Cheers, and other businesses where “everybody knows your name” may soon be relieved of the obligation to adopt identity theft prevention programs under the FTC’s “Red Flags” regulation. In a measure that passed 400-0, the House approved an amendment to the Fair Credit Reporting Act, 15 U.S.C. § 1681m(e), to exclude certain businesses from the FTC’s Red Flags implementing the Act. Those businesses, according to the amendment, include those who can show they know all of their customers or clients individually.
The Fair Credit Reporting Act was amended in 2003 to require the FTC and the Federal banking agencies to develop Red Flags regulations for banks and creditors in order to help prevent identity theft. The agencies’ respective rules mandate that written programs be created to detect and respond to warning signs of identity theft related to a customer account. The regulations apply to financial institutions and to “creditors,” which is generally defined as “a person who arranges for the extension, renewal, or continuation of credit.” This broad definition sweeps in virtually any businesses that provides consumers with goods or services in advance of payment. According to the FTC, even government and non-profit entities can be creditors under this definition. If the House bill becomes law, there will be far fewer businesses for the FTC to monitor.
The House bill responds to the concerns of small businesses, by categorically excluding some of them from the FTC regulation and providing a test by which others may also become exempt. H.R. 3763 provides that the term “creditor” does not include a health care, legal, or accounting practice with 20 or fewer employees. Additionally, the bill states that any other business can be excluded from the Red Flags rule if it can make one of three showings:
- that it knows all of its customers individually;
- that it only performs services near the residences of its customers; or
- that it has not experienced identity theft and the crime is rare for a business of that type.
The sponsor of the bill, John Adler, D-N.J., introduced the measure by noting that, “[d]uring these tough economic times, the Federal Government should not be placing burdensome regulations on small businesses.” The bill has been sent to the Senate, and referred to the Committee on Banking, Housing, and Urban Affairs.
Small businesses, and possibly some large businesses with good memories, may soon find relief from an apparently unwarranted regulatory burden.
- Nancy Perkins and Brian Larkin
