Red Flag Rules Try to Take a Bite Out of Identity Theft

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April 29, 2009

May 1, 2009, becomes a red letter day for the Red Flag Rules. And if your business operates with credit, it's an important day for you, too. The rules result from 2003 legislation and require businesses to create policies to prevent identity theft. 

The Federal Trade Commission states that any business that regularly defers payment of goods and services must follow Red Flag Rules and specifically identifies finance companies, automobile dealers, mortgage brokers, utility companies and telecommunications companies. However, the rules also apply to dentists and nonprofit and government agencies that use credit in their businesses.

Personal, family or household accounts that involve multiple payments or transactions are impacted, including credit card accounts, mortgage loans, automobile loans, margin accounts, cell phone accounts, utility accounts, checking accounts and savings accounts.

Institutions and creditors affected by the rule must:

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  • Develop and establish policies to identify prevent and mitigate identity theft.
  • Develop a procedure to assess the validity of address change requests.
  • Those who use consumer credit reporting agencies must develop policies and procedures to respond to notices regarding address discrepancies.

Companies and organizations that implement Red Flag Rules must identify which red flags are relevant to that business. Of the 26 red flags identified as examples by the FTC, the most common include:

  • An application that appears to have been forged altered.
  • A consumer report that includes a fraud alert, credit freeze or address discrepancy.
  • A change-of-address notice that is followed closely by a request for a new credit card, bank card or cell phone.
  • A Social Security number supplied by an applicant that is the same as that submitted by another person opening an account.
  • Notification of the financial institution or creditor that a customer is not receiving account statements.

If you don't comply with the new rules, the FTC can enact penalties up to $2,500 for each violation, and states can impose up to $1,000 per violation plus attorney fees. Customers can also file civil suits to recover actual damages sustained due to a violation.

For additional information about Red Flag Rules, please visit www.ftc.gov. Additional information for this article was provided by www.redflagrules.net.

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