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Eye On the Hill: NACM Members Voice Frustration, Confusion With FTC's "Red Flags" Rules

on .

According to some NACM members, the Federal Trade Commission's (FTC's) "Red Flags" Rules are unfair to business creditors and potentially detrimental to their companies' finances. In response to last week's eNews story, "Eye On the Hill: NACM Considers Stance on 'Red Flags' Rules, Among Other Issues," some credit professionals have voiced their opposition to the regulations noting that they agree with the goals, but feel there should be a separate set of simplified guidelines for commercial creditors.

"We believe that the 'Red Flags' policy, as written, is too cumbersome to our business," said one credit professional. "[Our company was] incorporated in 1948, and we are not aware of even one instance of identity theft in relation to our commercial credit. We believe that our current credit application processes are more than adequate. The 'Red Flags' procedures require much documentation; this, added to the staffing cutbacks we have incurred this last year, has been a real challenge. Add to that our executive's time in reviewing and approving our staff's findings, and we are just adding more cost to the credit application process."

"It is our obligation to comply with the 'Red Flags' ruling; we do not argue that," they added. "We simply feel that there should be a simplified 'Red Flags' policy/procedure for commercial credit."

Other credit managers noted that, due to the familiar nature of their business, the rules are not only onerous, but somewhat unnecessary. "We know who our customers are and where they do business. We don't sell a product and then ship to someone we've never seen," they said. "The majority of our business is with the same companies, on an ongoing basis for service. We have business relationships with owners, construction managers or general contractors for our construction work. The 'Red Flags' Rules are just not applicable to our business and will require an investment of our resources that is not necessary."

It should be noted, however, that the FTC's "Red Flags" Rules apply only to those businesses with accounts that are considered to be at a reasonably foreseeable risk of identity theft, as opposed to any risk of identity theft. Instances like the ones mentioned above may exempt certain businesses from having to comply with the rules since, in their professional opinion, there isn't any reasonably foreseeable risk of identity theft because of certain aspects of their business or their interactions with customers. The regulations leave the definition of a "reasonably foreseeable risk of identity theft" to companies themselves, meaning that while they may seem to broadly apply to each and every business in the country, it's up to businesses to consider their own operations and determine whether or not they need to adopt a "Red Flags" policy.

NACM is currently considering its position on the FTC's "Red Flags" Rules and member input will be crucial in deciding on an approach to the issue. To share your thoughts on the regulations, send an email to jakeb@nacm.org.

Jacob Barron, NACM staff writer

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