Fighting Identity Theft with the Red Flags Rule: A How-To Guide for Business
May 2013
The Federal Trade Commission (“FTC”) released a Guide on Fighting Identity Theft with the Red Flags Rule: A How-To Guide for Business that discusses the Red Flags Rule, which mandates that businesses implement an identity theft prevention program to identify and respond to potential identity theft risks. With around nine million Americans affected by identity theft annually, the costs to businesses from unpaid bills and reputational damage can be significant. The Red Flags Rule, enforced by the FTC and other agencies, outlines a framework for businesses to create effective prevention strategies.
To comply with the Rule, businesses must develop a program that includes policies to identify suspicious patterns, procedures to detect these patterns, defined actions when red flags are detected, and a plan for updating the program to address new threats. Notably, the requirement to comply hinges on whether a business qualifies as a "financial institution" or a "creditor," and whether it manages "covered accounts" that pose a risk for identity theft.
The guide details a four-step compliance process: identifying red flags specific to the business, detecting these flags through verification methods, preventing and mitigating identity theft when red flags arise, and regularly updating the program to adapt to changing risks. It emphasizes the need for senior management involvement, staff training, and monitoring of service providers to ensure compliance and effectiveness.
Overall, the Red Flags Rule aims to equip businesses with the necessary tools to safeguard against identity theft while providing flexibility to tailor their approach based on their size and risk exposure.
For more information, see here: https://www.ftc.gov/tips-advice/business-center/guidance/fighting-identity-theft-red-flags-rule-how-guide-business
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