Credit Mantra

Beware of Free Credit Report Offer from FreeCreditReport.com. Get it from AnnualCreditReport.com

2010-02-09T00:26:00.003-05:00

Experian a well know credit reporting agency runs a website FreeCreditReport.com. The service offered by Experian on this website is a bit misleading. On this site it appears that a consumer can get his or her credit report without any charge. In order to do so, one has to give their credit card information. Experian then automatically signs that person up as a member for credit-monitoring service and starts to bill $14.95 per-month. It is up to the person to cancel this ‘automatic-membership enrolment’ by Experian within 7 days otherwise Experian starts to bill $14.95 per-month on the credit card information that they collected for the “free” credit report offer.

You may have seen their somewhat funny TV jingle in which a man sings about his poor credit and about the ‘free’ credit report from FreeCreditReport.com

Experian now also faces a class-action law suit that claims that their advertising is misleading and fraud.

In the past, Experian has settled with the Federal Trade Commission (FTC) by paying more than a million dollars in fines when they had a similar deceptive-advertising problem on one of their other website ConsumerInfo.com. Apparently the Better Business Bureau has thousands of complaints from consumers about FreeCreditReport.com.

Consumers are legally entitled to receive one free report annually from each of the consumer credit reporting agency. Commonly these credit agencies are known as credit-bureaus and they are Equifax, TransUnion and Experian.

The FTC (Federal Trade Commission) runs a website AnnualCreditReport.com. This is the only affirmed site from where you can get a free credit report. So once in every 12 months visit AnnualCreditReport.com and get your free credit report.

Ontario Small Claims Court Raises Monetary Jurisdiction To $25,000

2009-08-22T19:27:00.006-04:00

As of January 1, 2010, the Small Claims Court monetary jurisdiction in Ontario will be increased from $10,000 to $25,000, pursuant to O. Reg. 439/08. This will bring Ontario in line with provinces like Alberta and British Columbia.

Currently in Ontario Small Claims Court you can only sue for money or the return of personal property valued at $10,000.00 (Canadian) or less, not including interest and costs. If the amount of your claim is more than the current limit, you may still choose to use Small Claims Court because it is simpler and less expensive. However, you will have to give up any future attempt to recover the excess amount over the Small Claims Court limit, even in another court.

As per the Annual Report published by by the Court Services Division Small Claims Court remains a popular choice for Ontarians for civil litigation as 43 per cent of all civil cases commenced in 2007/2008 were Small Claims Court claims.

Small Claims Court Training Seminar by CreditGuru.com

FTC Red Flag Regulation for Creditors and Financial Institutions

2009-02-15T23:21:00.011-05:00

As part of the Fair and Accurate Credit Transactions (FACT) Act of 2003 the Federal Trade Commission (FTC), the National Credit Union Administration (NCUA) and the federal bank regulatory agencies together have initiated the ‘Red Flags Rules’ (regulations) that now requires financial institutions and creditors to implement written identity theft prevention programs.

This program is to help prevent identity fraud by detecting and mitigating any instances of it. These instances, responses, patterns or specific activities that could lead to identity theft are termed ‘Red Flags”. It is an attempt on part of the regulators to make organizations handling vulnerable consumer accounts, keep an eye out for red flags that signal identity theft.

The Red Flags Rules apply to financial institutions and creditors with covered accounts. Under the rules a covered account is an account that involves multiple payments or transaction. Examples of a covered account would be credit card accounts, automobile loans, mortgage loans, margin accounts, telephone bills, utility accounts, checking accounts, and savings accounts. These accounts are typically consumer accounts for personal, family or household purposes. A covered account may also include accounts of small businesses or sole prop accounts as they can also attract the risk of identity theft.

From a creditor’s standpoint it is interesting to note that by merely accepting credit cards as a form of payment does not in and of itself make an entity a creditor. For the purpose of this regulation a creditor is any entity that regularly:
• extends, renews, or continues credit;
• arranges for the extension, renewal, or continuation of credit;
The creditor can also be any assignee of an original creditor who is involved in the decision to extend, renew, or continue credit.

May 01, 2009 onwards the FTC will start enforcing these regulations. Every creditor and financial institution with ‘covered accounts’ must have in place a written policy to detect, prevent and mitigate the possibility of identity theft in connection with opening, maintaining and operating a covered account.

The current challenge for organizations affected lies in a) identifying their account-specific (covered-account(s)) Red Flags and b) writing a customized ‘Red Flag Program’.
As an example the written program may include things like, unusual account activity, fraud alerts on a consumer report or attempted use of suspicious account application documents. In writing such a program it should simultaneously describe appropriate measures the organization would take to prevent and mitigate anticipated or occurred crime and have provisions to update the program.

The Red Flag Program must be managed by the Board of Directors or senior employees of the financial institution or creditor. It should be inclusive of staff training for Red Flag Program and provide for oversight of any service providers.

This highlights the importance of the credit function in assessing the risk associated with covered accounts and gettting actively involved in developing and implementation of a written identity theft prevention program under the new "Red Flags Rules."

Article contributed by:
Puru Grover MD CreditGuru.com

Canadian Business Bankruptcies drop by 2% in 2008

2009-02-11T00:49:00.002-05:00

Feb 11, 2009: According to the latest stats released by the Office of the Superintendent of Bankruptcy for the year 2008, 6164 Business Bankruptcies were filed in Canada. This is a 2% drop from the year before i.e. 2007.

Although the absolute drop in numbers 2008 over 2007 is 2%, if we compare this to the 6.8% drop in the numbers of 2007 over 2006 the trend seems to be reversing.
This 6.8% decrease in business insolvencies in 2007 came in a more favourable economic climate wherein the gross domestic product growth (GDP) was 2.71%. This number has dropped to 0.95% in 2008!

The current economic climate is threatening the GDP growth which is primarily driven by consumer demand, consumer expenditure, government expenditure and business expenditure. Media constantly bombards us with bad economic news which kills consumer confidence and it is consumer spending that drives two thirds of an economic recovery cycle. While the economic indicators of inflation, job loss, housing starts and consumer confidence are not showing a very encouraging start in 2009, the Bank of Canada, Governor Mark Carney projects a 3.8 per cent growth for the Canadian economy in 2010. It is heartening to note this optimism which the governor denotes confidently as realism.

Consumer Bankruptcies Rise in 2008 in Canada

2009-02-09T23:52:00.003-05:00

Feb 09, 2009
Consumer Bankruptcies:
Comparing 2008 numbers to 2007
These following numbers were released on Monday by the Office of the Superintendent of Bankruptcy Canada.

Consumer bankruptcies in 2008 jumped up by 13.5% over 2007. In all of last year 90,620 Canadians filed for bankruptcy as opposed to 79,847 that filed in the year 2007.
In 2007, the number of consumer insolvency cases per thousand residents 18 years of age and older increased by 0.1 cases over 2006. Whereas the same metrics increase now in 2008 over 2007 would be close to 0.3 cases.

Considering the job losses announced and poor housing starts for January, consumer bankruptcies are predicted to go higher in the coming months.

Credit Unions Vs Banks and the Credit Sub-prime Crisis

2009-01-30T00:03:00.003-05:00

It was Freidrich Raiffeisen, the mayor of Flammersfeld, Germany who conceived of the idea for a credit union more than 150 years ago. Today about 150 million people are members of approximately 42,000 credit unions in around 90 countries worldwide.

So what is a Credit Union and how does it compare to a Bank?

A Credit union is essentially structured as co-operative which is owned and directed by its members. It is a federally chartered financial institution and is regulated federally.

Federal regulations and required laws establish the requirement for credit unions to issue common shares and hold them as equity in the credit union. A nominal issue price formalizes the relationship credit unions have with their customer-owners through their share accounts.

Ownership with Credit Union therefore includes a one time investment that stays on deposit in a 'common share account' (savings), and may be redeemed upon the withdrawal of membership from the credit union. This common share requirement is not a “fee” to join but is an investment. This investment is retained as equity in on behalf the customer who also becomes a part owner in the business of the credit union. With the ownership share(s), the owner-customer has access to all products and services and has a say in the matters of the credit union. The customer as a member now can attend Annual General Meetings, voice opinions and elect and vote for the Board of Directors which sets policies and objectives. Many credit unions reserve the right to expulsion of a member.

A relatively smaller deposit ($5 to $30) than a bank is required to open an account at a credit union

Because membership represents ownership, it fosters a stronger relationship with Credit Union than a regular bank. The credit unions thus call their customers 'customer-owner'.

Credit unions are supposed to be not-for-profit financial institutions and any money made above the cost of operations is to be shared with its members through dividends, service enhancements, granting loans on reduced interest rates.

Typically members with a common bond collaborate to make credit unions such as place of worship; an organization; place of employment; community based; trade union etc.

Only people who are credit union members can borrow at the credit union where they have membership. Unlike a bank where the borrower is assessed based on his or her 'ability' to repay the credit union principles are based on the 'character' of the member wherein the 'desire to repay' is considered more important than the ability to repay. In essence, members are borrowing their own money and that of their fellow members and member service is the foundation of the of the credit union movement.

In general credit unions have weathered the current sub-prime crisis better than the banks as bulk of their activity is carried out through deposits by their own members and holding their loans in-house. Since they are member-owned there is risk aversion where lending principles and standards are not compromised. As not-for-profit cooperatives they do not usually charge as much as banks and don't have to pay taxes on their net income. This perhaps gives them an added edge to provide better rates on credit cards, one-year CDs and one-year adjustable-rate mortgages to their members.

Credit unions essentially make no subprime loans but in these tough economic times it is more than likely that a credit union may be willing to look at those with poor credit. When banks are tightening their screws it is likely that a credit union may be in a better position to approve your loan expeditiously as their relatively smaller size makes them more nimble, personal and understanding.

In today's tough market condition consumers should try and include credit unions in their comparison shopping at financial institutions. Eligibility may become a hurdle but requirements have been relaxed tremendously in recent years and people now can become members of a credit union just based on where they work or reside. Don't go by the name or size of the credit Union. Find out what the eligibility requirements are for membership. Don't discount a credit union for its small size, as large credit unions very often will help smaller credit unions. As for the misconception that credit unions are local and as a member one gets tied-down to a financial institution locally, credit unions have gone well beyond that issue with shared branching and a network of cooperative ATMs.

In the US before you decide to become a member of a particular credit union check to make sure the credit union's deposits are insured. The NCUA is a federal agency that insures most credit unions by the National Credit Union Administration's share insurance fund. Their website: http://ncua.gov/
In Canada visit: http://www.cucentral.ca/

Nortel a tek-wrek : Restructuring & Bankruptcy Protection

2009-01-14T23:25:00.006-05:00

Jan 14th 2009: Nortel Networks Inc. (“NNI”) and fourteen (14) of its subsidiaries filed petitions in the United States and Canadian Bankruptcy Courts seeking relief under

Chapter 11 of the United States Bankruptcy Code (Case No. 09-10138) and

Companies’ Creditors Arrangement Act (CCAA) in Canada.

Note: Nortel has filed for protection from its creditors and is not in receivership or bankruptcy. Instead, the filing under Chapter 11 and CCAA is an attempt to rescue and plan restructuring so that the debtor (Nortel) diminishes the possibility of going into receivership or bankruptcy. The legislation (CCAA and Chapter 11) aims at facilitating compromises and arrangements between companies and their creditors.

