The new Red Flags Rule that are required to be followed by the FTC include 26 different examples of suspicious behaviors that any financial institution or lender can use to identify situations that are cause for concern. There are many different guidelines that are to be followed, covering everything from alerts and notifications that seem suspicious to warnings from service providers and other suspicious documents that show up in an unusual format or place. Taking the time to understand, train employees, and implement these guidelines should give people a more reasonable sense of security in this highly vulnerable world of commerce.

Because of the increased use of technology as a means of storing information and maintaining data, identity theft is increasing rapidly. In 2007, the Red Flags Rule were passed, otherwise known as Section 114 of the Fair and Accurate Credit Transactions Act (FACTA) from 2003. These rules were designed specifically for financial institutions and lenders, allowing them to take extra steps to mitigate, prevent, and detect security breaches and identity theft. This program is designed to be used with certain accounts, including the opening of new accounts and the continued security of existing accounts.

Red Flags Rule are applicable to many businesses, including the following: banks, credit unions, mortgage companies, U.S. branches of foreign banks, utility companies, telecommunications companies, health care companies, municipalities, auto dealers, debt collectors, and any other business that deals directly with secure information or financial accounts. These rules apply to any account that involves payments or transactions of any kind that can be susceptible to security breaches and identity theft. Credit reporting agencies aren’t required to follow these rules, and some business customers may also be affected by them. These are two exceptions to the rule. Beyond that, the standard of who should follow them remains the same.

Anyone that does not follow these rules is subject to fines, negative publicity, and potential litigation, which serves more for embarrassment and defamation than actual punishment. The goal is to get every business to follow these rules and to make those who don’t deal with the negative publicity that demonstrates their inability to protect their customers’ accounts. Identity theft is not completely preventable, but the use of these rules can serve to make it harder to get away with in many cases. Ultimately, the Red Flags Rule are guidelines to make businesses more secure and protected, but nothing will completely stop identity theft without constant monitoring and new innovations.

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