FTC Issues Amended Rule on Identity Theft Red Flags

December 05, 2012

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WASHINGTON, D.C. — The Federal Trade Commission recently announced publication of an interim final rule on identity theft "red flags" that narrows the circumstances under which creditors are covered by the rule.

Officials explained Congress directed the FTC along with several banking agencies to develop regulations requiring financial institutions and creditors to develop and implement a written identity theft prevention program.

By identifying "red flags" for identity theft in advance, the agency insisted businesses such as dealerships can be better equipped to spot suspicious patterns that may arise, and take steps to prevent potential problems from escalating into a costly episode of identity theft.

Under the rule, the FTC said Red Flag Programs must have four parts.

First, the program must include reasonable policies and procedures to identify signs, or "red flags," of identity theft in the day-to-day operations of the business.

Second, the program must be designed to detect the red flags of identity theft identified by the business.

Third, the program must set out the actions the business will take upon detecting red flags.

Finally, because identity theft is an ever-changing threat, a business or dealership must re-evaluate its program periodically to reflect new risks from this crime.

The agency first issued the Red Flags Rule in 2007. In December 2010, Congress enacted legislation narrowing the definition of "creditors" covered by the rule.

The amended Red Flags Rule now provides that a creditor is covered only if, in the ordinary course of business, it regularly:

—Obtains or uses consumer reports in connection with a credit transaction

—Furnishes information to consumer reporting agencies in connection with a credit transaction

—Advances funds to or on behalf of a person, in certain cases

The commission is seeking comment on the interim final rule for 60 days.

After the expiration of the 60-day comment period and a review of the comments received, officials said the interim final rule will become final.

The commission vote approving issuance of the Federal Register notice announcing the interim final rule was 5-0.

The notice has been published in the register and can be found on the FTC's website through this link.

FTC Asks for Public Input on Proposed Used Car Rule Changes

In other agency developments, the FTC is considering changing the Used Car Buyers Guide and is turning to the general public for input.

The Buyers Guide is required under the Used Car Rule, which goes by the formal name of the Used Motor Vehicle Trade Regulation Rule.

Under this rule — which has been effective since 1985 — dealers put have to put a window sticker (i.e. a Buyers Guide) on their lots' used vehicles.

"The Buyers Guide discloses whether the dealer offers a warranty and, if so, its terms and conditions, including the duration of the coverage, the percentage of total repair costs the dealer will pay, and which vehicle systems the warranty covers," the FTC explained in a press release. "In states that do not permit sales of used cars ‘as is,' or without warranties, dealers must display an alternative version of the Buyers Guide."

After reviewing public comments it generated on the Used Car Rule, the FTC has found "that the Rule continues to benefit consumers and will be retained."

So now, the commission wants public input on changes to the rule that it contends "would empower consumers without adding burdens to businesses."

Among the proposed are the following, as listed by the FTC:

—Adding a statement to the Buyers Guide encouraging consumers to seek vehicle history information and directing consumers to an FTC website for more information about vehicle histories

—Adding a statement in Spanish to the Buyers Guide directing Spanish-speaking consumers to ask for a copy in Spanish, if they desire

—Adding catalytic converters and airbags to the List of Systems on the back of the Buyers Guide; and placing boxes on the back of the Buyers Guide where dealers will have the option to indicate whether (1) the manufacturer's warranty still applies; (2) the manufacturer's used vehicle warranty, such as a manufacturer's certified used car warranty, applies; or (3) some other used vehicle warranty applies

The FTC went on to note other pieces of the proposal, which can be found here.

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