Link to get an overview of CCAA (CANADA): http://www.creditgurublog.com/?p=32

Link to get an overview of Chapter 11 (USA): http://en.wikipedia.org/wiki/Chapter_11

Nortel’s link on its financial and business restructuring: http://www.nortel.com/corporate/restructuring.html

CANADA
Pursuant to the CCAA Order granted by the Ontario Superior Court of Justice, Ernst & Young Inc. was appointed Monitor of the Applicants.
Contact for stakeholders as follows:
Email: Nortel.Monitor@ca.ey.com
Toll Free: 1-866-942-7177
Website: http://documentcentre.eycan.com/Pages/Overview.aspx?SID=89
Creditors may want to read the initial court order at the following link: http://documentcentre.eycan.com/eycm_library/Project%20Copperhead/English/Court%20Orders/Nortel-Initial_Order.pdf
Link to court documents and Monitor’s Report: http://documentcentre.eycan.com/Pages/Main.aspx?SID=89&Redirect=1

USA
For information on the U.S. Chapter 11 proceedings,
Contact established for stakeholders for the U.S. claims agent:
Epiq Bankruptcy Solutions, LLC
Attn: Nortel Address Updates,
757 Third Avenue, 3rd Floor,
New York, NY 10017,
Tel: 646-282-2500 Fax: 646-282-2521
Toll free at 1-866-897-6435
Website: http://chapter11.epiqsystems.com/nortel
Link to ‘Proof of Claim’ Form: http://chapter11.epiqsystems.com/Documents.aspx
Link to court documents: http://chapter11.epiqsystems.com/docket/docketlist.aspx

Canadian Bankruptcy Statistics - Business Bankruptcies decline in July 2008

2008-09-09T01:20:00.007-04:00

Sept 5, 2008: According to the latest Canadian Bankruptcy Statistics released today by the Office of the Superintendent of Bankruptcy for the month of July 2008 business bankruptcies have declined by 4% over 2007 for the same 12 months period ending July 31, 2008.
The total business number of bankruptcies for the 12-month period ending on Jul 31 2007 was 6183 as compared to 6,441 for the same 12-month period last year.

While the overall numbers in Canada show a decline, Nova Scotia and Quebec have shown about a 9% increase in the filing of bankruptcies for their respective provinces in 2008 over the same 12 months period ending July 31, 2007.

In comparing the total number of bankruptcies filed just for the month of July there was a drop of 6.4% this year over last year. The month of July 2008 also showed a decline over last month by about 2%. (Refer to the following table for detailed numbers)
Provinces that have shown an increase for the month of July 2008 as compared to July 2007 are Nova Scotia, New Brunswick, Newfoundland, Quebec, Manitoba and British Columbia.

Notable amongst these is Quebec as the province has show an increase of 3.2% for the month of July 2008 as compared to July of 2007. Quebec has also shown an increase of 12% in the number of bankruptcies in the month of July 2008 over June 2008 and an overall increase of 9% over a 12-month period ending July 31st 2008 as compared to the same period in 2007.

Note:
Business bankruptcies numbers include the following:
* Any bankrupt commercial entity &
* An individual who as a result of operating a business incurs 50% or more of total liabilities.

Article contributed by: CreditGuru.com

[Statististics sourced from Industry Canada: http://www.ic.gc.ca/]

Commercial Restructuring under the Canadian Bankruptcy and Insolvency Act

2008-08-25T23:43:00.013-04:00

Creditor's rights in the event that a business files for a proposal in Canada.

There is a provision under Part III of the Canadian Bankruptcy and Insolvency Act (BIA) for an insolvent business to file a 'Proposal' with its creditors. In layperson's terms it is like making a modified arrangement with its creditors to pay them off in an acceptable manner which is generally over a longer period of time. These kinds of proposals made by businesses are termed Division I Commercial Proposals under Part III BIA.

The BIA (Weblink: http://laws.justice.gc.ca/en/B-3/index.html) was reformed in 1992 with an objective to promote business proposal as an alternative to bankruptcy. While 'Bankruptcy' corresponds to the liquidation of the debtor's business assets and the end of its operations, a Commercial 'Proposal' involves settling debts between the debtor and its creditors, enabling an insolvent business entity to continue operating in the market. The intent was to promote ‘rehabilitation’ of an insolvent over ‘liquidation’ and turn increase recovery for the creditors. However, a proposal if not viable and unacceptable to the creditors fails, which then leads to the business being forced to declare bankruptcy.

Statistics however shows that approximately one in every two business proposals succeeds proving that proposal as an alternative to bankruptcy is working in the Canadian insolvency arena. This in a way proves to be a win-win situation both for the insolvent company and its creditors as the business whose proposal gets accepted, continues to operate and the creditors recover at least something from the debtor-company for the debt owed and perhaps can make up the shortfall by continuing to deal with the company as opposed to the chances of getting near to nothing had the insolvent debtor company filed for bankruptcy.

How does a business make a Commercial Proposal under Division 1 Part III BIA? What is the process?
The procedure of making a Commercial Proposal begins when an insolvent business seeks the help of an administrator who typically is a trustee in bankruptcy or a person appointed by the Superintendent of Bankruptcy. The trustee on behalf of the insolvent company files either a Notice of Intention to Make a Proposal ("Notice of Intention-NIMP" [BIA section 50.4]) or the Proposal itself with the Official Receiver (OR).

What happens after a Proposal is filed with the Official Receiver (OR)?
Within 10 days after filing the proposal with the Official Receiver, the trustee is required to send the OR a ‘Projected Cash Flow Statement’ and its reasonableness and a debtor's endorsed cash flow statement. No extension to this time limit of ten days is allowed and if the cash flow statements are not filed within this 10 day period, the insolvent business, filing the proposal, is deemed to have declared bankruptcy.

Unless protected by court orders, any creditor may obtain a copy of the cash-flow statement on request made to the trustee

After a Notice of Intention is filed with the OR, the trustee then has up to thirty days to file the Proposal itself. If the trustee fails to file the Proposal, the business is deemed to have declared bankruptcy. The effective date of the bankruptcy would be on the expiry date of the thirty-day period. If the trustee is unable to file the Proposal within the thirty-day period, there is a provision in BIA to seek extensions. These extensions are granted in increments not exceeding forty-five days up to a maximum of five additional months. (In essence an insolvent business has no more than six months to file a proposal.) The court reserves the rights to refuse requests for such extensions or alternatively impose special conditions on the extension of a proposal.

Within five days after the filing of a notice of intention, the trustee named therein must notify every known creditor.

Before the expiry of the initial thirty-day time limit for filing the Proposal, or any extension granted in the case of a NIMP or before the first creditor's meeting in the case the proposal has already been filed, any creditor has the right to seek the court's order in having the proposal cancelled. In order to seek the termination order of a Proposal the creditor will have to prove in court that the business making the Proposal lacks due diligence and a viable Proposal is unlikely to be made before the expiry of the time allotted or that the creditors as a whole would be challenged in material respect (materially prejudiced).

Once a trustee files a Notice of Intent or a Commercial Proposal on behalf of an insolvent business, it cannot be withdrawn. The main outcomes could be an acceptance by the creditors (which allows the business to continue) or rejection (which leads to bankruptcy and ultimate liquidation of the company).
However, during this entire process the insolvent business can declare bankruptcy at any time.

What happens once a Notice of Intention or a Proposal has been filed?
Once a Notice of Intention or a Proposal has been filed a 'Stay of Proceedings' (stay) takes effect. The stay applies to secured and unsecured creditors.
Under this stay, creditors cannot terminate leases or amend existing contracts and agreements. However, after the Notice of Intention or the Proposal has been filed, going forward, creditors are under no obligation to extend any future credit and can insist on cash-terms for any goods or services sold in future to the insolvent business. The same would apply to any rental payments on leased property.

This stay remains in effect until the Proposal has been performed without default or the debtor goes bankrupt. This allows the insolvent business to restructure its debt with its creditors and formulate the Proposal without interference.

A Commercial Proposal is made to all creditors. All unsecured claims constitute one class, unless the proposal provides for more than one class of unsecured claim. Secured creditors can be separated into classes based on "commonality of interest" [BIA 50. 1.4]. This commonality is based on factors like the structure of the debt, its hierarchy, the remedies of default or otherwise as to how the court decides the interests of the creditors.

Some exceptions to the Stay of Proceedings:
If a secured creditor serves the insolvent business with a Notice of Intention to Enforce Security under the BIA more than ten days before the debtor filed a NIMP (notice of intention) then the stay does not apply to that particular secured creditor. [BIA subsection 244(1)]
If secured creditor took possession of secured assets of the insolvent business for the purpose of realization before the notice of intention (NIMP) was filed from dealing with those assets
If the Commercial Proposal does not address the claims of a particular secured creditor, the stay in that case does not apply to that creditor
If a certain class of secured creditors rejects the Proposal, then the stay does not apply to the secured creditors in that class.

Voting on the Proposal:
The following creditors with proven claims are entitled to vote:
All unsecured creditors, and
Those secured creditors in respect of whose secured claims the proposal was made;

The creditors vote by class, according to the class of their respective claims, and for that purpose
All unsecured claims constitute one class, unless the proposal provides for more than one class of unsecured claim, and
The classes of secured claims [As determined under BIA subsection 50(1.4)];

The votes of the secured creditors do not count, but are relevant only for the purpose of BIA subsection 62(2); and

The Proposal shall be deemed to be accepted by the creditors if, and only if, all classes of unsecured creditors vote for the acceptance of the proposal by a majority in number and two thirds in value of the unsecured creditors of each class present, personally or by proxy, at the meeting and voting on the resolution.

Upon acceptance of the Proposal the trustee, within five days, applies to the court for its formal sanction (the court has to accept the Proposal).
Fifteen days before the hearing, the trustee sends a notice of the hearing date and place to the insolvent business, the OR, and to all creditors with proven claims.
Ten days before the hearing, the trustee sends a report on the Proposal to the OR and files this report with the court at least two days before the hearing.

If a Proposal is accepted, it is binding on all unsecured creditors and on those secured creditors whose claims were dealt in the Proposal and whose class voted to for it.

If a Proposal is rejected, the business is automatically assigned into bankruptcy and the trustee administering the Proposal immediately calls for a meeting of all known creditors to consider the affairs of the now bankrupt business and to confirm the appointment of the existing trustee or to appoint a new one as a trustee in bankruptcy.

Certain claims, such as wages and the Trustee's fees and expenses; Government claims, such as source deductions and GST and PST, are given special priority.
The Proposal must include a provision for payment in full within six months after approval of the Proposal for amounts that were owed to the federal or provincial government when the Notice of Intention or Proposal was filed.

What if the insolvent business stops making the payments and defaults on the performance of the proposal?
If the insolvent business fails to keep the terms of your proposal and does not remedy the default within thirty days, the trustee informs both the OR and the creditors within thirty days. The creditors have a choice to waive the default if they believe that the default was unintentional or that the insolvent business has intentions of, and the capacity to, remedy the default. If the default is not waived, either the trustee or the creditors may apply to the court for the annulment of the Proposal.

If a Proposal is annulled, it results in automatic bankruptcy for the business making the proposal (the business will be deemed bankrupt on the date of the annulment.) Within five days of the annulment order from the court, the trustee will send out a notice to all known creditors of a creditors' meeting to consider the affairs of the now bankrupt business and to confirm the appointment of the existing trustee or to appoint a new one as a trustee in bankruptcy

What happens after the successful completion of the Commercial Proposal?
A business that successfully complies with the terms of the Proposal receives a ‘Certificate of Compliance’. The debts owed by the business are considered to be satisfied and no action can be brought by any creditor to recover any shortfall between the original debt and the amount paid under the terms of the Proposal.

Does it cost to make a proposal?
There is a filing fee to be paid to the Superintendent of Bankruptcy. In addition, the trustee is entitled to be paid. These fees are prescribed by the Bankruptcy and Insolvency Rules which may be consulted on the Office of the Superintendent of Bankruptcy's (OSB) Web site at: http://osb-bsf.ic.gc.ca.
Typically the business makes all payments prescribed in the proposal to the trustee. The trustee deducts its costs and fees, and the Superintendent's levy (a five percent levy on all payments to creditors) and then distributes the net proceeds to the creditors.

