Red Flag Alert Guidelines for Credit
"Red flag" alert guidelines for credit are an effort of the Federal Trade Commission to help reduce identity theft. The Red Flags Rule require financial institutions to establish written practices that identify specific patterns that can identify instances of identity theft at each institution.
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Identification
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All financial institutions, ranging from banks to car dealerships and other businesses that regularly extend credit, are required to establish certain "red flags, or warning signs, that identify suspicious account activity. All staff members must be trained on these red flags, and they are subject to periodic reviews by upper-level management.
Types
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Although red flag alerts are established individually by each business, red flags that can be used to mitigate identity theft include alerts from credit reporting agencies, suspicious identity documents, suspicious personal information, unusual use of an account and alerts from other businesses.
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Significance
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When an institution implements red flag practices, it can actively stop identity theft before fraudulent accounts are established.
History
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The requirement for institutions to develop red flag alerts was set in motion by the Fair and Accurate Credit Transactions Act of 2003. Financial institutions and other businesses that extend credit were originally required to implement these procedures by November 1, 2008, though that was pushed back to June 1, 2010.
Expert Insight
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Although the Red Flag Rules are intended to keep identity theft form damaging a consumer's personal or business credit, it is up to each business to set guidelines and train employees. Therefore, compliance with red flag alerts varies from business to business.
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