We continue to receive inquiries from our clients, and the market in general, around whether they are required to comply with the Red Flag Rule or not. That final decision can be found with the legal and compliance teams within your organization. I am finding, however, that there generally seems to be too literal and narrow an interpretation of the terms ‘creditor’ or ‘financial institution’ as described in the guidelines.
I often hear an organization state that they don’t believe they’re covered because they are not one of those types of entities. Ultimately, as I said, that’s up to your internal team(s) to establish. I would recommend, however, that you ensure that opinion and ultimate determination is well researched. It may sound simple, but reach out to your examining agencies or the Federal Trade Commission (FTC) and discuss any ambiguities you feel exist related to covered accounts.
There is some great clarifying language out there beyond the initial Red Flag Rule. For example, the FTC provided a very useful article (www.ftc.gov/bcp/edu/pubs/articles/art11.shtm) that described how even health care providers can be covered under the Red Flag Rule.
At first glance, they may not seem to fall under the umbrella of a ‘creditor or financial institution.’ As stated in the article, the extension of credit “means an arrangement by which you defer payment of debts or accept deferred payments for the purchase of property or services. In other words, payment is made after the product was sold or the service was rendered. Even if you’re a non-profit or government agency, you still may be a creditor if you accept deferred payments for goods or services.”
Maybe it’s just me, but that description is arguably much broader-reaching than one might initially think. Long story short: do your research, and don’t assume you or your accounts are not covered under the guidelines. Better to find out now instead of after your first examination….for obvious reasons.