Red Flag Industries

FACTA Section 114

Red Flag Rules

Who is Considered a "Creditor"

BANKS, CREDIT UNIONS, MORTGAGE COMPANIES and CREDITORS

The FACTA regulations primarily target financial institutions, but also extend to the organizations listed below that fall into a category called "Creditors." Financial institutions must carry on the diligence in "knowing your customer" that was legislated by the Bank Secrecy Act and the USA Patriot Act. Now, the Red Flag rules not only require you to identify a possibly identity thief, but to also find the potential identity theft victim. Stopping the damage of identity theft carries with it both a burden and a reward. Financial institutions are absorbing a large portion of the billion dollar losses each year to criminals who commit identity theft.

Mortgage brokers not under the regulation of the FDIC, OCC, OTS or NCUA must still comply with Red Flag because they fall into the definition of "Creditor". Federal law defines a creditor to be: any entity that regularly extends, renews, or continues credit; any entity that regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who is involved in the decision to extend, renew or continue credit. Accepting credit cards does not, in itself, make an organization a Creditor.

The Red Flag Program Clarification Act, Senate Bill 3987, further defined "Creditor" as shown below.

SCOPE OF CERTAIN CREDITOR REQUIREMENTS.
(a) AMENDMENT TO FCRA.—Section 615(e) of the Fair Credit Reporting Act (15 U.S.C. 1681m(e)) is amended by adding at the end the following:

(4) DEFINITIONS.—As used in this subsection, the term ‘creditor’—

(A) means a creditor, as defined in section 702 of the Equal Credit Opportunity Act (15 U.S.C. 1691a), 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, as described in section 623, 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;

(B) does not include a creditor described in subparagraph (A)(iii) that advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person; and
(C) includes any other type of creditor, as defined in that section 702, as the agency described in paragraph (1) having authority over that creditor may determine appropriate by rule promulgated by that agency, based on a determination that such creditor offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft.

Mortgage Brokers who participate in the lending process by taking an application or otherwise arranging for credit fall under this definition. In seminar sessions where members of the regulatory agencies have been in attendance the discussion further clarified that the Red Flag detection must be in place at the point at which a dealer requests non-personal information for the purpose of arranging credit, in other words, the point at which the application is taken. Not just at the loan closing. Even if taking the application is the only part of the loan process in which you participate, some one down the line is going to rely on your ability to correctly identify the consumer and validate the identifying information you have been provided.

Still unsure if you are subject to Red Flag? Take our Quiz to see if you fit the profile of a FACTA Section 114 Organization.

NOTE: The information on this website is of general applicability, is not a detailed or legally precise interpretation of the law, and does not constitute legal advice for any person or organization. Consult with your legal advisor before taking any action based on information contained in this website.

HOSPITALS AND OTHER HEALTH CARE COMPANIES

While the FACTA regulations primarily target financial institutions, it may also extend to the other groups who fit the definition of "Creditor" shown above in Senate Bill 3987.

The clarification in Senate Bill 3987 does not specifically exempt hospitals and health care organizations from FACTA Section 114 regulation, but the fact that it specifically excludes organizations that advance funds on behalf of a person for expenses incidental to a service seems to suggest, and is supported by national health care associations, to mean that hospitals, physicians offices and clinics are excluded UNLESS they use credit reports as a part of determining whether or not to extend services and UNLESS they report credit activity to the credit reporting agencies for a consumer who is extended services and is paying in arrears.

Some healthcare organizations have asked if HIPAA requirements will also satisfy Red Flag.  While HIPAA focuses on the protection and use of consumer non-public information to keep it out of the hands of criminals and others who would misuse the information, Red Flag focuses on identifying and validating "persons" in relation to the information they present to you. Both are very important and interlocking objectives, but not the same.

Still unsure if you are subject to Red Flag? Take our Quiz to see if you fit the profile of a FACTA Section 114 Organization.

