Senate Quietly Passes Red Flags Clarification Act

The Senate very quietly passed a bill exempting many firms from the Federal Trade Commission's (FTC's) "Red Flags" rules this week.

In 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."

Essentially, 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.
The 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

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