FTC Delays Red Flag Rule Enforcement
WASHINGTON, D.C. — The Federal Trade Commission recently announced it will the delay enforcement of the new Red Flags Rule until Aug. 1 to give creditors and financial institutions more time to develop and implement written identity theft prevention programs. This rule also applies to dealers.
For entities that have a low risk of identity theft, such as businesses that know their customers personally, the commission will soon release a template to help them comply with the law, officials indicated.
"Given the ongoing debate about whether Congress wrote this provision too broadly, delaying enforcement of the Red Flags Rule will allow industries and associations to share guidance with their members, provide low-risk entities an opportunity to use the template in developing their programs, and give Congress time to consider the issue further," Jon Leibowitz, FTC chairman, explained.
The Fair and Accurate Credit Transactions Act of 2003 (FACTA) directed financial regulatory agencies, including the FTC, to promulgate rules requiring "creditors" and "financial institutions," in addition to dealers, with covered accounts to implement programs to identify, detect and respond to patterns, practices or specific activities that could indicate identity theft.
FACTA's definition of "creditor" applies to any entity that regularly extends or renews credit, or arranges for others to do so, and includes all entities that regularly permit deferred payments for goods or services.
Some examples of creditors offered by the FTC are finance companies and automobile dealers that provide or arrange financing, mortgage brokers, utility companies, telecommunications companies, nonprofit and government entities that defer payment for goods or services and businesses that provide services and bill later, including many lawyers, doctors and other professionals.
"Financial institutions" also include entities that offer accounts that enable consumers to write checks or make payments to third parties through other means, such as other negotiable instruments or telephone transfers.
During outreach efforts last year, the FTC staff said it learned that some industries and
entities within the agency's jurisdiction were uncertain about their coverage under the Red Flags Rule. During this time, FTC staff developed and published materials to help explain what types of entities are covered and how they might develop their identity theft prevention programs.