NOTE: The information on this website is of general applicability, is not a detailed or legally precise interpretation of the law, and does not constitute legal advice for any person or organization. Consult with your legal advisor before taking any action based on information contained in this website.

UTILITY COMPANIES AND MUNICIPAL UTILITY DISTRICTS

While the FACTA regulations primarily target financial institutions, it may also extend to the other groups who fit the definition of "Creditor" shown above in Senate Bill 3987.

The clarification in Senate Bill 3987 does not specifically exempt any type of organization from FACTA Section 114 regulation; however it does exclude organizations that advance funds on behalf of a person for expenses incidental to a service. This is tempered by two possible circumstances that put utilities squarely back under the regulation. IF an organization uses credit reports as a part of determining whether or not to extend services and IF the utility reports credit activity to the credit reporting agencies for a consumer who is extended services, then it is likely that the utility will fall under Red Flag.

One additional statement under Senate Bill 3987 states that if an organization maintains accounts that are subject to a reasonably foreseeable risk of identity theft then they are also considered a Creditor. See the full definition of creditor in the first paragraph of this page or click here to read the Red Flag Program Clarification Act, Senate Bill 3987.

Still unsure if you are subject to Red Flag? Take our Quiz to see if you fit the profile of a FACTA Section 114 Organization.

NOTE: The information on this website is of general applicability, is not a detailed or legally precise interpretation of the law, and does not constitute legal advice for any person or organization. Consult with your legal advisor before taking any action based on information contained in this website.

TELECOMMUNICATIONS COMPANIES

While the FACTA regulations primarily target financial institutions, it may also extend to the other groups who fit the definition of "Creditor" shown above in Senate Bill 3987.

The clarification in Senate Bill 3987 does not specifically exempt any type of organization from FACTA Section 114 regulation; however it does exclude organizations that advance funds on behalf of a person for expenses incidental to a service. This is tempered by two possible circumstances that put utilities squarely back under the regulation. IF an organization uses credit reports as a part of determining whether or not to extend services and IF the utility reports credit activity to the credit reporting agencies for a consumer who is extended services, then it is likely that the utility will fall under Red Flag.

One additional statement under Senate Bill 3987 states that if an organization maintains accounts that are subject to a reasonably foreseeable risk of identity theft then they are also considered a Creditor. See the full definition of creditor in the first paragraph of this page or click here to read the Red Flag Program Clarification Act, Senate Bill 3987.

Still unsure if you are subject to Red Flag? Take our Quiz to see if you fit the profile of a FACTA Section 114 Organization.

NOTE: The information on this website is of general applicability, is not a detailed or legally precise interpretation of the law, and does not constitute legal advice for any person or organization. Consult with your legal advisor before taking any action based on information contained in this website.

VEHICLE DEALERS

While the FACTA regulations primarily target financial institutions, it also extends to the other groups who fit the definition of "Creditor." See the definition of Creditor in the first paragraph of this page or read the text of the Red Flag Program Clarification Act, Senate Bill 3987.

Vehicle dealers who participate in the lending process by taking an application or otherwise arranging for credit are named specifically as "Creditors" in the comments to the regulation. In seminar sessions where members of the regulatory agencies have been in attendance the discussion further clarified that the Red Flag detection must be in place at the point at which a dealer requests non-person information for the purpose of arranging credit, in other words, the point at which the application is taken - not just at the loan closing. Even if taking the application is the only part of the loan process in which you participate, some one down the line if going to rely on your ability to correctly identify the consumer and validate the identifying information you have been provided. That is why vehicle dealers are on the Red Flag "Creditor's" list.

Still unsure if you are subject to Red Flag? Take our Quiz to see if you fit the profile of a FACTA Section 114 Organization.

NOTE: The information on this website is of general applicability, is not a detailed or legally precise interpretation of the law, and does not constitute legal advice for any person or organization. Consult with your legal advisor before taking any action based on information contained in this website.