The Red Flags Rule was adopted in December of 2010 by the Federal Trade Commission (“FTC”) to help prevent identity theft. The rule was implemented to force businesses to keep a watchful eye on any suspicious activities or “red flags” that may lead to identity theft within business operations…..simply put, it is a rule adopted by our government to protect us from the growing threat of identity theft at the corporate level.
The Red Flags Rule only applies to financial institutions and creditors, excluding lawyers, doctors and other service providers. Specifically, the rule applies to companies which include but are not limited to mortgage brokers, finance companies, automobile dealerships, utility companies and telecommunication companies.
This rule sets up guidelines about how these specified businesses must operate an Identity Theft Prevention Program in an effort to keep the consumer population safe from this growing concern. The program has four steps each companies must adhere to: (1) the ability to identify red flags alerting the company to any potential identity theft; (2) procedures to detect these red flags; (3) prevention and mitigation of damages once a red flag is discovered; and (4) maintenance of a program in compliance with the Red Flags Rule and the ability to continue to evolve the program over time. The government allows each company to adapt a program to fit their specific needs as long as it can assure its program is protecting its clients from the inherent risk of identity theft.
A small percentage of the population is opposed to the Rule and feels that it may act as a cause of identity theft. They argue that the Rule requires these specified companies to collect personal information, including social security numbers, drivers’ license numbers, maiden names, previous address history, etc. from its clients which these companies would otherwise not normally maintain in its records. The availability of this information to employees puts consumers at a greater risk of being a victim of identity theft when the information would otherwise not be made available.
To read more about identify theft and how it effects your credit, see Identity Theft – 10 Things You Need to Know, Identity Theft Kit, Crime of Having a Common Name, Another Horrifying Background Check Story, and When Can Debt Collectors Gain Access to Your Credit Report.