Red Flags Rule: Fighting Identity Theft with the Red Flags Rule

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Compiled and designed by Mark Fullbright , Certified Identity Theft Risk Management Specialist™ (CITRMS) as a free service for consumers and businesses to protect themselves online and reduce their exposure to identity theft.
Stay Safe, Stay Secure

*Resources: Federal Trade Commission

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Red Flags Rule: Fighting Identity Theft with the Red Flags Rule

  1. 1. Red Flags Rule Fighting Identity Theft with the Red Flags Rule
  2. 2. Red Flags Rule The Red Flags Rule was created by the Federal Trade Commission, along with other government agencies such as the National Credit Union Administration, to help prevent identity theft. The rule was passed in January 2008, and was to be in place by November 1, 2008. But due to push-backs by opposition, the FTC delayed enforcement until December 31, 2010. In December 2010, the Red Flags Rule was clarified by the Red Flag Program Clarification Act of 2010 to exclude most doctors, lawyers, and other professionals who do not receive full payment at the time when their service is furnished.
  3. 3. Red Flags Rule The Red Flags Rule was based on section 114 and 315 of the Fair and Accurate Credit Transactions Act of 2003. FACTA was put in place to help Identity Theft Prevention and Credit History Restoration, Improvements in Use of and Consumer Access to Credit Information, Enhancing the Accuracy of Consumer Report Information, Limiting the Use and Sharing of Medical Information in the Financial System, Financial Literacy and Education Improvement, Protecting Employee Misconduct Investigations, and Relation to State Laws.
  4. 4. Financial Institutions Financial institution is defined as a state or national bank, a state or federal savings and loan association, a mutual savings bank, a state or federal credit union, or any other entity that holds a “transaction account” belonging to a consumer
  5. 5. Creditors 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 The definition of a creditor was clarified by the Red Flag Program Clarification Act of 2010. Under the Clarification Act, a creditor regularly and in the course of business: Obtains or uses consumer credit reports Provides information to consumer reporting agencies Advances funds which must be repaid in the future (or against collateral).
  6. 6. Identity Theft Prevention Programs The Red Flags Rule sets out how certain businesses and organizations must develop, implement, and administer their Identity Theft Prevention Programs. The program must include four basic elements, which together create a framework to address the threat of identity theft
  7. 7. The program has four elements: Identify Relevant Red Flags: Identify likely business-specific identity theft red flags Detect Red Flags: Define procedures to detect red flags in day-to-day operations Prevent and Mitigate Identity Theft: Act to prevent and mitigate harm when red flags are identified Update Program: Maintain the red flag program, including educating operational staff
  8. 8. The Red Flags Rules provide all financial institutions and creditors the opportunity to design and implement a program that is appropriate to their size and complexity, as well as the nature of their operations.
  9. 9. The red flags fall into five categories: Alerts, notifications, or warnings from a consumer reporting agency Suspicious documents Suspicious identifying information, such as a suspicious address Unusual use of – or suspicious activity relating to – a covered account[ Notices from customers, victims of identity theft, law enforcement authorities, or other businesses about possible identity theft in connection with covered accounts[
  10. 10. The Red Flags Rule is published at 16 C.F.R. ' 681.1. See also 72 Fed. Reg. at 63,771 (11.9.2007). http://www.ftc.gov/os/fedreg/2007/november/071109r edflags.pdf.
  11. 11. Fighting Identity Theft with the Red Flags Rule: A How-To Guide for Business http://www.business.ftc.gov/documents/bus23fighting-identity-theft-red-flags-rule-how-guidebusiness
  12. 12. Compiled and designed by Mark Fullbright , Certified Identity Theft Risk Management Specialist™ (CITRMS) as a free service for consumers and businesses to protect themselves online and reduce their exposure to identity theft. Stay Safe, Stay Secure Resources: *Federal Trade Commission

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