The Senate very quietly passed a bill exempting many firms from the Federal Trade Commission's (FTC's) "Red Flags" rules this week.
the Red Flag Program Clarification Act of 2010, the Senate voted by
unanimous consent to amend the Fair Credit Reporting Act's (FCRA's)
definition of "creditor," offering further clarification on one of the
"Red Flags" rules' vaguest provisions and ultimately limiting the scope
of the regulations. Specifically, the bill further defines a creditor as
any entity who, in the ordinary course of business, obtains or uses
consumer reports in connection with a credit transaction; furnishes
information to consumer reporting agencies in connection with a credit
transaction; and advances funds "based on an obligation of the person to
repay the funds or repayable from specific property pledged by or on
behalf of that person."
the bill is designed to exempt law firms, accountants, doctors, nurse
practitioners and other service providers from the "Red Flags" rules,
but also sweeps small businesses out from underneath the regulations'
reach. The bill was introduced jointly by Senators John Thune (R-SD) and
Mark Begich (D-AL), both of whom described the bill as a relief to
smaller firms across the country. "Small businesses in South Dakota and
across our country are the engines of job growth for America," said
Thune. "Forcing them to comply with misdirected and costly federal
regulations included in the FTC Red Flags Rule will hurt their ability
to create jobs and continue growing our economy."
"It is very
important to consider the needs of small businesses, such as medical
providers, when implementing consumer protections," Begich added. "Our
goal is to streamline requirements for businesses to ensure the proper
implementation without onerous costs."
The bill has been referred to the House Financial Services Committee for further consideration.
FTC has so far made no comment on the bill's passage through the
Senate, but Chairman Jon Leibowitz had previously urged Congress to pass
similar legislation that further clarifies the rule and its
application. "Congress needs to fix the unintended consequences of the
legislation establishing the Red Flags Rules-and to fix this problem
quickly," said Leibowitz in the FTC's May 2010 press release announcing a
delay in the rule's enforcement date till December 31, 2010. That date
is currently still in effect, but the clarification act could become law
before then, preempting the regulations' enforcement for many of the
nation's small businesses and service providers.
Stay tuned to NACM's Credit Real-Time Blog for latebreaking updates.
Jacob Barron, NACM staff writer