At the request of Members of Congress, the Federal Trade Commission announced it will delay enforcement of the new “Red Flags Rule” again -- until June 1, 2010.
This is the fourth time that the FTC has delayed enforcement of the regulations that require financial institutions and creditors to develop and implement a written identity theft prevention program to detect, prevent, and respond to patterns, practices, or specific activities that may indicate identity theft. The regulations were included in the Fair and Accurate Credit Transactions Act (FACT Act) and institutions were expected to be in compliance by Nov. 1, 2008, but the FTC pushed back the start of enforcement until Nov. 1, 2009.
A bill to exclude some businesses from the rule passed the U.S. House of Representatives in October and awaits action in the Senate. H.R. 3763 excludes from the meaning of “creditor” any health care practice, accounting practice, or legal practice with 20 or fewer employees. The bill also excludes any other business which the FTC determines: (1) knows all its customers or clients individually; (2) only performs services in or around the residences of its customers; or (3) has not experienced incidents of identity theft, and identity theft is rare for businesses of that type.
On Oct. 14, 2008, the Department of Education announced that the "Red Flags Rules" apply to institutions participating in the Federal Perkins Loan Program and may apply to other credit programs administered by an institution. The rule states that "creditors" holding "covered accounts" must comply with the law. The rules have a broad definition of "creditors" and "covered accounts" that is applicable to many colleges.
Naomi Lefkovitz, an attorney in the FTC's Division of Privacy and Identity Protection, said that institutions will generally be subject to "Red Flag" requirements if they loan money and collect it. If an institution is a "creditor" it must then determine if it is holding "covered accounts" - a consumer account that involves multiple payments or transactions (a loan that is billed or payable monthly).
Under this definition, the following activities could make institutions a "creditor" with "covered accounts:"
- participating in the Federal Perkins Loan program,
- participating as a school lender in the FFELP,
- offering institutional loans to students, faculty, or staff, or
- offering an extended tuition payment plan throughout the semester instead of requiring full payment at the beginning of the semester.
Red Flags Rules Resources
