red flag rules compliance deadline

has been delayed by the FTC to

JUNE 1, 2010

180 days to the red flag compliance deadline

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Federal Judge Rules:

FTC Cannot Make Lawyers

Comply With Red Flag Rules

Identity Theft Laws

RED FLAG COMPLIANCE QUIZ

( all correct answers should be ” YES ” )

have you completed your red flag program ??

have you appointed your red flag officer ??

have you trained your staff for red flags ??

have you created your red flag examination form ??

have you created your red flag resolution form ??

have you a red flag wall notice ??

have you a red flag compliance certificate ??

have you time in the next seven ( 7) days to build your red flag compliance program as required by the FTC & the DMV ??

++++++++++++++++++++++++++++

if you can answer YES to all of the above

you are READY for the red flag rules

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In contrast, the Red Flag Rules require dealership employees to affirmatively exercise judgment and discretion to know the customer in every transaction.

In fact, falling victim to an identity thief is not a violation of the red flag rules. The rules envision the fact that there will always be cunning thieves who will find their way through any red flag program.

The rules account for that by imposing an update requirement so that the dealership’s program can be changed in the event it learns of a new way to defeat its red flag rules effort.

The compliance obligation of a dealer is to follow the Rules issued by the FTC. Failure to implement and maintain a program according to the FTC Rules is the violation, not an instance of identity theft.

Compliance with the Rules is important to the dealership’s customers and to the protection of the dealership and its employees.

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Fair and Accurate

Credit Transactions Act

From Wikipedia, the free encyclopedia

The Fair and Accurate Credit Transactions Act of 2003 (FACT Act or FACTA, Pub.L. 108-159) is a United States federal law, passed by the United States Congress on November 22, 2003,^[1] and signed by President George W. Bush on December 4, 2003,^[2] as an amendment to the Fair Credit Reporting Act. The act allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies (Equifax, Experian and TransUnion). In cooperation with the Federal Trade Commission, the three major credit reporting agencies set up the website, annualcreditreport.com, to provide free access to annual credit reports.^[3]

The act also contains provisions to help reduce identity theft, such as the ability for individuals to place alerts on their credit histories if identity theft is suspected, or if deploying overseas in the military, thereby making fraudulent applications for credit more difficult. Further, it requires secure disposal of consumer information.

//

Provisions

The FACT Act contains seven major titles: 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]

Identity Theft Prevention and

Credit History Restoration

This title of the act contains provisions that deal mainly with the prevention of identity theft. In particular, it establishes new regulations concerning ‘fraud alerts’ and ‘active duty alerts’, establishes new limitations on the printing of customers’ credit card numbers on receipts, and prescribes that new regulations be established by certain government agencies regarding the detection of identity theft by financial institutions and creditors.

Fraud Alerts

The title requires that consumer reporting agencies, upon the request of a consumer who believes he is or about to be a victim of fraud or any other related crime, must place a fraud alert on that consumer’s file for at least 90 days, and notify all other consumer reporting agencies of the fraud alert. Furthermore, such consumer may request an extended fraud alert, in which case requires the reporting agency to disclose this fraud alert in any credit score that it issues for the consumer during a seven year period. An extended alert also requires the reporting agency to exclude the consumer from any list distributed to third parties for the purpose of extending credit or offering insurance to that consumer. The title also provides for any active duty member to request an active duty alert, which requires the reporting agency to disclose such alert with any credit report issued within 12 months of the request and to exclude the active duty member from any list distributed to third parties for the purpose of extending credit or offering insurance for two years from the request.^[5]

Truncation of Credit and Debit Card Numbers

The act also prohibits businesses from printing more than 5 digits of any customer’s card number or card expiration date on any receipt provided to the cardholder at the point of sale or transaction. The provision excludes receipts that are handwritten or imprinted, where the only method of recording the credit card number is by such means. The act did not become effective for three years after its enactment for any cash register manufactured before January 1, 2005 and did not become effective for one year after its enactment for any cash register manufactured after January 1, 2005.^[6]

Identification of Possible Instances of

Identity Theft (Red Flag Rules)

The act established so called Red Flag Rules, which required the Federal banking agencies, the National Credit Union Administration, and the Federal Trade Commission to jointly create regulations regarding identity theft prevention applicable to financial institutions and creditors. The Red Flag Rules also address how card issuers must respond to changes of address.^[7] Regulations that were established as a result include^{[citation needed]}:

• One that requires financial institutions or creditors to develop and implement an Identity Theft Prevention Program in connection with both new and existing accounts. The Program must include reasonable policies and procedures for detecting, preventing, and mitigating identity theft;

• Another that requires users of consumer reports to respond to Notices of Address Discrepancies that they receive; and

• A third that places special requirements on issuers of debit or credit cards to assess the validity of a change of address if they receive notification of a change of address for a consumer’s debit or credit card account and, within a short period of time afterward they receive a request for an additional or replacement card for the same account.

Another key item was the requirement that mortgage lenders provide consumers with a Credit Disclosure Notice that included their credit scores, range of scores, credit bureaus, scoring models, and factors affecting their scores. This form is typically available from credit reporting agencies, and many will send this directly to the consumer on the lenders’ behalf.

Confusion with the Scope of the Red Flag Rules

Financial institutions faced a mandatory deadline of November 1, 2008, to comply with the Red Flag Rules,^[8] section 114 and 315 of the Fair and Accurate Credit Transactions (FACT) Act. However, due to widespread confusion over coverage under the act, specifically whether the term “creditor” applies to particular businesses, the FTC postposed the deadline for compliance with Section 315 to May 1, 2009.

