The President has signed a bill that clarifies the term “creditor” in the Red Flags Rule, excluding doctors and other small businesses.
The Red Flag Program Clarification Act of 2010 limits application of the Red Flags Rule to creditors that regularly and in the ordinary course of business: (1) obtain or use consumer reports, directly or indirectly, in connection with a credit transaction; (2) furnish information to certain consumer reporting agencies in connection with a credit transaction; or (3) advance funds to or on behalf of a person, based on a person’s obligation to repay the funds or on repayment from specific property pledged by or on the person’s behalf.
The Red Flags rule was developed under the Fair and Accurate Credit Transactions Act, where Congress directed the Federal Trade Commission and other agencies to develop regulations requiring creditors and financial institutions to address the risk of identity theft. The resulting rule requires all such entities that have covered accounts to develop and implement written identity theft prevention programs to help identify, detect and respond to patterns, practices or specific activities – known as “red flags” – that could indicate identity theft.
The Red Flag Program Clarification Act clarifies that small businesses such as doctor’s offices are not classified as creditors because they do not offer or maintain accounts that pose a risk of identity theft.
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