How can Commercial Proposals be statistically viewed?
In 2007 Business insolvencies in Canada declined by 6.8% over 2006 where the number of new cases filed in 2007 totaled 7,624. This is the sixth consecutive annual decrease in business insolvencies — each of them more than 6%. Commercial Proposals on the other hand have shown about a 7% rise in 2007 over 2006. In 2006 the total number of commercial proposals filed was 3,036 as compared to the 3,241 filed in 2007.

The inference drawn from these numbers is that perhaps commercial proposals are helping businesses going in for rehabilitation and averting liquidation. For creditors this is good news as it implies enhanced recoveries of liability dollars in the Canadian world of business insolvencies.

Defining some terms used in this article
Official Receiver (OR): is an employee of the federal government who works in the Office of the Superintendent of Bankruptcy. The duties of the OR, among others, is to accept documents filed in proposals and bankruptcies, examine bankrupts under oath and chair meetings of creditors

Office of the Superintendent of Bankruptcy (OSB): is a Special Operating Agency Industry Canada which supervises the administration of the Bankruptcy and Insolvency Act. The OSB has Division Offices throughout Canada.

Bankruptcy: the action whereby the property of a debtor is taken over by a receiver or trustee in bankruptcy for liquidation and for the benefit of the creditors. This action is conducted as prescribed by the Bankruptcy and Insolvency Act (BIA) in Canada, and may be voluntary or involuntary.

Insolvency or Insolvent: The condition of being unable to pay debts as they become due or having liabilities that exceed the total value of assets.

Secured Creditor: is a person or company (e.g. bank) holding an instrument such as a mortgage or a lien on or against the whole or part of the property of a debtor as security for a debt due from the debtor.

Trustee: is person licensed by the Superintendent of Bankruptcy to administer bankruptcy and proposal estates.

Office of the Superintendent of Bankruptcy (OSB)
http://osb-bsf.ic.gc.ca/

Canadian Bankruptcy and Insolvency Act (BIA)
http://laws.justice.gc.ca/en/B-3/index.html

Trustee Directory- Finding a trustee for a particular jurisdiction
http://strategis.ic.gc.ca/cgi-bin/sc_mrksv/bankruptcy/trusteeSearch/queryTrustee.cgi?refine=0

Adapted from an article written by:

Puru Grover
General Manager

Credit Guru Inc.
Website: http://www.creditguru.com/education
Canadian Corporate Bankruptcy Seminar: http://www.creditguru.com/education/seminar-BIA.html

Abusive practice by some credit card companies and banks

2008-07-20T00:34:00.003-04:00

In the month of May 2008 Americans put another 8 billion dollars on their credit cards. This is an increase of 7% of credit card usage.

Banks and companies offering credit cards are becoming more and more wary of the recent meltdown in the mortgage market and are looking for additional indicators when monitoring credit risk. Another factor that worry’s the consumer credit market is that consumer bankruptcies are predicted to double this year

So now instead of just watching the paying habits of their customers some Credit Cards companies and Banks have started to pry into the buying habits of their customers to comb for any future warning bells of financial stress. For example if a person starts using his credit card to pay off utilities, food or doctor’s bills the credit card company may see this as a red-flag. The credit card companies are setting up codes for these potentially troubling danger signals of financial difficulty in order to trigger a reduced line of credit and or even raise the interest rates offered on future credit-card borrowing.

The Consumer Federation of America dubbed this practice is wrong as it too believes that is not what the consumer buys but how the customer pays coupled with their history of credit to determine credit worthiness.

So watch out the next time you buy cheap or refurbished stuff and pay for it by a credit card, as your credit card company may deem it to be a sign of financial trouble and penalize you…. when actually you may be exercising financial prudence!

Indymac Bank Collapses - A Sub Prime Victim

2008-07-13T19:52:00.008-04:00

Pasadena, California based Indymac Bank the 9th largest mortgage lender in the country with 33 branch locations in Southern California has gone bust. On Friday customers of the Bank were met with closed doors and a notice announcing the collapse of the institution. This is the second largest financial institution ever to go insolvent in the history of the United States.

The financial position of the Bank has been deteriorating since last quarter. The bank lost over 900mn dollars when home owners defaulted on their mortgages. Their “Alt-A” lending practice is blamed for their demise. “Alt-A” loans are loans with relaxed scrutiny where little or no evidence of assets or income is required for getting a loan.

Last month when the liquidity problem of the bank was made public there was a run on the bank and depositors in the past two weeks ended up withdrawing close to $1.3 Billion. This further worsened the liquidity of the bank.

The regulators, Federal Deposit Insurance Corporation (FDIC) have seized the bank and placed John Bovenzi in charge as the CEO. Before the appointment Mr Bovenzi served as the Chief Operating Officer of FDIC.

The FDIC maintains a list of “problem banks” and Indymac was on the list. It was made public that currently there are about 90 banks on the list.

The federal regulators are now trying to market Indymac and put it back the bank in to private hands. They expect this to be done within the next three months. FDIC wants to prevent customer panic and is assuring customers with under $100,000 in deposits that for them it will be business as usual. But, customers with deposits over $100,000 would have to wait and see how much they'd be able to realize as it will depends on what the Bank can fetch on its sale.

Friday also brought in bad news as shares of Fannie Mae and Freddie Mac slumped further. This is particularly concerning as between these two giant almost half of America's mortgage debt is either owned or guaranteed.

The government is now attempting to avert a crisis of confidence. The Treasury Secretary, Henry Paulson, in trying to calm fears on Wall Street said that the government is trying to give more credit to Fannie Mae and Freddie Mac and the treasury may even buy stock in them. The President's office has also voiced concern as the collapse of any one of these institutions will cause recession in the US and will also have a significant cascading impact globally. The statement issued by the White House read “It is crucial that Congress quickly works to enact this legislation as a complete package along with the strong oversight reform legislation recently passed in the senate.”

These are signs of the times and the seriousness of the sub prime and credit crisis in the US.

Link: What Is and Is Not Protected by FDIC Insurance

International Financial Reporting Standards and Canada

2008-05-29T18:08:00.008-04:00

Canada and International Financial Reporting Standards

Canadian GAAP and IFRS

Globalization of Capital markets has spurred the acceptance of International Financial Reporting Standards. The term “IFRSs” refers to standards approved by the International Accounting Standards Board (IASB) or its predecessor body, the International Accounting Standards Committee, as well as interpretations originated by the IASB’s interpretations committee, the International Financial Reporting Interpretations Committee (IFRIC) or its predecessor body, the Standing Interpretations Committee. In essence a global set of accounting standards facilitates international commerce and transactions around the world.

In Canada the Accounting Standards Board (AcSB) has recently confirmed January 1, 2011 as the changeover date (i.e., the date IFRSs will replace current Canadian standards and interpretations as GAAP for this category of reporting entity). As a result, except as noted in “Scope” below, publicly accountable enterprises are required to prepare their financial statements in accordance with IFRSs for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Some may choose to adopt IFRSs earlier.

Scope
The AcSB (Accounting Standards Board) proposes that all Canadian reporting entities, except the following, be required to apply IFRSs after January 1, 2011:
Private enterprises, that is, profit-oriented entities that:(a)
(i) have not issued (and are not in the process of issuing) debt or equity instruments in a public market; and
(ii) do not hold assets in a fiduciary capacity for a broad group of outsiders. Entities with fiduciary responsibility, such as banks, credit unions, insurance companies, securities brokers/dealers, mutual funds, and investment banks, stand ready to hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity.
Not-for-profit organizations, as defined in (b) FINANCIAL STATEMENT PRESENTATION BY NOT-FOR-PROFIT ORGANIZATIONS, Section 4400.
Public sector entities to which the standards contained in the CICA Public (c) Sector Accounting Handbook apply. The Introduction to the CICA Public Sector Accounting Handbook states that for purposes of their financial reporting, government business enterprises and government business-type organizations are deemed to be publicly accountable enterprises and should adhere to the standards applicable to publicly accountable enterprises in the CICA Handbook – Accounting, unless otherwise directed to specific public sector standards. Accordingly, the changeover to IFRSs applies to these two categories of public sector entity.

Entities required to apply IFRSs after January 1, 2011 are collectively referred to as “publicly accountable enterprises.”

IFRS is big, but it’s not a revolution. The fundamental financial reporting premise is the same and the standards cover almost identical areas. There’s no difference in the basic concepts, the difference is in the details.

The three important and widely applicable differences between IFRS and Canadian GAAP are the treatment of i) impairment, ii) securitization and iii) revaluations.

The following are only a few significant differences between Canadian GAAP and IFRS and does not include all of the differences that might arise in a particular entity’s circumstances.

Historical Costs Principle: Historical cost is the main accounting convention. Under GAAP items are usually accounted for at their historical cost. However, the IFRS permits the revaluation of intangible assets, property, plant and equipment, and investment property to fair value. IFRS also requires certain categories of financial instrument and other biological assets to be valued at fair value. All items, other than those carried at fair value through profit or loss, are subject to impairment. The best evidence of fair value is a quoted price in an active market (also termed ‘mark to market’). It is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
IFRSs provide guidance on determining when the economy of an entity’s functional currency is hyperinflationary. When an entity’s functional currency becomes hyperinflationary, it makes price-level adjustments retrospectively. The financial statements of a foreign operation whose functional currency is hyperinflationary are adjusted before being translated for consolidation purposes.

Going Concern Assumption: General Standards on Financial Statement Presentation has been amended to include requirements to assess an entity’s ability to continue as a going concern and disclose any material uncertainties that cast doubt on its ability to continue as a going concern.

The Statements: IFRS does not require a statement of retained earnings. If an entity chooses the same can be incorporated as a part of the income statement. In IFRS financial statements a 'Statement of Changes in Equity' is now required. The statement of changes in equity presents a reconciliation of equity items between the beginning and end of the period.
The following items are presented on the face of the statement of changes in equity:
(a) profit or loss for the period;
(b) each item of income or expense recognized directly in equity (for example, revaluation gains on PPE, currency translation differences arising on the translation of the financial statements from the functional to the presentation currency) and their total;
(c) total income and expense for the period (the sum of (a) and (b)), showing separately the total amounts attributable to equity holders of the parent and to minority interest; and
(d) for each component of equity, the effects of changes in accounting policies and corrections of material prior-period errors. Details of distributions, the balance of retained earnings and a reconciliation of the carrying amount of each class of equity and each item recognized directly in equity are presented either on the face of the statement of changes in equity or in the notes to the financial statements. (review sample following this article)

Inventory Evaluation Methods: The cost of inventories used is assigned by using either the first-in, first-out (FIFO) or weighted average cost formula. Last-in, first-out (LIFO) is not permitted. The same cost formula is used for all inventories that have a similar nature and use to the entity. Where inventories have a different nature or use, different cost formulas may be justified.

Sample Reports of Independent Audit and Review under IFRS

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS
We have audited the accompanying financial statements of Good Group (International) Limited and its subsidiaries (‘the Group’), which comprise the consolidated balance sheet as at 31 December 2007 and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Chartered Accountants & Co.
Date City:

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION.

Introduction
We have reviewed the accompanying consolidated condensed balance sheet of ABC Corporation as of 31 May 2006 and the related consolidated condensed statements of income, changes in equity and cash flows for the six-month period then ended. Management is responsible for the preparation and presentation of this consolidated condensed interim financial information in accordance with International Accounting Standard 34, ‘Interim financial reporting’3. Our responsibility is to express a conclusion on this interim financial information based on our review.

