May 17, 2010

The FTC mandates compliance with its newly promulgated Red Flag Rule by June 1, 2010

Financial institutions and creditors are now required to implement identity theft prevention programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. The FTC will begin enforcement of the new Rule on June 1, 2010.
The Fair Trade Commission (FTC ), the federal bank regulatory agencies, and the National Credit Union Association jointly published the Identity Theft Red Flags regulations and guidelines (Red Flag Rule). The rule was promulgated pursuant to the Fair and Accurate Credit Transactions Act of 2003 (FACTA) and mandates that both financial institutions and creditors with covered accounts must have identity theft prevention programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. What distinguishes this rule from other rules relating to financial institutions (such as the Gramm-Leach-Bliley privacy rules), is that the Red Flag Rule applies to any firm that maintains an ongoing account through which a consumer is charged.

As defined by Federal law, a creditor is; any entity that regularly extends, renews, or continues credit; any entity that regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who is involved in the decision to extend, renew, or continue credit. However, it is important to note that merely accepting credit cards as a form of payment does not, in and of itself, make an entity a creditor.
Some examples of creditors are finance companies, automobile dealers, mortgage brokers, utility companies, telecommunications companies, and non-profit and government entities that defer payment for goods or services. Financial institutions include entities that offer accounts that enable consumers to write checks or to make payments to third parties through other means, such as other negotiable instruments or telephone transfers.

Importantly, on October 29, 2009 the District Court for the District of Columbia ruled that the FTC cannot force practicing attorneys to comply with Red Flags Rule.  
Businesses which are concerned with properly complying with the soon-to-be enforced Red Flag Rule have available recourse to the How-To Guide. This guide was published by the FTC and provides concise instructions to businesses on how to comply with the soon-to-be implemented Red Flag Rule. However, if you work for a bank, a federally chartered credit union, or a savings and loan business, you should check with your federal regulatory agency for guidance in compliance with this new Rule.
 If you are a business that will be subject to enforcement of the Red Flag Rule, or are unsure whether the Red Flag Rule applies to you, you should contact an Attorney today to check whether the Red Flag Rule applies to you and make sure you are in compliance with the Red Flag Rule if it does.
For a second time, the FTC has extended compliance with the Red Flag Rule, this time to June 1, 2010. This newest delay comes after the FTC already had extended the deadline an additional 6 months from the original proposed implementation date of November 1, 2008 to May 1, 2009. Although it has waived the prior enforcement deadlines; the FTC is barred from further extending the compliance deadline. Therefore, if you fall within the class of financial institutions and creditors subject to the new Rule, you need to begin working on compliance now if you have not already done so.
Additionally, the FTC has released an enforcement policy statement regarding the Red Flag Rule.
Check these links for more information regarding the FTC and also for a discussion regarding credit fraud.
Traverse Legal is a law firm specializing in intellectual property rights, domain name dispute resolution and applying cutting edge technology to make legal work more transparent; benefitting consumers, lawyers, the legal system, and the general public.
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