eNews September 24, 2015

Federal Reserve Makes Commitment to Same-Day ACH

The Federal Reserve Banks announced Wednesday (Sept. 24) that the Fed Board supports the Same Day ACH (Automated Clearing House) practices proposed by NACHA, an Electronic Payments Association, which will "ensure a ubiquitous same-day capability for virtually any ACH transaction."

"This rule expands upon the work we have done to effectively test the market's readiness for Same Day ACH with our opt-in service," said Marie Gooding, first vice president and retail payments product director of the Federal Reserve Bank of Atlanta.

The rule requires that receiving depository financial institutions (RDFI) accept same-day transactions and make funds available faster to customers as well as same-day entry fees as a way for RDFIs to recover costs, according to the Fed's Financial Services Policy Committee. FedACH Services will offer two new same-day settlement windows providing settlement at 1 pm (EST) and again at 5 pm (EST).

Pushing same-day transactions from a suggested practice to mandate will have little downside, according to Rudet Fountain, NACM's executive vice president. "I think it is a good thing because, right now, ACH in a best-case scenario is a next-day process," he said. "Now, in about a year, it becomes a same-day process. There will still be second-day funding mechanisms out there, but now there will just be the option for same-day. It's going to speed up access."

Still, the Fed has "a lot of work to do" in order to make this a useful tool within the business-to-business payment world, said United TranzActions President Dean Middleton. "It's pretty clear they'll get it done," Middleton told NACM. "One of my concerns is the continuation of the trend toward real-time funds availability. I can't help but wonder what would happen to the U.S. economy if whatever 'float' that may remain is completely eliminated."

The Fed itself acknowledged that more discussions are needed to address various details including the deadlines and window availability. At present, its press release outlines the following plan to implement the rule in three phases: Phase I, effective Sept. 23, 2016, will provide for same-day processing of ACH credit transactions to include hourly payroll, person-to-person payments and same-day bill payments. Phase 2 will add ACH debits to same-day processing and will allow for consumer bill payments to be included. Phase 3 will require RDFIs to provide faster ACH credit funds availability as funds from Same Day ACH credit transactions will need to be made available to customers by 5 pm RDFI local time.

- Brian Shappell, CBA, CICP, NACM managing editor


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Country Risk Roundup: A Glimpse into Latin America and Romania’s Problematic Insolvency Law

The Brazilian real took a dramatic fall on Tuesday, hitting its lowest level against the dollar in more than two decades. Brazil also was among four Latin nations to receive a downgraded rating in Coface's third quarter Country Risk Assessment.

Coface downgraded Brazil to a B rating due to its economic recession and increase in political instability. "Household consumer spending, the main driver of growth, and investment both fell, notably given the repercussions of the Petrobras affair," Coface stated. Last year, several Brazilian politicians participated in a money-laundering scheme with Petrobras, a state-owned oil company.

In the same report, Chile was downgraded to an A3 rating because of a fall in copper prices and the financial slowdown in China (a main demand destination for Chile's copper). Scandals also negatively affected Chile's economic environment.

Meanwhile, Argentina maintained its C rating as its economy did grow by 2.3% in its second quarter on a year-over-year basis, according to Wells Fargo Economics Group. Private consumption expenditures reported 0.7% growth during the quarter, and the country's economy posted an increase in overall gross domestic product. "The reason for this was a strong increase in government expenditures, which surged 10.3% during the quarter on a year-over-year basis. Meanwhile, gross-fixed investment grew 4.6%, contributing to the positive outturn," stated Wells Fargo.

Across the Atlantic in Romania, issues with its insolvency laws could affect the national budget by €271 million ($302 million) within five years. A World Bank consultant announced on Tuesday that the country's personal insolvency law is not clear enough about certain concepts, such as "what defines a 'decent life,'" according to Romania-Insider, which reported in May that the law allows good debtors to reschedule their debts based on a reimbursement plan. Alexandru Stanescu, a consultant within the World Bank, reportedly said that while the law provides certain guidelines, such as family structure and costs of bringing up children, it is not clear how these will be calculated.