Scope of review
We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of interim financial information performed by the independent auditor of the entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial information is not prepared, in all material respects, in accordance with IAS 34.

[Accounting Firm]
Date
City

Sample ‘Statement of Changes in Shareholders’ Equity

Adapted from an article written by:

Puru Grover

General Manager

Credit Guru Inc

Website: http://www.creditguru.com/education

Financial Statement Analysis Course: http://www.creditguru.com/education/seminar-UFS.html

Protecting and Fighting against Identity Theft

2008-02-08T22:40:00.000-05:00

The biggest and fastest growing crime today is the crime of Identity theft. It happens when someone steals your personal information and then commits fraud assuming your identity without you being aware of it.

One person every four seconds is being ripped off somewhere in the world. These Id thieves can take away your information with the blink of an eye and then destroy your credit history in a snap that you perhaps have toiled for years in the past to build upon. It is bit of an unnerving thought that someone is pretending to be you and doing things in your name that may eventually cost you money and your good name. Last year identity theft victims spent over $5billion to rectify the harm caused by stolen identity. It affected more than 10 million individuals globally with about $50 billion in losses to businesses worldwide. On an average a victim of identity theft could end up sending up to $1,200 in repairing the damage and that does not include the countless hours that get spent in un doing the harm.

Most of the stolen information gets traded on online chat rooms where the profile of these thieves is male 18-25 years old. The information is traded like a commodity and there is so much of information available that a full profile of an individual can be bought for as little as $20. This profile includes information like name, address, phone, credit card number, PIN, mother's maiden name, date of birth, social security/insurance number etc..
Just by getting your credit card information most of these crooks can drill down to obtaining your entire profile.

FBI agents, crime prevention cops and others that monitor these chat rooms find it virtually impossible to nab these crooks a) as there is no point-of-origin for these chat facilities and b) the chats rooms surfs over thousands of servers globally. Knocking down one server does nothing as the threads get picked up on thousands of other servers. The problem is global and what compounds the problem is there is no global jurisdiction to curb the crime. Then there are countries (like Iran) that will not cooperate with any US crime prevention authorities. This gives the crooks save heaven to operate from.

There are several ways that your personal information could get into the hands of these rogues:

They send tricky emails that get you to believe that it is from your financial institution and there is a problem with your account and that you need to click on a link to rectify your personal information or resubmit it. This type of impersonation of your financial institution is called Phishing.
Telemarketers who call and do the same as above
Stealing mail from your mailbox or picking financial and personal information from your discarded garbage
Employees may copy or sell your personal information at work or a hotel you stayed at; a hospital you were admitted; or a restaurant you ate at; a store you bought at; a gas station you filled gas at etc…
Online shopping on non-secure or dubious sites
Eavesdropping on ATM, debit card and other public transactions
Unattended briefcases, purses, wallets
Today thieves that break into homes are also seeking personal information to rob.
Stolen wallets, purses, PDA (Palm, Treo, Blackberry etc.), computers/laptops
Viruses that can record your keystrokes while making online transactions like banking or purchases
Surfing social networking sites (e.g. FaceBook, MySpace) and Googling
Hackers. A couple of years ago hackers hacked into T.J. Maxx/Winners store online and stole millions of credit card numbers and personal information of shoppers.

From the above it is evident that no one is immune to identity theft. It is a matter of someone in the chain where your personal information resides compromising the information. The idea here is not be scared of identity theft but be aware that it can happen to anyone and that everyone can do something to safeguard themselves against this rampant crime.

Prevention is better than cure:

Some of the very basic question that you need to ask yourself is:
Do you know what information you carry on you personally?
What is in your wallet/purse?
Do you have a log of your credit/debit cards and a telephone number of the provider lest you lose them?
If you do then why do you carry your Social security or Social Insurance card on you?
Getting hold of a social security or social insurance number is a gold mine for an Id bandit. Even with a mismatched name and date of birth a social security number a crook can establish credit. This number should be either in your head or with your valuable and not where it can be easily misplaced, stolen or lost. When applying for a product or service if someone asks for this number, ask them why they need it and if it is mandatory. If it is mandatory then you have the right to know as to how they would be safeguarding it.
Do not give out any personal credit or financial information on the phone, online or even in person to anyone that you don’t know or suspect.
Make sure that you clear your mail regularly from your mail box. There are thieves that scour though apartment buildings to collect any un forwarded mail of residents that have left or are on vacation.
Shred any documents that contain vital personal or financial information before discarding it onto your garbage.
Limit the use of your debit card. (Canadians are known to use their debit cards liberally.) Keep in mind that a debit card gives direct access to your financial institution/bank account.
Change your passwords often. Do not use simple or easy to guess passwords especially of loved ones with the family! Choose password that have a combination of numbers, alphabets and upper/lowercase.
Ask your credit card company to change your credit card number often
Use a specially designated credit card for online shopping with a very low limit to reduce your exposure in case of fraud.
Monitor your credit card and financial statements for any unusual charges
Re-Pin your credit card, bank card and debit card at least once every year. Although, it is recommended that you re-pin it more often.
Some places now you can ask your financial institution to prompt the retailer to check your ID instead of just your signature when paying by credit card.
On your computer keep all the patches offered by the operating system current. Use three levels of internet protection by having i) Antivirus, ii) Anti Spy ware and iii) Firewall ‘on’ when surfing the net.
Check your credit report at least once every six months to detect any unusual activity on your credit file. It is important to do so because if a thief uses your social security/social insurance number to apply for new credit you will have no way of knowing it unless you monitor your credit report regularly. According to Federal laws you have the right to a free credit report from each of the three major consumer reporting agencies (also called credit bureaus) namely, Equifax, Experian and TransUnion. [US Tel Nos: Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) Canada Tel Nos: Equifax (1-800-465-7166), Transunion (1-800-663-9980)] In the US visit http://www.annualcreditreport.com/

What to do if you become a victim:

If you lose a credit card apart from just calling the credit card company and canceling that card and requesting a new one you must also call the credit bureaus ( listed above) and ask them to put a ‘Fraud Alert’ on your credit report immediately. If you don’t do this it is quite easy for the crook to reopen the card and order new ones! Time is critical and this must be done immediately.
Contact all your creditors, in writing, explaining what happened where you find that the information has been misused and get an acknowledgement of these disputed and fraudulent transactions. Have them resolved.
Contact your local police and report the fraud. This establishes that a crime occurred and is a serious and punishable office.
Call and immediately close any accounts that were opened fraudulently or you feel have been compromised due to the identity theft.
If a collector is attempting to collect on such a fraudulent transaction you may want to submit your explanation on an affidavit along with the police report.
Also report the fraud so that it can be investigated by authorities and prevent others from becoming victims of the same crime:
In the US: Contact the Federal Trade Commission www.ftc.gov/idtheft (Toll free 877-ID-THEFT and report it. This information helps the federal enforcement officials to fight Id theft in the States.
In Canada: Report the crime to RCOL (the RCMP-led Reporting Economic Crime Online) and PNCC (PhoneBusters National Call Centre)
RECOL: (http://www.recol.ca/) is a web-based initiative that involves an integrated partnership between international, federal and provincial law enforcement agencies, as well as regulators and private commercial organizations that have a legitimate investigative interest in receiving a copy of complaints of economic crime, including identity theft.
PNCC: (http://www.phonebusters.com/) is the Canadian anti-fraud call centre, jointly operated by the Ontario Provincial Police and the Royal Canadian Mounted Police that collects information on telemarketing fraud, advanced fee fraud letters and identity theft complaints.

Your identity is part of your net worth do not compromise it. Be proactive and help fight this rapidly growing crime.

Dealing with Bill Collectors and Illegal Parking Tickets in Ontario

2008-01-26T20:48:00.000-05:00

Lately in Toronto Collection agencies have been relentless in collecting Parking Tickets that are illegally issued by private parking lot owners. They are illegal because an Ontario court ruling prohibits private property owners or their agents from issuing parking tickets/notices demanding payment for parking on private property. As a result of the decision, the only document that may be issued for parking on private property without the property owner's consent is a City parking infraction notice (parking ticket) issued under the Provincial Offences Act. The Toronto City Council addressed the issue because of complaints to City officials and the police.

The agency that is issuing these collection notices is issuing on the letterhead 'Municipal Parking Corporation'. It is issued form its Collection Department that reads 'Notice of Default'. Municipal Parking Corporation (MPC) is a private company that offers parking enforcement with their private ticket programs that use 'Trespassing laws' to issue tickets on behalf of their clients that are commercial, institutional or residential property owners. (Website http://www.municipalparking.ca/)These private parking lots have access to license plate information through the ministry which enables The collection agencies to get the personal information to issue these notices. CityTV in Toronto has already brought this to light and has approached both the Transportation Minister- Mr. Jim Bradley and Mr. Ted McMeekin the Minister Government and Consumer Services to take the necessary actions to protect the consumer a) by halting these fake tickets and bogus fines and b) protect the consumer's personal information that can be easily stripped by using the license plate numbers database that is in the domain of the Ministry of Transportation.

There are two issues here
1) Identifying a bogus v. the one actually issued by the City of Toronto under the Provincial Offences Act
The fundamental difference is that the legit parking ticket issued by the cops in the City of Toronto is yellow in colour with the City of Toronto's logo on it. (Click on the image to see a sample) The ones issued by MPC tend to be white or off-white with the logo somewhat mimicking the city's logo.

2) Dealing with an aggressive and relentless Bill Collector from a Collection Agency
As a consumer if you are faced with very pushy and sometimes obnoxious bill collector from a collection agency and you feel that you are being treated unfairly, keep in mind that debt collectors are governed by the Ontario Collection Agencies Act. (Web Link: http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90c14_e.htm )The Collectors and Collection Agencies are regulated by the Ontario Ministry of Government and Consumer Services
As starters you may want to first speak with the manager of the collector and then if necessary lodge a formal complaint with the Ministry's Consumer Protection Branch.

As an ‘FYI’ the regulations coded in Ontario Collection Agencies Act forbid collection agencies from:

contacting you until six days have passed from sending you written notice of the following:
• the name of the creditor
• the balance owing
• the name of the agency and its authority to demand payment

continuing to contact you if you did not receive the notice unless a second copy of the written notice is sent to an address provided by you, and then contact may only be made six days after sending notice;

contacting you if you send a registered letter to the agency saying that you dispute the debt and suggest the matter be taken to court;

contacting you if you or your lawyer notify the agency by registered mail to communicate only with your lawyer, and you provide the lawyer's name, address and telephone number;

contacting you on Sunday, except between the hours of 1 p.m. and 5 p.m., and on a holiday;

contacting you other than by ordinary mail more than three times in a seven-day period without your consent, once the agency has actually spoken with you;

using threatening, profane, intimidating or coercive language, or using undue, excessive or unreasonable pressure;

continuing to contact you if you have told them that you are not the person they are looking for unless they take reasonable precautions to ensure you are that person;

giving false or misleading information to any person;

recommending to a creditor that a legal action be commenced against you without first sending you notice;

contacting your employer except on one occasion to obtain your employment information, unless your employer has guaranteed the debt, the call is in respect of a court order or wage assignment or if you have provided written authorization to contact your employer;

contacting your spouse, a member of your family or household, or a relative, neighbour or acquaintance except to obtain your address and telephone number unless the person contacted has guaranteed the debt or you have given permission for the person to be contacted.

