FTC Delays Mandatory Compliance With "Red Flags" Rules

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After realizing a persistent haze of uncertainty still exists regarding some of the ambiguous wording in its "Red Flags" Regulations, the Federal Trade Commission (FTC) has decided to delay enforcement until August 1, 2009 and will soon release a template to help affected companies plan compliance. "Given the ongoing debate about whether Congress wrote this provision too broadly, delaying enforcement of the 'Red Flags' Rules will allow industries and associations to share guidance with their members, provide low-risk entities an opportunity to use the template in developing programs and give Congress time to consider the issue further," said FTC Chairman Jon Leibowitz. This is the second time the FTC has delayed the mandatory compliance deadline in the last seven months.

The regulations are in response to the years of increasing cases of identity theft as more and more businesses and consumers used the Internet for transactions, resulting in tens of billions of dollars in write-downs each year. In 2003, the Fair and Accurate Credit Transactions Act of 2003 (FACTA) directed that financial regulatory agencies craft rules requiring creditors and financial institutions to develop and employ programs to detect, mitigate and respond to instances of identity theft.

NACM's diligent work with the FTC in an attempt to clarify the "Red Flags" Regulations' language and its effect on trade creditors had significant impact in the FTC's decision to delay implementation. NACM has also been active in educating its members about their responsibilities under the looming regulations that require companies to develop and implement a written program to recognize and mitigate identity theft by the now defunct May 1st deadline.

"There's no question in anybody's mind that this electronic world we live in has become more and more dangerous on a daily basis by people being able to steal other people's identity and use them, run with them, charge up enormous amounts of monies, and get away with it," said Wanda Borges, Esq. in the NACM-sponsored teleconference "'Red Flags' Regulations Simplified" on April 29th. "In particular, since 9/11, people have become more and more aware that there is a dangerous world out there and we have to learn to protect ourselves."

She added, "We are aware that there is identity theft. We have to learn how to protect ourselves."
NACM has stressed for several months the need for its membership to adopt programs that comply with the FTC's "Red Flags" Rules because they do not apply merely to consumer transactions. If a company extends credit, it is considered a "creditor" under FACTA and is subject to the rules. In addition to the April 29th teleconference, NACM held two other teleconferences in conjunction with the FTC to clarify how the regulations affect businesses and also published in the March 2009 issue of Business Credit magazine "Red Flags" guidelines and sample language that trade creditors can use in crafting their own program.

For NACM members, revisiting the magazine article is easy. It can be found online in the NACM Resource Library. Click here to log on to the Resource Library and then type "red flags" in the search field.

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