Red Flags Rule

Last updated on May 2, 2022

What is the Red Flags Rule?

The Red Flags Rule is a regulation promulgated by the Federal Trade Commission (FTC) under the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The Rule requires many businesses and organizations to develop and implement written identity theft prevention programs designed to detect, prevent, and mitigate identity theft.

The Rule was originally scheduled to go into effect on November 1, 2008, but was delayed until May 1, 2009. The FTC has since extended the compliance date to November 1, 2009 for most businesses.

Who must comply with the red flags rule?

The Rule applies to any creditor or financial institution – which is broadly defined as any entity that regularly extends, renews, or continues credit; any entity that regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor with respect to the credit extended by the original creditor – that holds any consumer account or other account for personal, family, or household purposes.

Why were the red flags rule created?

The Red Flags Rule was created in order to help businesses prevent identity theft. Identity theft is a serious problem that can have a devastating effect on both businesses and consumers. By requiring businesses to develop and implement identity theft prevention programs, the FTC hopes to reduce the incidence of identity theft and help businesses protect their customers’ information.

How can complying with the red flags rule help businesses prevent identity theft?

Compliance with the Red Flags Rule can help businesses prevent identity theft in a number of ways. First, it helps businesses to identify red flags – patterns, practices, or specific activities that could indicate the existence of identity theft – that may be present in their customer accounts. Second, it requires businesses to develop and implement policies and procedures for responding to red flags. These policies and procedures can help businesses to detect and prevent identity theft before it occurs. Finally, the Rule requires businesses to provide customers with notice of their policies and procedures for responding to red flags. This notice can help customers to understand how businesses are protecting their information and what they can do to protect themselves from identity theft.

What are some common red flags that businesses should be aware of?

There are a number of common red flags that businesses should be aware of. These include:

• Suspicious documents: Documents that appear to be forged, altered, or otherwise suspicious.
• Suspicious personal identifying information: Personal information that is inconsistent with the information in the customer’s account or that is otherwise suspicious.
• Suspicious activity: Activity that is inconsistent with the customer’s normal patterns of activity or that is otherwise suspicious.

Businesses must update their identity theft prevention programs at least annually. In addition, they must review their programs whenever there are significant changes to their business operations or customer accounts.

There are a number of penalties that businesses may face for failing to comply with the Red Flags Rule. These include civil penalties of up to $3,500 per violation, injunctions, and orders requiring businesses to take corrective action.

Businesses can find more information about compliance with the Red Flags Rule on the FTC’s website.