What is a Red Flag?

Continuing our education related to sifting through the new Red Flags Rule, we thought it might be handy to start with  some definitions.

According to the FTC, a Red Flag refers to a pattern, practice, or specific activity that indicates the possible existence of identity theft.  Supplement A to the final rules and guidelines provides 26 examples of Red Flags for consideration when implementing the Program (we’ll cover the 26 in a future post).

For now, keeping it basic, Red Flags fall into 5 categories:

1. Alerts, notifications, or warnings from a consumer reporting agency; suspicious documents;

2. Presentation of suspicious documents;

3. Suspicious personally identifying information, such as suspicious address;

4. Unusual use of-or suspicious activity relating to-a covered account; and

5. Notifications or reports from customers, victims of identity theft, law enforcement authorities, or other businesses about possible identity theft in connection with covered accounts.

As a review, the Red Flags Rule applies to “financial institutions” and “creditors” with “covered accounts”.  Under the Rules, a financial institution is defined as a state or national bank, a state or federal savings and loan association, a mutual savings bank, a state or federal credit union, or any other entity that holds a “transaction account” belonging to a customer.

More definitions (a drag, but we’ve got to know what we’re talking about)

A transaction account is a deposit or other account from which the owner makes payments or transfers (ie checking accounts, negotiable order of withdrawal accounts, savings deposits subject to automatic transfers…)

A creditor is any entity that regularly extends, renews, or continues credit; any entity that regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who is involved in the decision to extend, renew, or continue credit.  Creditors include finance companies (credit cards), automobile dealers (auto loans), mortgage brokers (mortgages), utility companies (accounts for gas, electric, oil etc).  Where not-for-profit and government entities defer payment for goods and services, they, too, are to be considered creditors (higher education-student loans) and medical providers (payment accounts).

A covered account is an account used mostly for personal, family, or household purposes, and that involves multiple payments or transactions. 

That lays the foundation and feels like a full helping of information for now–more tips on how to comply next week.

There is always more information available at www.hvshred.com

by hvshred