Senate approves legislation to narrow scope of the Red Flags Rule

The U.S. Senate passed legislation recently that would exempt certain businesses from complying with the Red Flags Rule.  Sponsored by Senator John Thune (R-SD), the bill (S. 3987) creates an exception to the Red Flags Rule for businesses that do not advance funds to a customer. The bill would, for example, redefine the term “creditor” as currently described under the Red Flags Rule guidelines, to apply only to those businesses who advance funds to, or on behalf of, a customer, and based upon an obligation to repay those advanced funds.  The legislation also still provides the Federal Trade Commission with authority to require certain organizations to comply with the Red Flags Rule. The legislation now moves to the U.S. House of Representatives, where the chamber must approve the bill before the end of the year in order for the bill to become law.  This may alleviate many businesses in industries such as law practices, healthcare providers (particularly solo practitioners), and perhaps some service providers in telecommunications and utilities.  However, it is likely that many businesses in the utilities space will still fall under Red Flags Rule enforcement given their accessing of consumer credit profiles in many of their application processing procedures.  Again, one has to wonder what the original intent of the Red Flags Rule was.  If it was to protect consumers from identity theft and other fraud schemes via a robust identity theft prevention program, then vastly narrowing the businesses under which potential enforcement applies seems counter-productive.  The advancement of funds or not doesn’t necessarily add to or reduce risk of fraud, as much as the actual obtainment of accounts and services with identity information…regardless of industry.  More to follow…