What is the “Red Flags” Rule?

According to recent data from Javelin Research, nearly ten million Americans suffered from identity theft in 2008, a 22 percent increase over the previous year.  Because of growing concern with the problems identity theft causes both individual victims and businesses, as part of the Fair and Accurate Credit Transactions (FACT) Act of 2003 the Federal Trade Commission (FTC) issued the “Red Flags” Rule that requires many organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs – or “red flags” – of identity theft, take steps to prevent identity theft, and mitigate the damage identity theft inflicts.

Who Must Comply with the Red Flags Rule on November 1?

Effective November 1, 2009, the Red Flags Rule will apply to “financial institutions” and “creditors” with “covered accounts.” According to the FTC website, under the Red Flags Rule:

• A 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. A transaction account is a deposit or other account from which the owner makes payments or transfers, and includes checking accounts, negotiable order of withdrawal accounts, and savings deposits subject to automatic transfers.
• 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. Creditors include finance companies, automobile dealers, mortgage brokers, utility companies, and telecommunications companies.
• A covered account is an account used mostly for personal, family, or household purposes, and that involves multiple payments or transactions, including credit card accounts, mortgage loans, automobile loans, margin accounts, cell phone accounts, utility accounts, checking accounts, savings accounts, and any account for which there is a foreseeable risk of identity theft. 

How to Comply with the Red Flags Rule

According to the FTC, creditors or financial institutions with covered accounts must develop and implement a written Identity Theft Prevention Program designed to prevent, detect, and mitigate identity theft in their organizations, and the program must also include four basic elements:

1. Identify red flags – suspicious patterns, practices, or activities indicating the possibility of identity theft – in the daily operation of the organization.
2. Detect red flags the organization has already identified in day-to-day operations.
3. Prevent and mitigate identity theft by responding with appropriate actions to detected and identified red flags.
4. Update the Identity Theft Prevention Program by re-evaluating the ever-changing risks of identity theft to keep the program current.

To help businesses understand the complexities of the “Red Flags” rule and implement proper procedures, Pre-Employ.com – a leading provider of employment-related services – is offering a free webinar on the Red Flags rule titled “Identity Theft: A User's Responsibilities under the FACT Act Red Flag Regulations” that is available for on demand viewing at http://www.pre-employ.com/RedFlagsRule. The webinar is co-hosted by Pam Devata, a labor and employment attorney with Seyfarth Shaw LLP, and Pre-Employ.com founder and CEO Robert Mather.

For more information about the Red Flags Rule and identity theft, visit www.pre-employ.com, email info@pre-employ.com, or call 1-800-300-1821. Follow Pre-Employ.com on Twitter at www.twitter.com/PreEmploy.

tahearn@pre-employ.com

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