According to a Business Alert issued by the Federal Trade Commission in June 2008,^[9] the Red Flag Rules apply to a very broad list of businesses including “financial institutions” and “creditors” with “covered accounts”. A “creditor” is defined to include “lenders such as banks, finance companies, automobile dealers, mortgage brokers, utility companies and telecommunications companies”. However, this is not an all-inclusive list.

The regulations apply to all businesses that have “covered accounts”. A “covered account” includes any account for which there is a foreseeable risk of identity theft. For example, credit cards, monthly billed accounts like utility bills or cell phone bills, social security numbers, drivers license numbers, medical insurance accounts, and many others. This significantly expands the definition to include all companies, regardless of size that maintain, or otherwise possess, consumer information for a business purpose. Because of the broad definitions in these regulations, few businesses will be able to escape these requirements.^{[citation needed]}

Protection and Restoration of

Identity Theft Victim Credit History

Summary of Rights of Identity Theft Victims

Provisions in this title require that the Federal Trade Commission, in consultation with the Federal banking agencies and the National Credit Union Agency, “prepare a model summary of the rights of consumers … with respect to the procedures for remedying the effects of fraud or identity theft…”. Beginning sixty days after the summary of these rights were established, all reporting agencies are required to provide a copy of this summary to any consumer that contacts an agency and states that he believes he has been a victim of fraud or identity theft.^[10]

Blocking of Information Resulting from

Identity Theft

The Act also allows requires any reporting agency to block the reporting of any information in a consumer’s file that the consumer identifies as information that originated from an alleged identity theft. Such agency must block the information within four days of receiving proof, a copy of an identity theft report, the identification of the information by the consumer, and a statement from the consumer that the information is not a result of any transaction he participated in.

Agencies are not required to block any information (and may rescind any existing blocks) in the case that the block was found to be made in error or based on erroneous information as provided by the consumer, or that the consumer “obtained possession of goods, services, or money as a result of the blocked transaction or transactions.^[11]

Coordination of Identity Theft Complaint Investigations

This section requires that all consumer reporting agencies develop a means of communicating to each other consumer complaints regarding fraud or identity theft, or requests for fraud alerts or blocks. Furthermore, the section requires that each consumer reporting agency release a report each year to the Federal Trade Commission of fraud alert requests and complaints involving fraud or identity theft received by the reporting agency. Finally, the section requires the Federal Trade Commission to set-up a means by which consumers can contact the reporting agencies and creditors with a complaint involving identity theft or fraud.^[12]

Criticism

After its enactment, some consumer advocacy groups criticised the FACT Act claiming that it preempts some stricter and already-existing state regulations, and provides exceptions that are ‘far too generous’ to new regulations regarding disclosure of personal information by banks as found in the act.^[13] Furthermore, an article in the Washington Post criticised the difficulty in retrieiving the credit reports in some of the states that were first eligible under the act.^[14].

Preemption of State Laws

According to U.S. Pirg, a U.S. public advocacy group, Vermont, Colorado, Georgia, Maine, Maryland, Massachuseets, New Jersey, and California had all established laws by 1994 requiring credit bureaus to provide a free credit report on demand. However, according to U.S. Pirg, “[w]ith the FACT Act, the financial industry won its primary goal: permanent preemption of stronger state credit and privacy laws.”^[15].

Difficulty in Obtaining Credit Reports

An article dated March 13, 2005 and published in the Washington Post stated that while “[r]esidents of six East Coast states — Maryland, Georgia, Maine, Massachusetts, New Jersey and Vermont — are already eligible for free reports from all three agencies as a result of state laws”, the phone numbers provided to request these reports connected to automated systems that the article described as “maddening in their complexity and unforgiving if your circumstances vary from the system’s programming.”. Furthermore, the article criticised the fact that the automated systems forced consumers to “navigate a thicket of recorded information — including sales pitches for their products, such as a credit ’score’ (an evaluation of your creditworthiness) or a ‘monitoring’ service to help guard against identity theft”.^[14]

References

See also

• Fair Credit Reporting Act
• Political and Economic Research Council — think tank that did much of the research on FACTA

External links

• White House press release
• Full text of the “Fair and Accurate Credit Transactions Act of 2003″

1. What are the penalties for red flag rules noncompliance?

The FTC can seek both monetary civil penalties and injunctive relief for violations of the Red Flags Rule.  Where the complaint seeks civil penalties, the U.S. Department of Justice typically files the lawsuit in federal court, on behalf of the FTC.  Currently, the law sets $3,500 as the maximum civil penalty per violation.  Each instance in which the company has violated the Rule is a separate violation.  Injunctive relief in cases like this often requires the parties being sued to comply with the law in the future, as well as provide reports, retain documents, and take other steps to ensure compliance with both the Rule and the court order.  Failure to comply with the court order could subject the parties to further penalties and injunctive relief.

1. Is there a Red Flags certification or accreditation that will ensure our Program complies with the Rule?

No.  Some companies and organizations offer Red Flags compliance services, but the FTC doesn’t certify or approve any particular program.  It’s up to you to decide if you need help like that.  Before paying for Red Flags compliance services, visit www.ftc.gov/redflagsrule for free resources developed by the FTC to help you design your Program.

1. Are there samples or templates to help me set up my Program?

Yes.  The FTC has created a form to help businesses at low risk for identity theft design a Program.  It’s at www.ftc.gov/redflagsrule.  Many trade associations have developed guidance to help industry members comply with the Rule, too.  The FTC cannot recommend any particular vendor’s compliance products or services.