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FACTA Identity Theft Rule Update

The much-feared, long-delayed and highly-confusing “FACTA Red Flags Rule” is an anti-fraud law requiring “creditors” and “financial institutions” to identify, detect and respond to the warning signs, or “red flags” that could indicate identity theft. Due to vague wording of the law, it appeared that many small and professional businesses could be considered “creditors” and thus be subject to onerous compliance requirements.

The Red Flag Program Clarification Act, passed in December and signed by the President, now clarifies that Congress only intended for traditional creditors to be subject to the Red Flags Rule, not doctors, lawyers and other professional groups who became creditors by default not by choice.  As a result, fewer small businesses will be subject to the Red Flags Rule, although no business or organization is exempt.  Every business must determine for itself which rules apply to them.

The requirements were mandated by the Fair and Accurate Credit Transactions Act (FACTA) – hence the name. The FTC’s Red Flags Web site,, can help you determine if your business is covered, and what you’ll have to do to comply. It includes an online compliance template that lets you design your own Identity Theft Prevention Program through a fairly easy online form, as well as articles directed to specific businesses and industries, guidance manuals, and a FACTA Red Flags FAQ.

FACTA’s definition of “creditor” includes any business that regularly extends or renews credit – or arranges for others to do so – and includes all businesses that regularly permit deferred payments for goods or services. Accepting credit cards as a form of payment, however, does not, by itself, make you a creditor. “Financial institutions” include entities that offer accounts that enable consumers to write checks or make payments to third parties through other means, such as other negotiable instruments or telephone transfers.

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