importantly, your knowledge and experience can help make the CMI as accurate as possible. The CMI is a leading economic indicator that has been covered by, among others, The Washington Post, Bloomberg, BusinessWeek and The Wall Street Journal

Please sign up today for our monthly email reminder. Be sure to follow us on Twitter at NACM_National to find out the second each new Credit Managers' Index report is available.

Your participation is the solution!

American Apparel Bankruptcy Filing Eclipses News of Improved Corporate Credit Quality

Corporate credit quality improved for the first time in months, according to Kamakura's latest default risk study. However, with the American Apparel bankruptcy filing dominating headlines in the mainstream business press, that news went largely unnoticed.

The Kamakura Corporation's Troubled Company Index tracked at 8.55% at the end of September, which is about average historically (the index began in 1990). Although the third quarter showed higher risk among global companies than in the second, the August to September decrease was 0.21%. Headwinds including a weakened outlook on the parts of Chinese and Japanese manufacturers, ongoing vagueness regarding the Federal Reserve's eventual rate increase timing and muted commodities values continue to build. None of these are beneficial for creditors.

"The links among and between manufacturing, extractive industries and transportation as well as country specific implications should be carefully managed," said Kamakura President/COO Martin Zorn in the latest index release. "All credit managers do a good job of underwriting; great credit managers differentiate themselves in portfolio management."

American Apparel Inc. (APP), was the firm with the greatest one-month default risk throughout most of the summer, including September. It remained the riskiest company per Kamakura's research, which was released a couple of days prior to APP's official bankruptcy filing. That filing renders Resolute Energy Corp., with a default probability of 57.92, as the world's riskiest company, according to Kamakura's metrics.

Although APP is not part of the two most troubled industries at present, natural resources or Greek banking combined eight of the 10 companies with the worst default probability ratings, its struggles leading up to the Chapter 11 filing should have come as no surprise to creditors, Zorn said. "Default probabilities provide insight into both individual company risks as well as industry or country risks based on concentrations of firms with high absolute default probabilities or those experiencing rapid deterioration," he wrote in an article for the upcoming November/December issue of Business Credit. "Further insight can be gleaned from examining default probabilities using the term structure. This provides a quick way to develop a watch list requiring further fundamental analysis to determine an appropriate action plan to guard against risk in a portfolio."

The montly Kamakura Troubled Company Index measures the percentage of more than 36,000 public firms in 61 countries that have an annualized one-month default risk over 1%. A decrease in the index reflects improving credit quality.


kl header15

Beneficial Tools and Resources for the Credit Professional

NACM is committed to assisting every member, meeting their needs and addressing their concerns by offering easy-to-obtain, high-quality products, services and programs. Here you will find links to training resources, online education, useful forms, timely publications and more.

Take advantage of these resources and so much more as a member of NACM.

Find out about membership and join now.

Incorrect Checks Marked ‘Payment in Full’—Should You Deposit?

Checks marked 'payment in full,' but written for less than the total amount due, routinely occur in the credit profession. While common, the inaccurate check raises questions over the best way to handle the discrepancy and whether cashing it is the right move.

The answer depends on the state law that applies to the customer's account, according to Christopher Ng, partner at Gibbs Giden. "In the vast majority of states, if you are not willing to accept the amount of a payment-in-full check, the only safe action is to return the unnegotiated check," Ng wrote in the article, "To Cash or Not to Cash? How to Handle a 'Payment in Full' Check," posted on NACM's LinkedIn.

If a credit manager mistakenly deposits the check, Ng explained that many states permit a period of time to return the funds to the debtor—a move that avoids accepting the incorrect sum as legitimate payment. "If a lockbox is used or checks are deposited without inspecting each check or any accompanying correspondence from the customer, the creditor should adopt a review procedure so that [he or she] can identify restricted checks within 90 days from deposit to utilize the statutorily authorized return process and avoid an accord and satisfaction of the claim," he said.

Many companies are taking a more proactive and pervasive approach to the problem, Ng explained, by creating and designating a debt dispute office. "It is imperative that you understand the applicable state law, consider including a favorable governing law provision in your credit and sales agreement, and consult with an experienced commercial attorney regarding your particular situation," Ng said.

For the most part, credit managers agreed that the safest action is to return the check to the debtor and then pursue the correct balance. "Unless negotiated, we do not accept checks that state payment in full if short," commented Tony Marmo, credit consultant for Marmo and Associates. Another LinkedIn group member agreed, "If the paid amount was not previously agreed upon, I return the check. However, [if] the difference is so small and not worth time and effort pursuing, I may just bite the bullet and accept it."

Ng added that it is important for credit managers to "carefully scrutinize all checks and all written communications that accompany any checks for payment in full or similar language before making a deposit at the bank."

- Jennifer Lehman, NACM marketing and communications associate


nacm social media15

Stay Connected. Stay Informed. Stay Current.

When news pertinent to the credit world is breaking, there's no need to wait to get and share information.

Follow NACM on our Credit Real-Time Blog, on Twitter and on LinkedIn to focus specifically on what YOU, the credit professional, want to know and why it's important.

PMI Roundup: International Economy on ‘Waning Trend’

The most recent numbers in the JPMorgan Global All-Industry Output Purchasing Managers' Index (PMI) point toward a developing negative trend in the international economy, notably as the rates of expansion softened in both the manufacturing and service sectors. Still, most companies reported to JPMorgan & Co. and financial information services firm Markit, which collaborate on the index, some level of confidence in future opportunities.

Emerging markets continued to drag down global economic growth at the end of the third quarter, as the PMI fell to 52.8 in September from 53.9 in August, according to the latest report. "The disparity between emerging and developed nations remains, with the former registering a contraction, while the latter saw growth hold up well in comparison despite slowing slightly over the month," explained David Hensley, director of global economic coordination for JPMorgan.

