Update on FTC Red Flag Rules

Posted on | October 20, 2009 | Comments Off

Hey, remember those Red Flag Rules?

Okay, maybe not, so let me back up the cart.

After numerous delays, the Federal Trade Commission (FTC) appears ready to start enforcing compliance with its Red Flag rules. Those rules are designed to get businesses to help in the fight against identity theft, by requiring them to have a written Identity Theft Prevention Plan that identifies ‘red flags’ that may signal a problem (hence the nickname “Red Flag Rules”) and that takes steps to prevent or mitigate said Identity Theft.

Unfortunately, it has taken quite a long time for the FTC to begin getting its act together to implement its own rules because of the number of trade organizations that argued the rules don’t apply to them.

Oh, that’s another thing. These rules apply to creditors; that is, any business that does not operate on a cash and carry basis. And that, as you may have already surmised, means an awful lot of firms.

Now, if you are among those worried about compliance chores for this new set of regulations, here’s some news for you: freshman Congressman Jay Adler (D-NJ) has introduced legislation to make a couple of fairly important changes to those Red Flag Rules.

H.R. 3763, which does not have one of those clever titles that make intriguing acronyms (CAN-SPAM, the SHOP Act, etc.), would provide for a few exemptions from the Red Flag Rules. Specifically, those exemptions would be:

  • a health care practice with fewer than 20 employees;
  • an accounting practice with fewer than 20 employees;
  • a legal practice with fewer than 20 employees; or
  • any other business that the FTC decides should be exempt, based on an application process through which the business establishes that it either (a) knows all its customers/clients individually, (b) only performs services in or around the residences of its customers, or (c) has not experienced episodes of ID theft and/or ID theft is rare for that type of business.

    • That last one is important because it is an exemption that will almost certainly account for most microbusinesses that would otherwise have to comply with this rule.

    That means the FTC is going to have a time fielding all the applications for exemptions but it also means that an awful lot of micros (particularly in the B2B sector) will be able to remove this particular regulatory albatross from around their necks.

    If, that is, the bill passes.

    I bring this to you attention today because this particular piece of legislation is scheduled to come to the House floor today, under a suspension of the rules. That is a mechanism under which a bill can come directly to the floor, bypassing the Committee markup process. If anybody in the House objects, the bill continues on its way to the Committee pending tray — in this case, the House Financial Services Committee.

    If it passes, it will the move on to the Senate and will, I suspect, fall under the wing of the Committee on Banking, Chaired by Senator Christopher Dodd (D-CT). Stay tuned.


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