Changes To The Debit Interchange Rule

Kevin Sullivan, Staff

According to the proposed rule, the allowable costs for interchange would be limited to no more than the issuer’s allowable cost divided by the number of electronic debit transactions on which the issuer received or charged an interchange transaction fee in the calendar year. Or the issuer could receive debit interchange capped at 12 cents per transaction.

Credit unions’ efforts to delay the Federal Reserve’s rule regulating debit interchange fees by up to a year came up short June 8, 2011 as the Senate defeated an amendment by Senator Jon Tester (D-Montana) and Bob Corker (R-Tennessee). The measure received 54 votes, 6 short of the 60 needed. There were 45 senators who opposed it.

The vote capped a year-long battle between financial institutions and retailers over the fees that retailers pay every time someone swipes their debit card. The financial overhaul bill passed last year contained an amendment sponsored by Senate Majority Whip Dick Durbin (D-Illinois), which mandated that the Federal Reserve write a rule on interchange fees. Durbin’s amendment passed last year.
The Federal Reserve’s rule is supposed to take effect on July 21, 2011. It issued a draft rule in December and a final rule was to be issued in May, but was delayed. For more information please contact a Financial Institutions Group specialist at 248.244.3110.

Expanded 1099 Reporting Requirements Repealed

Despite numerous uncertainties, many states and the federal government are moving forward with implementing aspects of the Patient Protection and Affordable Care Act of 2010 (the “health care reform law”).

However, certain provisions of the health care reform law are undergoing closer scrutiny and some have either been repealed or their effective dates have been delayed. One such affected provision is that relating to the scheduled expanded income reporting requirements to the IRS through Form 1099.

Recently, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Acts of 2011 (the “Act”) was signed into law. This Act repeals the requirement contained in the health care reform law that payments of $600 or more made to corporations that relate to amounts paid for any type of goods or services be reported to the IRS.

Background

Businesses have long had to issue a Form 1099-MISC to each individual service provider who is paid $600 or more during the year in the course of business. Reportable payments include compensation paid to individuals for both goods and services. Some exceptions applied.

Expanded Reporting

The health care reform law, however, greatly expanded this mandated reporting requirement by removing the exception for most payments to corporations. This change was to become effective starting in 2012. Thus, the existing requirement that business taxpayers report payments of nonemployee compensation, interest, rents, royalties, etc., totaling $600 or more was expanded to include payments made to corporations, other than tax-exempt corporations. These new reporting requirements promised to burden businesses with substantial additional

recordkeeping – as well as potential increased costs.

Now, there’s relief: These new Form 1099 rules have been repealed by the Act. Basically, the reporting requirements revert to the rules in effect prior to the 2010 changes. (The requirement that rental property owners report certain payments to service providers on Form 1099 starting in 2011 also has been repealed. This provision was originally included in the Small Business

Jobs Act of 2010).

Doeren Mayhew Can Help

Please contact Doeren Mayhew if you have any further questions relating to the repeal of the health care reform law’s 1099 reporting requirements at 248.244.3110

What is Troubled Debt Restructuring (TDR)?

The FASB has issued an Accounting Standards Update to provide additional guidance about when a receivable restructure is considered a Troubled Debt Restructuring.

Who Does This Impact?

Any entity that acts as a creditor and has receivables that are restructured.

What Does It Do?

This Accounting Standards Update clarifies previous guidance issued by the FASB surrounding when a restructured receivable should be considered a TDR.

Many FASB constituents found that the TDR guidance was being applied inconsistently and this Update helps to minimize the confusion.

A TDR is a restructured receivable that involves the creditor granting a concession for legal or economic reasons due to the debtor’s financial difficulties. If a receivable is considered to be a TDR, it is considered impaired and the FASB requires the receivable to be subject to a specific impairment measurement model.

This required impairment model compares the current recovered investment in the receivable to the present value of the cash flows to be collected. This model is the only measurement model allowed when a receivable is considered to be a TDR. When defining what is meant by a concession, the ASU clarifies the FASB position and gives examples such as term extensions, principal or interest forgiveness and reductions in rate. However, the rate reduction definition is expanded to indicate that a rate reduced to or near a market rate is NOT considered a concession, it is merely an adjustment. A delay in payment by the debtor is not considered a concession either.

When is this Effective?

The guidance in this ASU is effective for annual periods ending after December 31, 2012. Early adoption is permitted – when adopted, the guidance should be applied to all restructurings occurring on or before the beginning of the fiscal year of adoption.