How the New Red Flag Rules Impact Your Business

The Red Flag Rules are rules that apply to financial institutions and creditors who offer or maintain one or more covered accounts.  The rules specifically mandate that these financial institutions and creditors create and implement identity theft prevention programs to identify, detect and respond to patterns, practices or specific activities that could indicate identity theft.  

The Red Flag Rule was developed in accordance with the Fair and Accurate Credit Transactions Act of 2003. Under the rule, financial institutions and creditors with covered accounts -- accounts that involve making payments -- must have identity theft prevention programs to identify anything that could lead to identity theft.

If you extend credit to your customers or clients, you will have to follow these Red Flag Rules which will be enforced by the Fair Trade Commission and will be in effect on May 1, 2009.  According to the FTC, any entity that “regularly extends, renews or continues credit, or any creditor that is involved in the decision to extend credit” must comply with this rule. Examples of creditors who may need to put the Red Flag Rules into place for their businesses are:

• Finance companies
• Automotive dealers
• Mortgage brokers
• Utility companies
• Oil companies
• Telecommunications companies
  

Just what are the “Red Flags”?  According to the FTC’s final rule, the red flags can be but are not limited to:

• Alerts, notifications or warnings from a consumer credit reporting agency.
• Suspicious documents, such as those that may appear to be forged.
• Suspicious personal information, such as a social security number that is off, or doesn’t exist, or is listed on the Social Security Administrations Death Master File.
• Receiving requests for new, additional or replacement credit cards, debit cards, cell phones or adding authorized users after receiving a change of address form.
• Address discrepancies
• Unusual credit activity, such as increased inquiries.
• Signatures that are inconsistent with information on file.
• Information on an ID not matching any address on a credit report.
• Drastic changes in payment patterns.
• Mail being returned for an undeliverable address yet the account is  being used.
• Customers reporting that they are not receiving bills or statements.
  

The FTC estimates that as many as 9 million Americans have their identities stolen each year, leading to over $56.6 billion in costs.