The Federal Trade Commission announced that the Red Flags Rule, mandated under the Fair and Accurate Credit Transactions Act of 2003, will go into effect on November 1, 2009, in order to allow for more time for the FTC to educate businesses covered under the Rule on compliance.
The purpose of the Rule is to combat identity theft by having businesses install programs that will identify “red flags” of such theft. The Rule applies to “financial institutions” and “creditors,” the latter designation covering any businesses that regularly defer payment for goods or services or provide goods or services and bill customers later. “Creditor” also covers businesses that regularly grant loans, arrange for loans or extensions of credit, or make credit decisions, like automobile dealers or retailers that offer financing or help consumers get financing from others by, for instance, processing credit applications. For those covered businesses, the Rule only applies to two kinds of “covered accounts”: a consumer account used primarily for personal, family, or household purposes that permits multiple payments or transactions (like an auto loan or cell phone account); and an account where there is a reasonably foreseeable risk of identity theft, like small business accounts.
Business owners should find out whether their business is covered under the Rule and maintains accounts covered by the Rule, so that they can have a Red Flags program in place when the Rule goes into effect. Read more about the Rule here.