Legal Alert
 
 
September 15, 2008
 
New Federal Rules Requiring "Red Flag" Policies to Detect and Address Indentity Theft Become Effective November 1, 2008, Affecting the Entire Financial Services Industry.

Find Out How This Affects Your Company 

 

 
WHAT:   The new rules require that companies have in place a written policy identifying "red flags" that may indicate identity theft with regard to a consumer deposit account or loan account (including a mortgage account) The written policy must identify the "red flag" indicators as well as provide protocols for what must be done if a "red flag" pops up in a particular instance. On July 8, 2008, Governor Rendell signed five mortgage industry bills into law.  As a general matter, the new laws expand the applicability of mortgage industry rules and the enforcement authority of the regulatory agencies.  The new laws are applicable to non-depository lenders and brokers and depository banking institutions as indicated below.    

 

WHO:   The new rules affect any financial services provider that offers or services consumer loan accounts, and any institution that offers deposit accounts. Loan brokers (including mortgage brokers) are subject to these new requirements and will also be required to comply with "red flag" policies developed by lenders and investors to whom they send loans.
 

WHEN:   The new rules require that companies have their written "red flag" policies and protocols in place and operational by November 1,2008.

 

ENFORCEMENT:   The Federal Trade Commission ("FTC") has primary responsibility for enforcing the ne\v rules, however, all of the federal agencies that regulate financial institutions have issued the same new "red flag" regs applicable to their regulatees. Our experience with the FTC in privacy policy and "do not call" enforcement matters has shown that the agency takes a very aggressive enforcement posture and actively seeks out potential violators. We expect the same approach with these new "red flag" rules. The FTC is authorized under the new rules to fine willful violators up to $10,000 per violation. There is also civil liability for compensatory and punitive damages via a private right of action by consumers.

 

WHAT TO DO:   There is additional information available at our website, www.shumakerwilliams.com, in the form of a more detailed analysis of the new requirements. We represent lenders, loan servicers, loan brokers and depositories. We can provide assistance in developing appropriate policies and protocols addressing the new rules -requirements that vary depending upon the size and operations ofyour company or institution. There are also other laws (such as privacy laws) which may impact your written "red flag" policy.



For additional guidance on any of these laws and issues, please contact any of the undersigned.