The Consumer Protection Branch of the Ontario Ministry of Government and Consumer Services can be contacted at:
Toll Free: 1-800-889-9768Toronto: (416) 326-8800Web Link: http://www.gov.on.ca/mgs/en/Contact/STEL01_045739.html

Your FICO Score is Changing in 2008

2007-12-19T17:40:00.000-05:00

In order to reduce the potential risk of lending money to an individual, lenders evaluate the creditworthiness of the borrower by looking at various variables which influence the likelyhood of a person's ability to pay back his or her debt is a timely manner. These variables and statistics are then run through a mathematical model to arrive at a number (score) that is called a credit score. This numerical credit score represents the creditworthiness of an individual and is utilized by by all kinds of institutions like Banks, credit card companies, phone companies, insurance companies etc. The Banks and lending institutions are of particular importance as credit scores are used by them to determine who gets to borrow, how much and at what rate of interest.

A credit score named 'FICO' is a commonly heard credit score that is used by banks and other lending institutions for mortgage lending. FICO is a trademark of Fair Isaac & Co. as this credit scoring system was developed by them. In the United States and Canada FICO scores are available through the three major consumer reporting agencies (also called credit bureaus) namely, Equifax, Experian and TransUnion. [US Tel Nos: Equifax (1-800-685-1111), Trans Union (1-800-916-8800) and Experian (1-888-397-3742) Canada Tel Nos: Equifax (1-800-465-7166), Transunion (1-800-663-9980)]

While there are other factors the key factors that can adversely effect your score are:

Not having sufficient credit history of credit
Late payments of bills
Placed for collections with a collection agency for an upaid bill
Having a large number of inquiries on your credit report
Having high credit-card balances that are nearing your credit limit

What goes in to your FICO score (With their relative weights):

Payment History 35%
Types of Credit Used 30%
Amounts Owed 15%
Length of Credit History 10%
New Credit 10%

It was just announced by Fair Isaac & Co. that in 2008 your FICO scores are changing. FICO announced that it will be tweaking its current model of calculating your credit scores using some new mathematics and statistical models. The good news is that your current FICO score is anticipated to move up a bit when the new math models are applied and your score recalculated for 2008.

The new provisions that are coming into force in 2008 now:

a) Stops authorized users from using your Card
b) There are higher penalties for not paying your bills on-time
c) There are more rewards on your score for paying bills on-time
d) There are additional points for carrying different types of debt

This above translates in to the following:

a) If you are someone who does not have your own credit card and have been authorized by some one else (like a parent or spouse) to use their card then it is time for you to apply for your own. Lenders want to know you directly and want you to establish your own credit history. Also in the past authorizing someone else to use your card has encouraged unnecessary scams and fraud that creditors (or lenders)wish to curb.

b) It is imperative that you pay your bills on time as deliquency will now cause increased damages to your FICO-score and timely payment will reap richer rewards to your score.

c) Having different kinds of debts like a mortgage, credit card debt, a student loan etc, now will now positively impact your FICO-score.

Although carrying too many credit cards under the new calculations does not impact your credit score that much it is nevertheless still recommended that you do not carry more than two or three credit cards. Carry the ones that are have cash rewards or cash value. Specially during the holiday season stores lure you with significant discounts on your initial purchase. They carry a significantly higher APRs and the history of these cards most of the time sits unnecessarily for perpetuity on your credit history. So look beyond just the initial purchase from these cards. If the initial offfer is too hard to resist then you may want to avail of the offer and subsequently have the card cancelled. So Pick cards judicially and the ones that you will use.

If you are in the market for a mortgage then here is an example that should drive home the point of having a good FICO-credit score that ends up in saving thousands of dollars in interest payments.

Based on a $200,000 mortgage, spread over 20 years the above table reflects how much you would be paying each month with different FICO-Scores. The difference between the best and the worst is $125,000 in interest payments over this period!

A FICO Score is your personal financial health barometer indicative of your credit risk- Score Well!

Puru Grover / MD / Credit Guru Inc.

Applying for Credit?

2007-12-16T18:38:00.000-05:00

*Discrimination *What Laws Apply? *What
Creditors Look For *Information the Creditor Can't Use
*Special Rules *Discrimination Against
Women *If You're Turned Down

Discrimination

When you're ready to apply for credit, you should know what factors creditors think are important in deciding whether you're creditworthy. You should also know what factors they cannot legally consider in their decisions.

What Law Applies?

The Equal Credit Opportunity Act requires that all credit applicants be considered on the basis of their actual qualifications for credit and not be rejected because of certain personal characteristics.

What Creditors Look For

The Three Cs. Creditors look for an ability to repay debt and a willingness to do so--and sometimes for a little extra security to protect their loans. They speak of the three Cs of credit: capacity, character, and collateral.

Capacity

Can you repay the debt? Creditors ask for employment information: your occupation, how long you've worked, and how much you earn. They also want to know your expenses: how many dependents you have, whether you pay alimony or child support, and the amount of your other obligations.

Character

Will you repay the debt? Creditors will look at your credit history (see section on Credit Histories and Records): how much you owe, how often you borrow, whether you pay bills on time, and whether you live within your means. They also look for signs of stability: how long you've lived at your present address, whether you own or rent your home, and the length of your present employment.

Collateral

Is the creditor fully protected if you fail to repay? Creditors want to know what you may have that could be used to back up or secure your loan and other resources you have for repaying debt other than income, such as savings, investments, or property.

Creditors use different combinations of these facts to reach their decisions. Some set unusually high standards; others simply do not make certain kinds of loans. Creditors also use different rating systems. Some rely strictly on their own instinct and experience. Others use a "credit-scoring" or statistical system to predict whether you're a good credit risk. They assign a certain number of points to each of the various characteristics that have proved to be reliable signs that a borrower will repay. Then they rate you on this scale.

Different creditors may reach different conclusions based on the same set of facts. One may find you an acceptable risk, whereas another may deny you a loan.

Information the Creditor Can't Use

The Equal Credit Opportunity Act does not guarantee that you will get credit.
You must still pass the creditor's tests of creditworthiness. But the creditor must apply these tests fairly and impartially. The act bars discrimination based on age, gender, marital status, race, color, religion, and national origin. The act also bars discrimination because you receive public income, such as veterans benefits, welfare or social security, or because you exercise your rights under federal credit laws, such as filing a billing error notice with a creditor. This protection means that a creditor may not use any of these grounds as a reason to

discourage you from applying for a loan
refuse you a loan if you qualify
lend you money on terms different from those granted another person with similar income, expenses, credit history, and collateral
close an existing account because of age, gender, marital status, race,
color, religion, national origin, receipt of public income or because you exercise your rights under federal credit laws.

Although creditors may not discriminate on the basis of national origin, they may consider your immigration status when making a loan decision.

Special Rules

Age

In the past, many older persons have complained about being denied credit because they were over a certain age. Or when they retired, they often found their credit suddenly cut off or reduced. So the law is very specific about how a person's age may be used in credit decisions.

A creditor may ask your age, but if you're old enough to sign a binding contract
(usually 18 or 21 years old depending on state law), a creditor may not:

turn you down, offer you less credit, or offer you less favorable credit terms because of your age
ignore your retirement income in evaluating your application
close your credit account or require you to reapply for it because you reach a certain age or retire
deny you credit or close your account because credit life insurance or other credit-related insurance is not available to a person your age.

Creditors may "score" your age in a credit-scoring system, but if you are 62 or older you must be given at least as many points for age as any person under 62.

Because individuals' financial situations can change at different ages, the law lets creditors consider certain information related to age, such as how long until you retire or how long your income will continue. An older applicant might not qualify for a large loan with a very low down payment and a long term, but might qualify for a smaller loan, with a larger down payment, and a shorter term. Remember that although declining income may be a handicap if you are older, you can usually offer a solid credit history to your advantage. The creditor has to consider all the facts and apply the usual standards of creditworthiness to your particular situation.

Public Assistance

You may not be denied credit just because you receive social security or public assistance, such as Temporary Assistance to Needy Families (TANF). But as is the case with age, certain information on this source of income could clearly affect creditworthiness. A creditor may consider such things as how old your dependents are (because you may lose benefits when they reach a certain age) or whether you will continue to meet the eligibility requirements for receiving benefits.

This information helps the creditor determine the likelihood that your public-assistance
income will continue.

Housing Loans

The Equal Credit Opportunity Act covers your application for a mortgage or home-improvement loan. The act bars discrimination because of characteristics such as your race,
color, gender or because of the race or national origin of the people in the neighborhood where you live or want to buy your home. Creditors may not use any appraisal of the value of the property that considers the race of the people in the neighborhood.

Also, you are entitled to receive a copy of an appraisal report that you paid for in connection with an application for credit, provided you make a written request for the report.

Discrimination against Gender or Marital Status

Both men and women are protected from discrimination based on gender or marital status. But many of the law's provisions were designed to stop particular abuses that generally made it difficult for women to get credit. For example, denying credit or offering less favorable credit terms based on the misperception that single women ignore their debts when they marry, or that a woman's income "doesn't count" because she'll stop work to have and raise children, is unlawful in credit transactions.

The general rule is that you may not be denied credit because you are a woman or because you are married, single, widowed, divorced, or separated. Here are some important protections:

Gender and Marital Status

Usually, creditors may not ask your gender on an application form (one exception is on a loan to buy or build a home). You do not have to use Miss, Mrs., or Ms. with your name on a credit application. But in some cases, a creditor may ask whether you are married, unmarried, or separated (unmarried includes single, divorced, and widowed).

Childbearing Plans

Creditors may not ask about your birth-control practices or your plans to have children, and they may not assume anything about those plans.

Income and Alimony

The creditor must count all of your income, even income from part-time employment. Child support and alimony payments are a source of income for many women. You don't have to disclose these kinds of income, but if you do, creditors must count them.

Telephones

Creditors may not consider whether you have a telephone listing in your name because this factor would discriminate against many married women. (However, you may be asked if there's a telephone in your home.)

A creditor may consider whether income is steady and reliable, so be prepared to show that you can count on uninterrupted income, particularly if the source is alimony payments or part-time wages.

Your Own Accounts

Many married women once were turned down for credit in their own name. Or a husband had to cosign an account--that is, agree to pay if the wife didn't--even when a wife made sufficient income to easily repay the loan. Single women couldn't get loans because they were thought to be somehow less reliable than other applicants.
You now have the right to your own credit, based on your own credit records and earnings. Your own credit means a separate account or loan in your own name, not a joint account with your husband or a duplicate card on his account. Here are the rules:

Creditors may not refuse to open an account because of your gender or marital status.
You can choose to use your first name and maiden name (Mary Smith), your first name and husband's last name (Mary Jones), or a combined last name (Mary
Smith-Jones).
If you're creditworthy, a creditor may not ask your husband to cosign your account, with certain exceptions when property rights are involved.
Creditors may not ask for information about your husband or ex-husband when you apply for your own credit based on your own income unless that income is alimony, child support, or separate maintenance payments from your spouse or former spouse.

This last rule, of course, does not apply if your husband is going to use your account or be responsible for paying your debts on the account or if you live in a community property state. (Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.)

Change in Marital Status

Married women have sometimes faced severe hardships when cut off from credit after their husbands died. Single women have had accounts closed when they married, and married women have had accounts closed after a divorce. The law says that creditors may not make you reapply for credit because you marry or become widowed or divorced. Nor may they close your account or change the terms of your account on these grounds. There must be some sign that your creditworthiness has changed.
For example, creditors may ask you to reapply if you relied on your ex-husband's income to get credit in the first place.

Setting up your own account protects you by establishing your own history of how you handle debt. You can rely on this record if your financial situation changes if you become widowed or divorced. If you're getting married and plan to take your husband's surname, write to your creditors and tell them you want to keep a separate account.

If You're Turned Down

Remember, your gender or race may not be used to discourage you from applying for a loan. And creditors may not hold up or otherwise delay your application
on those grounds. Under the Equal Credit Opportunity Act, you must be notified within 30 days after your application has been completed whether your loan has been approved or not. If credit is denied, this notice must be in writing, and it must explain the specific reasons that you were denied credit or tell you of your right to ask for an explanation. You have the same rights if an account you have had is closed.

