What Is Red Flag Legislation?
The Federal Trade Commission is an agency that issues rules and regulations designed to protect consumers. The FTC and banking regulatory agencies have issued regulations aimed at preventing identity theft. These regulations are known as the Red Flags Rule because they are focused on preventing identity theft before it occurs.
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Application
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Congress enacted a law known as the Fair and Accurate Credit Transaction Act (FACTA) that authorized the FTC to issue the Red Flags Rule; the law broadly defined a financial institution as a holder of a consumer account. Accordingly, the Red Flags Rule applies to a number of entities, including banks, financial institutions and even certain creditors.
Covered Account
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Accounts covered under the Red Flags Rule include personal or family accounts and those involving multiple payments or transactions.
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Detection Program
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Entities regulated by the Red Flags Rule must institute a program to detect possible identity theft. Identity theft red flags may include fraudulent accounts or suspicious transactions.
Reporting Requirements
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Programs must specify how entities will report suspicious activity. Additionally, the regulations require employees to be trained in procedures for handling suspicious activity.
Enforcement
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The FTC is the agency responsible for enforcing compliance with the red flag regulations. The FTC delayed enforcement of the regulations until no earlier than June 2010.
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