Red Flags Rule in Effect

The Red Flags Rule was developed in 2003 as part of the Fair and Accurate Credit Transactions Act (FACTA). This act was aimed at combating the rise in identity theft claims that were mounting particularly within the lending industry.

With these guidelines, the federal government requires creditors and financial institutions to implement a system of checks so they may "identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft."1

Where the Rule Stands Today
After several push backs over the past couple of years, the Red Flags Rule is now moving forward with an amendment geared toward clarifying the law. On December 18, 2010, President Obama signed the Red Flags Program Clarification Act, which limits the circumstances under which creditors are covered by the Red Flags Rule. As part of clarifying the term creditor, the act points to any organization that "regularly and in the ordinary course of business —
i) obtains or uses consumer reports, directly or indirectly, in connection with a credit transaction;
ii) furnishes information to consumer reporting agencies … in connection with a credit transaction; or
iii) advances funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person."

Per the same act, however, a creditor does NOT include a business that "advances funds on behalf of a person for expenses incidental to a service provided by the [business] to that person."2

With the passing of this law and the higher level of clarity in defining the organizations responsible for complying with the Red Flags Rule, the proactive penalty phase is now in effect. This means that any company that falls under the Red Flags Act and doesn't have a Red Flag Program can be penalized.

EVS: A Step in the Right Direction
As part of becoming Red Flag-compliant, companies must "identify" possible red flags, "detect" red flags, "prevent" identity theft by monitoring their accounts, and "mitigate" identity theft by contacting affected customers when necessary. Furthermore, compliant organizations must "update" their systems periodically to ensure they are current and on point.3

EVS maintains an active role in the fight against identity theft by providing a valuable piece to an organization's overall Red Flags Rule compliance package. With our id verification and id authentication solutions, EVS can satisfy an organization's need for "identifying suspicious personal information," thereby helping our clients remain vigilant against fraud while also performing satisfactory due diligence.

Our ID authentication and fraud prevention solution provide the data that businesses need to form safer relationships and comply with these specific federal requirements. Whether business owners want to verify and authenticate the identities of their customers or add necessary security measures to their software packages, EVS can help.