If you are denied credit, be sure to find out why. Remember, you may have to ask the creditors for this explanation. It may be that the creditor thinks you have requested more money than you can repay on your income. It may be that you have not been employed or lived long enough in the community. You can discuss terms with the creditor and ways to improve your creditworthiness. The next section explains how to improve your ability to get credit.

If you think you have been discriminated against, cite the law to the creditor.
If the creditor still says no without a satisfactory explanation, you may contact a federal enforcement agency for assistance (the federal agency you should contact should be included in the notice you receive from the creditor), or you may bring legal action, or submit your complaint to
Federal Reserve Consumer Help
PO Box 1200Minneapolis, MN 55480
888-851-1920 (Phone)877-766-8533 (TTY)877-888-2520 (Fax)Email:ConsumerHelp@FederalReserve.gov
http://www.federalreserveconsumerhelp.gov/

This article is an excerpt from the 'Consumer Handbook to Credit Protection Laws' published by the US Federal Reserve Board.

Consumer Proposals: Declare Bankruptcy or is there an alternative for individuals in Canada?

2007-12-12T03:10:00.000-05:00

Bankruptcy is a drastic measure and should always be filed only as a last resort in overcoming financial difficulty. Bankruptcy on its surface appears as an attractive and immediate remedy for overcoming debt crisis but its negative effects on your ‘credit-image’ lasts for years to come. Generally, information concerning your bankruptcy could blemish your credit report for a period of 6 to7 years after your discharge. If you have been bankrupt before, this period could be extended to as much as 14 years. This period could vary from province to province. Then to add fuel to fire, the impact could permeate in to restricting applying for certain types of jobs, licenses and loans.

In Canada is there an alternative to Bankruptcy?

In Canada the Bankruptcy and Insolvency Act (BIA) allows you may make a ‘Consumer Proposal’ to your creditors to reduce the amount of your debts, extend the time you have to pay off the debt, or provide a mix of both.

As a precursor to filing a proposal we recommend the following:

You should have already ascertained that you can not pay your debts i.e. you are ‘insolvent’

You approached your bank or financial institution which refused your request of combining or "consolidating" your debts into one loan.

Do the math. If not the full amount, how much of your debt can you pay per month? (Consider your Income and Expenses)

Create a rough payment plan to repay the debts

Establish primary contact with each creditor (the person/institution) that you owe money to and communicate your informal plan by delineating why you are having financial difficulty in making your payments and suggest making lower payments over a longer period of time. You may be surprised that there are creditors who will be willing to accept such arrangements.

If the above does not work then in Canada a formal consumer proposal can be triggered under the BIA. The best part of filing a consumer proposal under BIA is that in Canada there is no claim of bankruptcy and your credit report stays clean.

Lets us first review as to who qualifies to file a consumer proposal under the BIA.
Any person who is insolvent and whose debts are less than $75 000 can make a consumer proposal. The $75,000 amount excludes a home mortgage. (If the debts are more than $75 000, the proposal can still be made but differs and is made under Division I of Part III of the BIA.)

When you wish to make a proposal, it must first be approved by the inspectors and you must have obtained the assistance of a trustee who will be the administrator of the consumer proposal.

The procedure begins with the help of an administrator who might be a trustee in bankruptcy or a person appointed by the Superintendent of Bankruptcy. (You can find a trustee by looking up your local yellow pages.) He or she will ask you about your financial situation assess it and give you advice about what kind of a proposal may be best for you and your creditors. The administrator will ask you to sign the required forms which will then be filed with the Official Receiver.

The advantage of undertaking this process is that upon filing the required forms with the official receiver your unsecured creditors will not be able to take legal steps such as seizing property or garnisheeing wages to recover their debts from you as long as your proposal is not rejected, withdrawn or annulled. Also, if you default on your proposal the administrator of the proposal gets discharged and creditors and resume their remedies against you. (If you wish to file a proposal you must first obtain the assistance of a trustee who will be the administrator of the consumer proposal.)

From the date of filing the proposal with the official receiver the administrator within10 days is required to send the Official Receiver a report that contains the administrator's opinion about fairness of your proposal and whether you will be able to execute the terms of the proposal. The report also lists your liabilities, assets and all your creditors whom you owe at least $250. The administrator is also required to send all your creditors a copy of your proposal and a copy of the report on the proposal and calls for a meeting of creditors if required under section 6615 of BIA. The creditors are instructed to either accept or reject your proposal within 45 days by replying to the administrator. No response means acceptance. If no creditors respond or your creditors vote yes, your proposal is approved pending Court approval. However, if more than 25% of your creditors vote no a meeting must be held in which your creditors vote whether or not to accept your proposal.

Your creditors will have up to 45 days to consider whether to accept or reject your proposal. A creditor may send a note to the administrator accepting or rejecting the proposal. If creditors do not respond, they will be considered to have accepted the proposal. If a sufficient number of creditors accept the proposal it then becomes binding on you and your creditors. You then must meet all its terms

If the proposal gets rejected by your creditors you will no longer be protected under the BIA. Within 5 days of the rejection of your proposal the administrator will the Official Receiver and all your creditors about the rejection after which the creditors will be able to take legal steps to recover their debts from you.

Once you have fully performed on your proposal, the administrator issues a certificate of full performance to you and the Official Receiver and you will be relieved of the debts that were listed in the proposal.

Highlights

If a proposal gets accepted there are no more worries about collection calls from collection agencies or direct calls from your creditors.

If there are any legal enforcements against you, like garnishment of wages etc, these are automatically stopped.

A consumer proposal gives certainty and its actions leads to get your life back in order

In Canada there is no claim of bankruptcy and your credit report stays clean.

Note: Consumer proposals do not affect the rights of secured creditors. If a creditor has a valid security against your property (i.e., car or house), and if you can afford monthly payments, financial arrangements may be made with the secured creditor to keep the property and continue paying for it.

If you want more information on making a consumer proposal to your creditors, contact an administrator of consumer proposals. (Look up your Yellow Pages under the heading of Bankruptcy)
To read the BIA on Consumer Proposals visit the following link: ( BIA – Consumer Proposal Div II)

DISCLAIMER:

The information on this blog Credit Mantra is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, insolvency or other professional advice and services. As such, it should not be used as a substitute for consultation with professional insolvency, legal or other competent advisers. While we have made every attempt to ensure that the information contained on the Credit Mantra Blog has been obtained from reliable sources and the blogger is not responsible for any errors or omissions, or for the results obtained from the use of this information.

Writing a Credit Policy for your Business

2007-12-10T17:53:00.000-05:00

Is your Credit Policy Profitable ?

Author: Puru Grover

Credit is an indispensable catalyst in financing the movement of commerce. Its roots go fairly deep in time and are definitely as old as the concept of trade itself. As early as 1300 BC the Babylonians were lending on the basis of getting a charge on security or collateral. Credit touches us in various ways. To some it could be a mere caress or a tickle, to others it could be a brush, to some a graze and for others a crash or a collision.

To demonstrate the importance of credit, according to Industry Canada sources the Small Business Loans Act (SBLA), a program that serves start-up and smaller firms, has succeeded in lending more than $ 20 Billion to over 50,000 Small and Medium sized Enterprises (SMEs) in Canada, since its inception in 1961. The loans have helped in creating approximately four new jobs per loan. Today SMEs have become an integral part of the Canadian economy. Firms with fewer than 50 employees each were responsible for 81% of the new jobs in Canada in 1996-1997.

Credit helps in production, distribution, selling, consumption and expansion. It helps smoothen the rough curve of seasonality of a seasonal business. It increases the immediate buying power of a consumer. But where there is good there may also be bad and ugly. Credit could mean a collapse due to Overbuying, Overexpansion or Overselling. Probably the single most important factor is the maintenance of proper cash flow in operating a successful franchise. Cash flow problems can be avoided by making sure that you administer and manage credit with financial prudence and get paid promptly for goods or services rendered. Accounts Receivables, which can be broadly defined as uncollected sales, are one of the largest assets of a business, amounting to approximately 15% to 20% of the total assets of a typical manufacturing business. An uncontrolled growth in sales could result in an uncontrolled management of account receivables. What is the mission of a person with credit responsibility? What is the function of credit and credit management? To answer these questions I will refer to an article written by Michell Woods-Howell, wherein is mentioned the mission statement of Microsoft's Credit department. - 'To maximize the protection of Accounts receivable while supporting Microsoft's effort to expand sales and increase market share throughout the world, to evaluate accounts receivable worldwide risk and to make sure we have appropriate reserves in place.'

It just goes to corroborate the fact that no matter how big or small is the size of business operation, companies are focussing increasingly on managing and collecting their receivables efficiently and effectively, thus maximizing their cash inflows.

Credit is temporary capital and the objective of credit is to lend with the purpose of increasing profits and sales. A sound credit policy in business is the blue print to managing by measurement and benchmarks. The question then arises is 'What is a Credit Policy and how does one write a Credit Policy for their specific nature of business operations?
Writing an effective Credit Policy begins with an understanding of the financial exposure that you or your business can endure and the amount of your working capital that you would be willing to risk, or call it 'invest' in your customers.

Revolutionary developments in the computer and communications fields have forced companies to increase speed and become relevant. Markets are becoming global and economic activity across nations is becoming increasingly integrated. Competition can come from the face of a computer screen with the competitor sitting in a different time zone. About the only thing in business that is a constant, is change. As the world transforms at an unprecedented pace so have to the components that propel its engines. Thus a credit policy that is written without an understanding of the market and ample room for change in it and the one that is not frequently revisited could become obsolete in matter of days. With the information-age revolution, knowledge-based activities are becoming increasingly important for existence. Hence, enhancing skill-sets and knowledge is an intangible component of a credit policy.

I am of the firm belief that 'what gets measured gets managed'. Therefore as a matter of policy one should manage by measuring results. Every time a deal goes bad, review the things that were done incorrectly in either setting up of the account, monitoring or collecting it. Measure Days Sales Outstanding (DSO), aging receivables, and bad debts as a percentage of sales. Keep a tab on your liquidity by reviewing liquidity ratios like the current or working capital ratio. Also keep a pulse on your inventory turnover. This will tell you if your efficiency is increasing, decreasing or the same over different time periods. Profits are a combined function of liquidity and efficiency. You can use the same logic when assessing your customer.

Using quality information can help scores in managing risk. Collecting relevant information requires a well thought-out Credit Application. It should seek permission from your customers to conduct credit investigation from credit bureaus, trade and bank references for the purpose of granting credit. A Credit Application is a document that not only collects information but is also an 'Application for a Loan ' that the applicant fills. Make sure that your Credit Application reflects the sentiments that you are serious about the amount that you will be extending in the form of cash or kind.

As a guideline you can write your policy in the following sections. The contents of each section can be written to best fit the nature of your franchise:

The set-up of credit function.
Objectives of the credit function
Terms and conditions of sale
Sales responsibilities with credit issues
Billing procedures
Obtaining Information on new customers
Procedures for opening new accounts
Process of assessing the information to arrive at line of credit and credit terms that will be offered
Monitoring your investment in your customers
Profiling your customers to do strengths, weakness, opportunity and threat analysis.
The feedback loop for reporting
Allocating resources and responsibilities
Defining past-due and bad debts
Targets, benchmarks and deadlines for the credit function
Procedure of collecting from delinquent customers
Analyzing the changing needs of your markets/customers.

