Congress Enacts Red Flag Program Clarification Act
On December 18, 2010 President Barack Obama signed the Red Flag Program Clarification Act. The Act amends the Fair Credit Reporting Act to address concerns raised by attorneys, physicians, accountants, and others regarding application of the federal Red Flags Rule to address identity theft measures. Under the Rule, anyone that extended credit or deferred payment for services was required to implement an identity theft detection and prevention program. The application of the Rule spawned lawsuits by the American Bar Association and American Medical Association against the Federal Trade Commission challenging application of the Rule to attorneys and physicians.
With the Clarification Act, Congress has mooted those issues by clarifying that the Rule applies only to those organizations that obtain or use credit reports in connection with credit transactions. The Act further specifically excludes from the definition of “creditor” anyone who advances funds on behalf of a person for expenses incidental to a service the creditor provides to that person. By operation of this exception, attorneys, physicians, and accountants will be exempt from the Red Flags Rule requirements. This should come as a relief to professionals in those fields because of the administrative burdens the Red Flags Rule imposes.