President Signs Red Flag Clarification Act of 2010 (Pub. L. No. 111-319)
In 2007, pursuant to the Fair and Accurate Credit Transactions Act of 2003, the Federal Trade Commission promulgated the Identity Theft Red Flags Rule requiring ?creditors? and ?financial institutions? offering or maintaining "covered accounts" to develop and implement written identity theft prevention programs. (The FTC joined a handful of other federal agencies in promulgating a joint Identity Theft Red Flags Rule. The FTC?s Rule applies to financial institutions and creditors that are subject to administrative enforcement of the Fair Credit Reporting Act by the FTC.) The term ?creditor? in the FTC Red Flags Rule was broadly defined to include: ?any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.? The FTC took the position that professionals such as attorneys, doctors, and accountants were included within the definition of ?creditor? because they allow consumers to pay for services after the services are rendered.
While the Rule became effective on January 1, 2008, with compliance required by November 1, 2008, the FTC issued several Enforcement Policies delaying enforcement of the Rule. In response to the FTC?s position regarding the definition of ?creditor,? professional organizations such as the American Bar Association and the American Medical Association sued the FTC. At the request of several Members of Congress, the FTC agreed to further delay enforcement of the Red Flags through December 31, 2010.
On December 18, 2010, President Obama signed the Red Flag Program Clarification Act of 2010. The legislation amends the Fair Credit Reporting Act by defining the term ?creditor? as follows: ?Creditor? means a creditor, as defined in Section 702 of the Equal Credit Opportunity Act, that regularly and in the ordinary course of business (1) obtains or uses consumer reports in connection with credit transactions; (2) furnishes information to consumer reporting agencies in connection with a credit transaction; or (3) advances funds to or on behalf of a person based on that person?s obligation to repay the funds or repayable from specific property pledged by or on behalf of the person. This third category, however, does not include a creditor that advances funds on behalf of a person that are incidental to a service provided by the creditor to the person. [The legislation does include a provision that would allow other types of creditors under Section 702 to be subject to the Red Flags Rule if the agency with authority over the creditor (e.g., federal banking agencies, National Credit Union Administration, or the FTC) determines that the creditor offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft.]
By narrowing the third category of creditors by eliminating those who advance funds on behalf of a person that are incidental to a service provided by the creditor, professional service providers such as attorneys, accountants, and doctors no longer fall within that part of the definition of ?creditor.?