Entering the marketplace by investing in a franchise can be one of the best ways that an entrepreneur can launch a successful business. Franchising in Canada continues to grow at a significant rate. Franchise sales in Canada in 1987 were estimated at $61 billion; and now it is close to 90 billion. The retail trade alone represents almost two-thirds of that number. It is expected that sales will increase 10 to 15 percent annually over the next few years. The person who operates a franchise gets the better of both the worlds - the satisfaction of operating an independent business, combined with the leverage of working for a large organization.

Ultimately, Credit Management is an art and not a science. It is definitely an 'indefinite'. It gets its design from a variety of inputs like the creativity, experience philosophies and attitudes of the individuals administering it. Sometimes a decision based on your 'gut' feeling against all odds could prove to be the best one. But as a credit adage goes "get the calculations right in a calculated risk" and remember that 'A sale is not complete till the money is collected.' Good luck with your franchise.

Source: The above article appeared in the "Canadian Business Franchise Directory 2000". The directory is a complete guide to franchising in Canada and is available at major book sellers.

Consumer Bankruptcy in Canada - YTD October 2007

2007-12-06T23:29:00.000-05:00

In the month of October 2007 the number of individuals filing for bankruptcy reported by Industry Canada was 7,304. This is about 5% higher than the 6,947 bankruptcies that were filed by individuals in the month of October in 2006.
The total number of individuls that have filed for bankruptcy so far from January 2007 up until October 2007 is 67,524. This is about a percentage point higher than what the number was a year ago.

In the past 10 years in Canada, Consumer Bankruptcies form January to October have been averaging at 67,505
The number of Consumer Bankruptcies from January 2007 to October 2007 is more or less on track alongside the decade long trend. However if you compare the Jan 2007 to Oct 2007 number of 67,524 consumer bankruptcies to Jan 1990 to October 1990 number of consumer bankruptcies of 33,938 it is whopping increase of nearly a 100%! It would be also interesting to note that the maximum number of consumer bankruptcies occured in 1997 when the Jan 1997 to October 1997 number peaked at 73,381.

The current Canadian National Consumer Bankruptcies Average stands at 2 bankruptcies for every 1,000 individuals.The hightest per capita consumer bankruptcies have been recorded in Newfoundland (3.6 bankruptcies for every 1,000 individuals)The other two Atlantic provinces of Nova Scotia and New Brunswick are second and third respectively.Quebec is fourth in the line up with 2.8 bankruptcies for every 1,000 individualsOntario is right on the national average of 2 bankruptcies for every 1,000 individuals.The rest of the provinces are below the Canadian National Consumer Bankruptcies Average.

In essence, the eastern provinces are experiencing a growth in insolvencies whereas the western provinces are recording a decline. It could be speculated that the western economy is driven by the petroleum demand and the east is buckling under the pressures of a stong canadian dollar and a weakening manufacturing sector.

Canada is a large and diverse country. With its resources dispersed regionally we witness varied levels of economic trends unfold in the east and west.Currently the west is booming. Oil prices are rising giving Alberta an economic edge. Oil and oil-by-products account for almost 70% of its exports. There is a shortage of labour in Alberta as oil companies are struggling to drive production. In 2006, Alberta had the lowest unemployment rate of all the provinces at 3.4%. At that time Newfoundland was sitting at an unemplyment rate of 16%! Insolvency thus has a directly proportionate relationship to the joblessness rate of a province. Alberta has one of the least per capita consumer bankruptcy filings (1.2 bankruptcies for every 1000 individuals)As the west is experiencing prosperity and Bentley has opened a showroom in Calgary the rest of the country is in an economic downturn. Canada’s manufacturing sectors in Ontario and Québec are experiencing layoffs and closures. The exports are affected due to the strong Canadian dollar. All of this embroiled by a the housing boom, which on hand is helping create jobs but on the other fuelling increased credit extensions and spending. This helps mitigate the crisis in manufacturing sector and the recent cut in interest rates by Bank of Canada will again boost this sector to perhaps a record level of housing sales in 2007.

It will be interesting to see how all this pans out when the final insolvency figures for 2007 are released by Industry Canada in February 2008.

Adapted from an article written by PURU GROVER \/ MD Credit Guru Inc.

Insolvency numbers sourced from OSB Industry Canada

Collecting Your Debts

2007-12-05T00:42:00.000-05:00

With perrmission from CreditGuru.com © 1999-2007 Credit Guru.com
Collection Skills Series

Here are eight points to consider when collecting from your overdue customer.

1. Be Prepared:

Know thyself……!
There couldn’t be a better way of wasting a phone call if you were not physically and mentally prepared to make that phone call. Emotions can be very easily read over the phone. So be eager to collect the money. After all it is your money!
In your call be prepared to Express Urgency! Remember if you are not eager to get paid, why will your overdue customer be eager to pay you. State your urgency regarding the overdue debt by soaking it with emotions. Also, be prepared for some retaliation. After all it is the nature of the beast! Hence, be positive and make the person on the other side of the phone see the merits and the positive sides to paying their debt on time and also explain the consequences of non or late-payment. Psyche yourself for the call and at all times maintain a professional approach.
…know thy customer’!
Understand the impact of this customer to your business. Both in terms of size and cash flow. Study the history and payment trends of this particular customer. Know the exact amount and reason for the overdue amount. Remember, when you make the call, ask for the full amount and do not assume that there is a problem. Many collectors make the mistake of asking ‘Is there is a problem’!
Know the decision-maker and speak to him or her. The size of the company will determine who your payment decision-maker will be. The smaller the company the higher the level of decision-maker. Involve a decision-maker, because you expect a quick decision and a commitment that in future your invoices will be paid on time.
If their Payment Pattern has changed take immediate corrective measures. Investigate the reason because it could be the beginning of some concerning cash flow problems. Show concern as a business partner but assert the fact that the payment is overdue and that you expect to get paid on time, each time.

2. Ask Questions.

Questions convey to your customer that you are concerned. Questions also provide you important information for leading the discussion and controlling it. Questions also yield information or reference material for future reference. Ask open ended questions and when the conversation requires it ask leading questions. If time is being wasted then perhaps start closing with close-ended questions. Keep control!

3. Listen

If you are asking questions the tendency is to get distracted with asking and thus forgetting to listen! Don’t just listen to what your customer has to say but listen to the surroundings, the tone of your customer, the sincerity etc. Active listening requires being more imaginative than mere casual listening. Paraphrase and summarize your conversation. Clarify and state clearly your expectations from the customer. It shows that you care and listen and that you have clarity of thought.

4. Make Notes:

Memories are mighty short! There is no substitute here, talk with a pen and paper in your hand doodle, if you have to, and keep writing. Your notes could even save the day one day when you need them. Hence, preserve them electronically or otherwise where it becomes part of customer history. Let others in the company, especially sales, have access to your notes.
In your follow-up calls get progressively firm if the need arises. Be assertive and not aggressive.

5. Broken Promise(s):

There is an adage in collections: ‘If they break three promises they will break thirty’. Broken promises are to be taken seriously. Promises are made on both sides yours and the customer’s. If you made a promise like ‘Calling at a particular time’ or ‘ Investigating a certain problem within a certain time frame’, then keep your promise! There is nothing worse than loosing credibility. Say what you can do and not what the customer needs to hear. Credibility is one of the most important aspects of a collection call. Make sure that the company will support your actions before you talk about them to your overdue debtor (customer).
If a customer breaks his or her promise then take immediate action otherwise again your credibility will be at stake and don’t be afraid to point fingers at the customer for demonstrating poor credibility.

6. Avoid Arguments and Threats.

A debtor can easily push you into an argument and drive your attention away from the your key objective of ‘getting-paid immediately’. Stay composed and focussed. In the profession of collecting debts it is easy to get aggravated, emotional and flustered. Getting into an argument is tempting . Do not allow your customers to lead you, be firm composed and guide yourself. Use your leverage as a last resort.

7. Objections.

The objective of your call is to get the full amount paid NOW! You could be faced with a barrage of objections in achieving this objective. Treat every objection as an ‘Opportunity’ to get a commitment for full payment. Establish with your customer that the objection that they are posing is the only one and if that objection is dealt with then there should be immediate payment. Get the commitment on getting paid on an objection.

8. Work smart and not hard.

Use the resources available to you effectively. If you really want to be successful in collecting those debts then get the salesperson involved too. Make friends with your salesperson.
The quality of your collection effort counts and not the quantity. If you subscribe to a collection agency then use them effectively. Some of them provide you with collection stickers. Use these on your correspondence or overdue statements. It adds extra leverage to your collection efforts.
Finally, remember that you are dealing with a business partner. Customer Service is a part and parcel of a collector’s job. Enjoy what you do and the monies from your overdue accounts will just follow.

Credit Guru Inc provides Collection Skills and Negotiation Techniques Training globally. Read more about one of their signature programs.

Credit Repair – Beware!

2007-12-04T02:07:00.000-05:00

Given the current liquidity crunch in the US credit market linked to the mortgage market, more individuals will be faced with the need of obtaining credit counseling. It is an appropriate approach to take when an individual’s credit is in default or on the verge of default. But at the same time it is also a vulnerable moment for a distressed individual seeking help who may naturally get attracted to the current barrage of radio, television and print ads that promise a turnaround in credit problems by ‘repairing’ or ‘fixing’ the consumer’s bad credit file.

A credit-file or credit-history is maintained by a credit bureau. Credit bureaus also known as credit reporting agencies are private companies that collect payment information on individuals predominantly from employers, landlords and lenders (banks and credit card companies, including the ones issued by large retail chains or departmental stores). They also collect any public information on an individual to report any bankruptcy and/or judgments awarded in courts, on his/her credit file. The credit history or credit file that we have been referring to in this article in common parlance is called a ‘consumer credit report’.
These credit reporting agencies in the US are governed by the Fair Credit Reporting Act (FCRA) and in Canada by Consumer Reporting Act. Depending upon the nature of information they can legally report accurate credit information anywhere between seven to ten years. Factual information can not be erased from the individual’s credit report for a specified time period, unless proven to be inaccurate.

Credit repair services can charge a fee only if they are able to accomplish a ‘material improvement’ in their client’s credit report. The fee for fixing/repairing a credit-file by these so-called ‘credit-repair’ companies could range anywhere from $50 to $1,500.
An example of a material improvement would be correction of incorrect information contained in a credit report through their efforts. It is therefore logical to say that a credit repairer can not claim to make a material improvement to a consumer’s credit file without reviewing and researching the consumer’s credit report. Thus prepayment of credit repair services is illegal in certain jurisdictions.
If you hire the services of a Credit repairer, the repairer must provide you with a written and dated contract. Some jurisdictions provide a cooling-off period (about 10 days), which typically begins from the time you receive a copy of the contract. If the credit repairer fails to refund the money you can file the claim in small claims court. (Link: Credit Repair Organizations in the US are governed by Title IV of the Consumer Credit Protection Act)

If you have concerns about information contained on your credit report the same will be investigated free of charge by the credit bureau reporting it. It is therefore not required or necessary to hire a third party to obtain and/or investigate the items that you deem questionable in your credit report. Information contained in your credit report can not be deleted by these companies that claim that they can perform ‘credit-repair’ and ‘fix’ your credit report. The only information that can be purged or altered is the one that is found to be inaccurate. You can personally contact the credit reporting agency with details of the disputed (erroneous, misleading, or outdated) entry on your credit report. Each consumer credit report has a provision for an individual to add a short ‘consumer statement’. Typically a consumer statement is up to 100 words that a credit reporting agency allows from an individual to comment on information that is disputed in the consumer’s credit report.

