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The Red Flags Rule in Brief

by Noemi Castro - Student, Northwood University (California)

Submitted with permission by Adjunct Professor Steven “Goldy” Goldman

As the 21st Century begins, cases of identity theft are rising rapidly. Consumers must protect themselves from this – the fastest-growing crime in the U.S. Throughout the years, establishments of all kinds have taken it upon themselves to protect their customers’ nonpublic information in any way possible. But, as mandated by the Fair Credit Reporting Act (FCRA), regulatory changes will continue to increase the level of protection with the specific purpose of mitigating identity theft. The newest plan under the FCRA, the Red Flags Rule, will require dealerships to help detect when such unlawful events are occurring.

The intent of the Red Flags Rule is to cause businesses to prevent theft (and catch identity thieves) by verifying the identity of the consumers presenting nonpublic personal information. Financial institutions and creditors (dealerships included) should follow specific procedures to help fight this battle in today’s world of fast-paced technology. Some of the invaluable red flags (patterns, practices or specific forms of activity that indicate a possible risk of identity theft) that can help dealerships monitor and diminish risks to the consumers include the cross-referencing of physical descriptions to photographs, correlations between date of birth and Social Security numbers, (current and former residential) address discrepancies, and many more – the Red Flags Rule contains a list of FTC-recognized red flags. However, the specific policies and procedures that will be in place will be ones that have been designed by each organization that handles consumer reports and nonpublic records based on their unique circumstances.

The FTC will begin enforcing the Red Flags Rule on August 1, 2009. It is important that businesses take action and develop a plan. This involves training for employees as well as a documented and executed process for recognizing and dealing with red flags and instances of identity theft. The penalties for noncompliance are stiff and it is imperative that dealerships understand that they are in violation of the Red Flags Rule if they don’t have a program in place – even if no identity theft takes place in their store. In this day and age, adhering to this rule will save many consumers from having their lives damaged if their personal data is taken after an offense has occurred. With the aid of the FCRA, proper training and certification programs for the workforce, a significant step can be taken towards achieving a reduction of identity theft in the United States.

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