Federal Trade Commission (FTC) Chairman Jon Leibowitz applauded Congress' recent passage of the "Red Flags" Clarification Act of 2010, admitting that, in their original form, the rules went too far.
pleased Congress clarified its law, which was clearly overbroad," said
Leibowitz in a December 9 FTC press release. "Now we can go forward with
less litigating and more protecting consumers from identity theft. I
want to express my appreciation to Congressmen John Adler (D-NJ) and
Mike Simpson (R-ID), and Senators John Thune (R-SD) and Mark Begich
(D-AL), for their excellent work in resolving the uncertainty created by
Leibowitz previously chided lawmakers for taking too
long to act on a clarification measure. In a release last May that
announced a delay in the "Red Flags" Rule enforcement date, the Chairman
urged Congress to quickly pass legislation that eliminated the Rule's
unintended consequences. Lawmakers finally responded in the last two
weeks with the "Red Flags" Clarification Act, which passed unanimously
in both chambers and limits the definition of the word "creditor" in
order to ensure that it doesn't apply to certain services and small
the most recent release, the FTC also took the opportunity to reiterate
that the Rule was always meant to be flexible. "It gives businesses the
flexibility to tailor their written ID theft detection program to the
nature of the business and the risks it faces. Businesses with a high
risk for identity theft may need more robust procedures-----like using
other information sources to confirm the identity of new customers or
incorporating fraud detection software," they noted. "Groups with a low
risk for identity theft may have a more streamlined program----for
example, simply having a plan for how they'll respond if they find out
there has been an incident of identity theft involving their business."
the new legislation should, at least theoretically, apply to far fewer
businesses, some feel that the bill doesn't go far enough, and fails to
exempt trade creditors in any meaningful way. "I don't think this changes a thing for our trade creditors," said Wanda Borges, Esq. of Borges & Associates, LLC. "It's so short and almost nonsensical, I really think they accomplished very little." Specifically,
Borges noted that the bill's adjustments to the definition of what
constitutes a "creditor" fail to explicitly exclude trade creditors.
Moreover, a provision at the end of the bill serves as something of a
catch-all, noting that creditors can be required to comply with the "Red
Flags" Rule if they're determined to maintain accounts subject to a
reasonably foreseeable risk of identity theft.
"They may have
succeeded in eliminating the need for small law firms and small doctor's
offices to have 'Red Flags' programs in place, but that catch-all at
the end means our trade creditors aren't exempt," she added. "I
think what it does is gives businesses a better opportunity to
determine whether or not they're low risk or high risk. It's clear that
they have not excluded trade credit."
Stay tuned to NACM's Credit Real-Time Blog for more updates on how this applies to you and your company.
Jacob Barron, NACM staff writer