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Concern Spreading over Approaching Illinois Lien Law Change

The signing of Illinois legislation by Gov. Bruce Rauner this summer that alters its mechanic's lien law at the behest of property owners is not going over well with contractors and suppliers who are bracing for dominos to fall and costly problems to arise. One Illinois-based credit veteran called it a win primarily for banks and attorneys. However, those who work to limit the element of surprise in lien filings could mitigate some of the potential issues.

Illinois HB 2635, which goes into effect on Jan. 1, amends the state's existing Mechanic's Lien Act essentially allowing supplier and subcontractor lien rights to be bonded over. It provides that an applicant may at any time file a petition to substitute a bond for a lien claim on a property, according to the Illinois General Assembly website. Additionally, if another action exists to enforce the claim, an applicant may apply to become party to that pending action and petition to substitute a bond for the property subject to the lien claim.

"It will be the law, so we have to deal with it," Norman Cowie, CCE, director of credit for Paramont-EO, Inc. wrote in a column for NACM Connect. "It is important to know the components of the law, though some of the nuances will have to be worked out." Some of the key points, as noted on the Illinois General Assembly website, are as follows:

  • After a lien is bonded over, it is up to the claimant to argue if the bond is adequate or applicable. Claimants are notified via a certified letter;
  • An eligible surety bond shall be 175% of the amount of the lien claim;
  • A bond must be A-rated and last as long as the lien is scheduled to;
  • Venue for ligation is required to be filed/heard in the county of the property in question.

Part of the reason why the legislation was drafted may stem from the fact that Illinois, unlike several other states, does not require material suppliers and subcontractors to send preliminary notices within a short period of time after first furnishing, according to Chris Ring, of NACM's Secured Transaction Services. "The property owner is not aware up front of potential lien claimants and is often surprised when subs and suppliers file mechanic's liens; so, they look for protection," Ring noted. "What material suppliers could do to prevent this event from happening in the first place is send a 'non-statutory' notice to alert the property owner that they are providing materials or services with the intent of having the subcontractor pay them within reasonable terms once they receive their draw payments." He added that already "unfair" Illinois lien law has been taken to another, negative level for suppliers and subcontractors with this latest development.

In short, the potential for costly disputes has been elevated. "This will end up being a law that will increase legal fees and cause parties to lose their liens without just cause," Cowie noted.


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Save the Date ... The Palace Beckons!

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Measure to Keep Government Open Introduced in Senate

In an effort to avoid a government shutdown at month's end, Senate Majority Leader Mitch McConnell (R-KY) filed a short-term spending bill that would fund it through Dec. 11. The current fiscal year ends Sept. 30.

A government shutdown could further push back attempts to revive the Export-Import Bank of the United States, whose charter lapsed June 30. Several attempts have failed, but some lawmakers are hopeful that a highway bill with Ex-Im attached will pass next month. Democrats and moderate Republicans believe they have enough votes to reauthorize the bank, according to news reports.

The proposed spending plan, however, seeks to defund Planned Parenthood for one year and directs the group's funds to other community health groups. The Senate is expected to vote on the measure Thursday. "It would keep the government funded through the fall, while adhering to bipartisan spending levels already agreed to by both parties," McConnell said.

McConnell knows that by adding the controversial provision to defund Planned Parenthood the measure will fail, said NACM Lobbyist James Wise. "This will allow him to then demonstrate to the House Republican Caucus that any spending bills they pass that similarly defund Planned Parenthood will not pass, thereby creating the distinct possibility that the government would shut down as of Oct. 1."

After the first spending bill likely fails, McConnell will offer a "clean" spending plan that will just continue all government functions and spending levels through Dec. 11, Wise added. "The passage of the 'clean' spending bill will then be presented to the House as the only viable alternative to keep the government functioning."



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