Red Flags Rules To Combat Identity Theft
Businesses and corporations are relying more and more on technology to store and maintain data
, including customer records; and the risk of identity theft is rapidly increasing.
On October 31st of 2007 the Joint Committee of the OCC, Federal Reserve Board, FDIC, OTS, NCUA and the Federal Trade Commission passed the final legislation for Section 114 of the Fair and Accurate Credit Transactions Act of 2003 (FACTA), also known as the Red Flag Rules. Red Flag Rules were designed with financial institutions, dealerships and creditors in mind, to take extra steps in order to detect, prevent and mitigate identity theft. These rules are to be used to identify "Red Flags" signaling possible identity theft situations. This written identity theft prevention program is to be implemented with the opening of certain accounts or existing accounts.
Now, financial institutions and creditors must update their programs periodically to ensure they reflect changes in risks to protect customers from identity fraud. In other words, the program must remain pliable enough to handle new threats as they emerge.
The rules offer 26 examples of suspicious behavior that financial institutions and creditors can use as Red Flag guidelines. Some examples of "Red Flags" are: alerts, notifications, or other warnings received from consumer reporting agencies or service providers, such as fraud detection services, the presentation of altered or suspicious documents, suspicious personal identifying information, unusual use of, or suspicious activity related to the account or notice from customers, victims of identity theft, or law enforcement authorities regarding possible identity theft in connection with covered accounts held by the financial institution or creditor. The idea is to prompt banks and creditors to go into "authentication mode" and determine whether fraudsters are trying to apply for credit in someone else's name or hijack someone else's accounts.
Wondering if these new rules apply to you and your business? Red Flag Rules apply to all banks and credit unions, thrifts, mortgage lenders, U.S. branches of foreign banks and lenders, utility companies, telecommunications companies, health care companies, auto dealers, debt collectors and municipalities. The Red Flag Rules apply to each "covered account," which is a customer account involving multiple payments or transactions; such as a credit card account, mortgage loan, car loan, margin account, cell phone, utility, and checking or savings account, for which there is a foreseeable risk of identity theft. These covered accounts are primarily for family, personal, or household purposes. On the other hand, a single, non-continuing transaction, where no ongoing relationship exists, is not a covered account. The Red Flag Rules may also apply to some of your business customers. Credit reporting agencies are exempt from the Red Flag Rules; however, Experian is getting involved at some level.
The identity theft protection programs must include policies and procedures for listing the "Red Flags", detecting "Red Flags" of identify theft, responding to any such Red Flags in a manner that will prevent or mitigate the identify theft, and as I mentioned before, updating the program. The identity theft program must be managed by the Board of Directors or senior employees of the company if there is no Board of Directors. These companies must also maintain up-to-date training for these programs with on-going education.
The required institutions have until November 1, 2008 to come into full compliance or be subject to penalties. Proponents say Red Flag Rules will standardize how credit-issuing entities respond to suspicious activities regarding your accounts. I believe these new rules will be the road map for protecting customer information and helping to fight back against identity theft.
Red Flag advocates say that banks and creditors with incompetent fraud prevention programs will eventually be exposed by litigation and negative publicity. The public disclosure of identity theft will create a sense of urgency for these companies to be up to par and consumers eventually benefit because of the new higher standards. Because of these new rules, employees of these institutions may become more aware in spotting identity fraud and stopping the thieves in their tracks. Keeping in mind that identity theft is not preventable, I do think that making these rules mandatory is a great stride in the right direction.
by: li baocai
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