The U.S. PMI registered at 55 in September, a decrease from 55.7 in August. Business activity and incoming new work in the United States increased at weaker rates than the previous month. Input cost inflation moderated while average prices charged declined slightly. "The U.S. economic growth slowed in the third quarter ... but this largely represents a payback after growth rebounded in the second quarter, suggesting that the economy is settling down to a moderate rate of growth in line with its long-term average," said Markit Chief Economist Chris Williamson.

While the eurozone composite PMI also decreased in September to 53.6 from 54.3, the region still reported solid increases in output. Growth slowed overall, but remained stable in key economies Germany, Spain and Italy. Meanwhile, growth in France actually accelerated to a three-month high. "Spain looks to have enjoyed another strong expansion in the third quarter, with GDP [gross domestic product] set to rise by at least 0.8%," Williamson explained. "But there was a worrying drop-off in the pace of growth in September, leaving Ireland as the star performer."

In large emerging markets, China's PMI fell to 48 in September, down from 48.8 in August. This signals its fastest rate of contraction since January 2009. The Brazilian PMI also declined sharply, from 44.8 in August to 42.7 in September, marking the seventh successive monthly drop in the private sector. Both the manufacturing and service sectors cut jobs over the last month, and September's data highlight Brazil's skyrocketing inflation.

India performed best of the four most notable emerging economies, remaining in expansion territory. Still, its PMI also dove, from 52.6 in August to 51.5 in September, reflecting weaker increases in both manufacturing and services output. Russia's composite PMI, however, increased, moving out of contraction territory to 51.3 in September, up from 49.1 in August.

Global activity and new business both increased, and prices continued to rise sharply in the service sector. Companies signaled a more upbeat assessment of future activity, but the economic environment remains challenging, explained Paul Smith, senior economist for Markit. "Price pressures remain intense and are pushing companies to raise their own charges," he said. "This is an unfortunate development given the underdeveloped nature of the economic recovery following the difficult end to 2014 and start of this year."



It's Your Choice

For continuing education and training that fits your schedule, look no further than NACM's Credit Learning Center. You choose the learning module you want to view and learn at your own pace—on your own time—wherever it's convenient.

Look for business credit topics that will help your performance and career such as Financial Statement Analysis, Commercial Collections, Bankruptcy and Construction Credit, or prepare for your CBA, CBF or CCE designation exam by purchasing our Designation Exam Reviews.

To learn more, contact the NACM Education Department at 410-740-5560 or education_info@nacm.org.

Team discounts are available for groups of five or more!

TPP Victory Celebration May Be Short-Lived, National Legislatures Still Must Be Sold

The first step has been taken in closing out the Trans-Pacific Partnership (TPP) trade deal: Negotiators have reached a deal after five years and a solid week of recent round-the-clock talks. The problem is that many of the provisions that make up the deal are not going to be very popular with the national legislators who will now have to ratify it.

The majority of the opposition in the United States has come from the Democrats, who do not appear to be in the mood to switch sides after candidates Hillary Clinton and Sen. Bernard Sanders both expressed their displeasure. Republicans had been backing the trade deal; but in an election year, they may be hesitant to make Obama look good. There are many in the Tea Party wing of the GOP who oppose the TPP as well. The U.S. is by far the most important participant—there is no TPP without the U.S. The idea was hatched at the onset of the Obama presidency and supposed to be the linchpin of the "pivot toward Asia." The pact would combine the economies of the southeast part of Asia in a massive trade agreement with North American and a few other nations, which would include some 65% of the global gross domestic product (GDP). It was also designed to exclude the Chinese and allow the Asian states to temper their building dependence on China's economy.

Several months ago, the president won an important battle as far as this or any other pact is concerned and now has the same "fast track authority" that other presidents have had in the past. This means that when the TPP comes before Congress, it will be virtually an all-or-nothing proposition. It can't be altered and amended to death. This generally means a deal will be easier to reach, as members of Congress are usually reluctant to scuttle an entire trade deal. But given the animosity towards this president, the existence of this authority may not be enough. This is not to say there are no fans of this pact. The industries that stand to gain from the TPP include aerospace, agriculture and even apparel. The U.S. service sector will likely be the biggest beneficiary.

The U.S. is not the only nation that is going to struggle to pass this deal. Canada is not happy about opening its market to dairy imports; and Japan still wants more access to the U.S. for its automotive and related manufacturers. The fight is now highly political and even the most optimistic of observers give this a somewhat remote chance of passage. This is simply not a good time for trade pacts.

The TPP has been declared dead any number of times, but notably, it has survived to this point and will finally be voted on. Supporters are going to try to bring this to vote as soon as possible so the influence of the U.S. presidential campaign can be reduced. Even then, there is no guarantee for passage in the U.S. or elsewhere.



Solid Foundation Required

Like a new building under construction, it's imperative to start with a solid foundation for the Mechanic's Lien Process. The Preliminary Notice is the foundation on which Mechanic's Lien rights are built. It's one of many services you can trust from NACM Secured Transaction Services, including Next Action Date Tracking, Lien Waiver Manager, UCC filing services and more.

We treat your projects as if they are our own—double- and triple-checking our work for accuracy.

Trust NACM to professionally serve your preliminary notices in all 50 states and not let your lien rights crumble.

For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com.


 To view past eNews issues or to visit the NACM Archives, click here.



National Association
of Credit Management

8840 Columbia 100 Pkwy.
Columbia, MD 21045
Phone: 410-740-5560
Fax: 410-740-5574

Let's Get Social!

NACM's Preferred
Software Providers

Discover More About NACM

Credit Congress
NACM's Annual Conference

Our History
Over 100 Years of History