Yellow Light for “Red Flags Rule”

The Federal Trade Commission announced this week it is delaying – for the third time – enforcement of its identity theft preventive guidelines. The latest postponement gives credit-issuing businesses until Nov. 1, 2009 to comply with the “Red Flags Rule.”

That’s one full year after the original deadline of Nov. 1, 2008.

The House Appropriations Committee also recently requested deferring enforcement until efforts are taken to minimize the burdens of the Rule on health care providers and businesses with low risk of identity theft problems, the FTC stated.

Over the past year, many have expressed surprise and dismay to discover the Rule covers them. The latest to do so was the American Bar Association. While the “temporary reprieve” was welcomed by ABA president H. Thomas Wells, Jr., he stated the association remained troubled by the regulations and prepared to go to court if lawyers were not exempted from the regulations.

A creditor “includes any entity that regularly extends or renews credit – or arranges for others to do so – and includes all entities that regularly permit deferred payments for goods or services,” according to the FTC. So in the meantime, the agency plans a renewed education campaign to raise awareness about who must abide by the Rule and what compliance involves. The commission said it plans to release new information for small and low-risk entities providing guidance on the required Identity Theft Prevention Programs and employee training. The Rule calls for screening procedures developed around different warning signs, or “red flags,” indicating possible identity-related fraud.

Many argue that establishing and enforcing the Red Flags and training their employees to follow them will create red tape and pose a hardship, especially for smaller businesses.  However, the guidelines are simply a blueprint for best practices in granting credit to customers.  Look at this way: the effort and expense put forth up front to become compliant paves the way to helping prevent the red tape and hardship of being defrauded by an identity thief down the road.


“Red Flags Rule” has Lawyers Seeing Red

“Red Flags Rule” Enforcement Postponed