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Identity Theft Red Flags Rule

Frequently asked questions


The federal banking agencies, the National Credit Union Administration (NCUA) and the Federal Trade Commission (FTC) recently have issued a new requirement — called the “Red Flags Rule” — for “creditors” and “financial institutions” to assess whether they offer or maintain “covered accounts” and, if they do, to develop and implement an “Identity Theft Prevention Program” (Program) to detect, prevent and mitigate identity theft with respect to those accounts.

When does the Rule take effect? The Rule took effect on Jan. 1, 2008. Compliance with the Rule, however, is not required until Nov. 1, 2008.

Am I a “creditor” under the Rule? The term “creditor” has the same meaning as under the Equal Credit Opportunity Act (ECOA) and is defined as a person who regularly participates in credit decisions, including, for example, a mortgage broker, a person who arranges credit or a servicer of loans who participates in “workout” decisions. The term “credit” is defined, as in the ECOA, as the right granted by a creditor to defer payment for goods or services. It is important to note that commercial, as well as consumer, credit accounts may be covered by the Rule. (See “What is a ‘covered account’?” below.)

We are an insurance company that uses credit reports to underwrite insurance. Does the Red Flags Rule apply to us? The Red Flags Rule applies to creditors and depository institutions and should not apply to an insurer when engaged in activities related to insurance underwriting. To the extent that you extend credit, however, you may be covered. For example, you may wish to examine whether you permit consumers to finance their premiums; whether you extend credit to vendors, independent agents or other business partners; or whether you extend credit in connection with your investment activities, including real-estate investments.

I am an auto dealer. Does the Rule apply to me? If the business extends auto credit to consumers or arranges auto credit for consumers, the Rule may apply.

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