FTC Applauds “Red Flags” Clarification Act

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Federal Trade Commission (FTC) Chairman Jon Leibowitz recently applauded Congress' passage of the "Red Flags" Clarification Act of 2010, admitting that, in their original form, the rules went too far.

"We're pleased Congress clarified its law, which was clearly overbroad," said Leibowitz a recent press release. "Now we can go forward with less litigating and more protecting consumers from identity theft. I want to express my appreciation to Congressmen John Adler (D-NJ) and Mike Simpson (R-ID), and Senators John Thune (R-SD) and Mark Begich (D-AL), for their excellent work in resolving the uncertainty created by Congress."

Leibowitz had previously chided lawmakers for taking to so long to act on a clarification measure. In a release last May that announced a delay in the "Red Flags" Rule enforcement date, the Chairman urged Congress to quickly pass legislation that eliminated the Rule's unintended consequences. Lawmakers finally within the last two weeks with the "Red Flags" Clarification Act, which passed unanimously in both chambers and limits the definition of the word "creditor" in order to ensure that it doesn't apply to certain services and small businesses.

In the most recent release, the FTC also took the opportunity to reiterate that the Rule was always meant to be flexible. "It gives businesses the flexibility to tailor their written ID theft detection program to the nature of the business and the risks it faces. Businesses with a high risk for identity theft may need more robust procedures-like using other information sources to confirm the identity of new customers or incorporating fraud detection software," they noted. "Groups with a low risk for identity theft may have a more streamlined program-for example, simply having a plan for how they'll respond if they find out there has been an incident of identity theft involving their business."

However, with the new legislation, the "Red Flags" Rule should, at least theoretically, apply to far fewer businesses, meaning that many companies may not have to worry about having even something as simple as a documented plan.

Stay tuned to NACM's Credit Real-Time Blog for more updates on how this applies to you and your company.

Jacob Barron, NACM staff writer

 

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