“Red flag rules” compliance deadline drawing near
After five long years, the November deadline for financial institutions and creditors to comply with Red Flag Rules is just around the corner. The Red Flag Rules were established as part of the Fair and Accurate Credit Transaction Act (FACT Act) of 2003 as a program to detect, prevent and mitigate identity theft.
The first step in compliance is the recognition of “red flags,” or warnings listed by the Federal Trade Commission. The list includes:
- Fraud alert or credit freeze attached to a credit report (this doesn’t mean you’ll be turned down for credit, only that creditors must take steps to confirm your identity)
- Address discrepancy (when you review your credit report, make sure it reflects your current address)
- Unusually high number of new accounts of credit inquiries
- ID seems to be phony, or photo doesn’t match applicant’s appearance
- Social Security number is inactive (i.e., belongs to someone deceased, has never been issued, belongs to someone other than applicant)
- Change of address followed by request for addition of new account users
- Credit card statements returned as undeliverable, but transactions on account continue
Many of these warning signs should be simple common sense, but apparently common sense isn’t always common.
The applicable institutions have to create a written plan for preventing identity theft, develop training programs for their employees and have a plan of action in response to the appearance of these red flags.
Banks and credit unions obviously are governed by the Red Flag Rules, but under the heading of “creditors” there are some surprises. Generally, any business that allows consumers to pay over time falls within this group: car dealers, utility companies, telecommunications companies, even physicians, dentists and veterinarians who allow installment plans will have to be in compliance with the new rules by November 1.
Identity theft cost consumers and businesses a staggering $45 billion in losses in 2007. It remains to be seen if the new rules put a dent in future loss. Roughly 250 billion known records have been exposed in data breaches since January 2005. The Red Flag Rules have no provision for standards pertaining to the handling and storage of personal and financial information, consumers are still not well protected.
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