There in no quick-fix for bad credit. Remember credit is a privilege and creditworthiness can only be improved with the passage of time and by judicious use of credit granted to you since accurate and historical credit information generally cannot be removed from your credit report. Over time with responsible and remedial creditworthy etiquette going forward you may be able restore your creditworthiness and reinstate an optimal credit limits with potential creditors. ( To learn more about how to fix your credit report follow this link to a fairly detailed article by CreditGuru.com )

So consider yourself warned about credit repair scams!

Basics of a Consumer Credit Report

2007-12-03T00:10:00.000-05:00

Information contained in a consumer credit report
How long does negative information gets retained on a consumer credit report
Understand your credit ratings
Other important Considerations

SAMPLE-Equifax Credit Report (.pdf file format)

What information does a consumer credit report contain?

Here is a general overview of the different sections in a consumer credit report:

1. Personal Identification
Contains key identification information, such as your name, address, birth date and Social Insurance Number (SIN), Social Security Number (SSN).

2. Inquiries
Lists all individuals or organizations that have requested a copy of your credit file in the past three years.

3. Public Record
InformationContains information about secured loans, bankruptcies and/or judgments.

4. Third-Party Collection Agency
Contains information about any involvement with a collection agency trying to settle a debt.

5. Trade Information
Provides details of your credit transactions and shows whether payments are being made. Each of these "trade" items is evaluated by the credit grantor.The evaluations are based on industry standard ratings, the most common of which use a range from R0 to R9. R0 indicates you are too new to rate; R1 indicates that you pay within 30 days of billing or as agreed; R9 indicates a bad debt, collection or bankruptcy.

6. Consumer Statement
This is where you can add a brief comment about any information in your file. For example, if you have an R9 rating, you may want to explain that you suffered a setback due to illness, temporary unemployment or other extenuating circumstances.

How long does a credit bureau keep information in my credit file?

The following is from the public domain of Equifax:

CREDIT INQUIRIES TO THE FILE: An Inquiry made by a Creditor will automatically purge three (3) years from the date of the inquiry. The system will keep a minimum of five (5) inquiries.

CREDIT HISTORY AND BANKING INFORMATION: A credit transaction will automatically purge from the system six (6) years from the date of last activity. All banking information (checking or saving account) will automatically purge from the system six (6) years from the date of registration.

VOLUNTARY DEPOSIT - ORDERLY PAYMENT OF DEBTS, CREDIT COUNSELING: When voluntary deposit - OPD - credit counseling is paid, it will automatically purge from the system three (3) years from the date paid.

REGISTERED CONSUMER PROPOSAL: When a registered consumer proposal is paid, it will automatically purge three (3) years from the date paid.

BANKRUPTCY: A bankruptcy automatically purges six (6) years from the date of discharge in the case of a single bankruptcy. If the consumer declares several bankruptcies, the system will keep each bankruptcy for fourteen (14) years from the date of each discharge. All accounts included in a bankruptcy remain on file indicating "included in bankruptcy" and will purge six (6) years from the date of last activity.

JUDGMENTS, SEIZURE OF MOVABLE/IMMOVABLE, GARNISHMENT OF WAGES: The above will automatically purge from the system six (6) years from the date filed.

COLLECTION ACCOUNTS: A collection account under public records will automatically purge from the system six (6) years from the date of last activity.

SECURED LOANS: A secured loan will automatically purge from the system six (6) years from the date filed.
(Exception: P.E.I. Public Records: seven (7) to ten (10) years.)

Ratings and what do they mean

R0
Too new to rate; approved but not used

R1
Pays (or paid) within 30 days of payment due date or not over one payment past due

R2
Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due

R3
Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due

R4
Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due

R5
Account is at least 120 days overdue, but is not yet rated "9"

R7
Making regular payments through a special arrangement to settle your debts

R8
Repossession (voluntary or involuntary return of merchandise)

R9
Bad debt; placed for collection; moved without giving a new address

Other rating indicators that might be found on a report are "I" for installment credit or "O" for open credit line.

Other Considerations

Watch out for a loan that you have co-signed. Depending on the policy of the lending institution, Co-Signed loans get repoted on both files of the borrower and the co-signer.
A default in payment could get repoted on the credit file of a co-signer.

The 4Cs of Credit

2007-11-29T23:22:00.000-05:00

What are the 4 C's of credit? What do they mean? Are there 3, 4, 5 or 6 Cs of Credit?

Credit investigation could get intricate and dense. The information that is being gathered could be getting strewn and scattered all over the place. The 4 Cs of Credit helps in making the evaluation of credit risk systematic. They provide a framework within which the information could be gathered, segregated and analyzed. It binds the information collected into 4 broad categories namely Character; Capacity; Capital and Conditions. These Cs have been extended to 5 by adding 'Collateral', or extended to 6 by adding 'Competition' to it (Reference: Credit Management and Debt Recovery by Bobby Rozario, Puru Grover). How about 'Computer' being one of the Cs in this day and age?...or mere 'Common Sense'!

No matter how many Cs we come up with, the fundamental question that remains to be answered by the framework of our analysis is:'Will I get paid on time?'

So let's discuss the structure of our credit analysis within the context of the 4 Cs of Credit.

Character

JP Morgan, a successful businessman once said that 'I will do business with anyone as long as he/she is honest!'

In analyzing Consumer Credit one would consider the following:

Has the person declared bankruptcy in the past
Does the person have a good credit record
Does he/she have a stable job What is the level of education/experience
What is the person earning and what is the earning potential
Stability at the place of residence, whether rented or owned.

In analyzing Commercial Credit one would consider the following:

The size of the operations The number of years in business
The legal form of the business By this one means 'Retail', 'Wholesale', 'Service' or 'Manufacturing'. Typically the incidence of business failures is high in the Retail and Service segments. Is the business a Parent, Subsidiary or a divisiono Does the business have a Holding company?" The structure of the businesso Is the business a Sole Proprietor, Partnership or Corporation?For Sole proprietor or Partnership type one would further seek personal information on individual(s) running the business.
The number of employees. There are Industry specific Norms for 'Employees to Sales' ratio.
The management record of the company
The location of the company
Any previous evidence of fraud
Any previous Insolvency record?
Any Labor disputes or issues?
Are the products/service sold by the prospect complimenting products/service to the ones that you may sell?
Is the business practice ethical?
Is the business seasonal/ non-seasonal
Is the business Local/ National or International. The economy of a business accordingly could depend upon local/ national or international economy.
Is there a growing or a going market for this business or the business redefining itself and what would be the impact of the internet on this business. See what computer downloads (E.g. Napster in the recent past) has done to the music industry
How willing is the prospect to share information?
How diligently does the prospect fill your Credit Agreement/Application?
What are the references saying?
Are there too many lay-offs especially of key personnel?
Are there any Law suits pending against the company?
What does the website of the company say and look like?
Is there any recent media coverage about the company? Is it positive or negative. Or are there any rumors floating?
If the company's stock is publicly traded then see how its stock is performing? One can also check the indices for a particular type of Industry to see how in general the Industry is doing. The collapse of the NASDAQ last year was a warning of the debacle of the tech companies.

Capacity

What does one analyze under this segment? Is it:

Capacity of the business to pay?
Capacity of the business in getting paid?
Capacity of the business to receive/absorb?
Capacity of the credit grantor to expose?

Sometime a business that you are analyzing might not have the required Capacity in kind but the same could be latent and hidden in some other form. For example a start-up business should have a good business blue-print of succeeding namely a good business plan. A contractor might have a good media advertising plan, say an Ad in the local Yellow Pages. All this adds to the capacity of a business to carry on trade and perhaps be successful.

Innovation, Education, Experience, Knowledge would be some other considerations. Management should be able to foresee trends in the marketplace and blend accordingly. It should have plans both for good and bad turns in the economy. Adoption of sound management techniques and computer-related technologies is important. Companies must remain Relevant with their processes; products and operate with Speed in today's Digital age. Larger businesses should also have people that know how not just to manage the company but also its main asset, its people.

Cash and Only Cash can pay bills. The capacity of a business to pay its bills would stem from good cash-flow. A business could become cash strapped if it does not collect its accounts receivable on time. You must have heard of DSO! What is DSO? Isn't it a measure of ones capacity to pay? Say if a business has a DSO of 55 days. This means that at an average this business gets paid by its customers in 55 days. The question then arises that when will this business then pay its suppliers? In all probability the answer is that its capacity to pay its suppliers will be after 55 days. In this event you may want to evaluate its borrowing capacity to see if you can cajole this company to pay you in time even if it means that this business borrows to pay you.

This would bring on the analysis of how the debt of the company is structured in terms of secured and unsecured debt with an operating lender, generally the bank. Short term borrowing could be calculated as a percentage of the inventory and A/R on hand. One should look at the line of credit and see if there is capacity for more borrowing. Also check for any negative occurrences as bad checks (cheques) or any default against operating loans or covenants.
The capacity of your product to influence payment is also important. If your product being sold is fiercely competitive then it may not have the capacity to influence timely payment. If your product does not directly contribute to the COGS (Cost of goods sold) of the buyer then again it might not have the capacity of influencing timely payment. Competition definitely influences Capacity.

The Capacity to expose and increase your credit risk also depends upon your own ability and resilience to getting hit with either slow payment or perhaps no payment! Credit departments that have a lot of confidence in their collection ability and ability to influence payment have a wider capacity to expose and absorb.

Your product-margin will also influence this capacity.

Capital

Capital would refer to the financial resources obtained from financial records that a company may have in order to deal with its debt. Many a time's credit analysts would make this portion of the credit analysis the most important one. Weight is given on Balance Sheet items and components like Working Capital , Net Worth and Cash Flow.

One must know how to read financial statements and that too from the perspective of a creditor. Short term liquidity is important if you are expecting to get paid in the short term. You should be able to see whether this company has the ability to absorb more debt and then where does your loan (selling on credit is a loan - isn't it?) fit in the overall debt-framework of this business. You should also evaluate to see if you can depend on the numbers whether they are audited, unaudited or company prepared. If required speak with the firm or person who has prepared the statements.Leveraged borrowing depends on the equity/ net worth that a company has and it is a good idea to see if the company is committed to improve its borrowing-power by contributing to its Equity/Capital/Net Worth . One way of doing this is by retaining all or portions of its earnings.But all said, done and then undone Cash and ONLY Cash pays bills. Thus, keep an eye of the company's cash-flow and cash-position.
But one must be cognizant of the fact that financial records are snapshots of the past and credit analysis is trying to figure out the future. Thus all 4 Cs of credit are important in the overall analysis of a company or an individual where you combine elements of the past to make a futuristic prediction.

Conditions

This refers to the external conditions surrounding the business that you are analyzing.
For example the construction industry might get influenced with the changes in the government's wide range of policies on immigration, interest rates and taxation.
There might be likelihood that a company that you are evaluating deals in international trade and a shift in the currency rates might have a detrimental or beneficial effect on it.The events on Sept 11th have had added a new meaning to Force Majuere in context of International Trade terms and conditions. Air Travel has been impacted.Ford recently announced closing 5 plants in North America asides from thousands of layoffs one will have to be vigilant on the impact that it will bear on the suppliers to the Ford Motor Company.

Business with local economies would be prone to the social climate and their influence on the local society. Torontonians must have heard of the flamboyant discount retailer "Honest" Ed Mirvish who treats the local community to free turkeys every Christmas. On another note a lot of businesses became insolvent in the Ice Storm a few years ago in eastern parts of the US and Canada that were totally dependant on the local economy. A mild winter has a detrimental effect on businesses that depend on snow. Importers and exporters are affected by currency fluctuations.
Again, one might look at how the internet is redefining business. Recently I was at a very small camera shop and soon realized that the business was generating big revenues on the internet and especially eBay.
All of this can again influence the ability or intention of a customer to pay his/her bills.

Thus in evaluating the degree of risk of a customer, information revolving around the 4Cs of credit would be normally necessary.