Red Flag Rule on ID theft takes effect, with narrower application

  

Fewer businesses appear to be affected by the new federal Red Flag Rule, which took effect Dec. 31, 2010.

 

For more than two years, insurance industry trade groups and others have been wrestling with the potential implications of the U.S. Federal Trade Commission's red flag rule.

 

Designed to combat the increased potential for identity theft, the rule requires any entity defined as a "creditor" to institute an identity theft prevention program.

 

The rule's broad definition of "creditor" left insurance agencies, as well as other businesses and organizations that provide goods or services first and allow customers to pay later confused about whether they need to follow the rule. Failure to comply could lead to fines or civil actions against the company.

 

When the rule was first published in October 2007, any business that billed customers in arrears for services provided, including dentists, contractors, lawyers and accountants, could have been affected, according to a statement from Stevens & Lee, a law firm with offices in Pennsylvania, New Jersey, New York and Delaware.

 

But in December 2010, Congress significantly narrowed the scope of the businesses that will be considered creditors under the rule. Legislators excluded an organization "that advances funds on behalf of a person for expenses incidental to a service provided by the [organization] to that person."

 

Stevens & Lee said the change, sought by lawyers, doctors and other health care providers, is intended to exclude businesses that bill for goods or services after the goods or services have been provided.

 

Despite the narrowing, Stevens & Lee recommends in a client alert that all businesses that provide services prior to requesting payment should examine their overall business practices.

 

If they perform any of the following activities, they could be considered a creditor under the rule.

 

They include businesses and organizations: Obtain or use consumer reports, directly or indirectly, in connection with a credit transaction Furnish information to consumer reporting agencies in connection with a credit transaction Advance funds to or on behalf of a person, based on an obligation of that person to repay the funds or repayable from specific property pledged by or on behalf of the person.

 

The FTC published the rule in October 2007, but implementation was delayed several times.

                                                                         -Source: IFAwebnews.com/Bob Graham