FTC Red Flags Rule: Is Your Business Ready?

FTC Red Flags Rule Goes into Effect June 1st, 2010

The FTC  will begin enforcing the Red Flag Rule on June 1st, which states that certain businesses and creditors must help fight identity theft as well as create an identity theft prevention plan. This applies to a very broad class of businesses: those defined as “financial institutions” and those that extend any type of credit to their customers.

In other words, if you don’t receive cash the moment you deliver your product or service to your customer, your business most likely falls under the umbrella of the Red Flags Rule. If you do any billing after the fact (i.e., accounts receivable), you are considered a creditor, and therefore in the group of companies governed by Red Flags.


This includes:

  • Any Business that Extends Credit
  • All Banks
  • Most Brokerage Firms
  • Credit Card Companies
  • Mortgage Lenders
  • Non Traditional lenders (utilities, dealerships, health care providers)

Building an Identity Theft Prevention Plan

According to the FTC, the identity theft prevention plan consists of four main parts:

  1. Identification: The plan needs to provide a process to identify patterns, activities or transactions (i.e. red flags, hence the name) that appear to be leading to identity theft.
  2. Detection: The plan needs to specifically call out processes and procedures that will be used to detect the previously defined red flags.
  3. Response: The plan needs to include a process of responding to red flags as they are detected.
  4. Revision: The plan should specify the process the organization will use to periodically update sections 1-3 as the threat landscape changes

The plan must cover how your organization will ensure that any company to which you are outsourcing to will be compliant. Every organization’s senior employees or board of directors must approve the initial plan and train the appropriate employees.

The FTC has also identified five main categories that an organization’s Red Flags might fall under. They are:

  1. Alerts, notifications, or warnings from a consumer reporting agency.
  2. Suspicious documents.
  3. Suspicious personally identifying information (PII).
  4. Suspicious activity relating to a covered account.
  5. Notices from customers, victims of identity theft, law enforcement authorities, or other entities about possible identity theft in connection with covered accounts.

As with any new plan or program there will be bumps in the road. The FTC won’t be actively auditing organizations, but it will be investigating on the basis of reported issues, and the costs of being found non-compliant can be staggering.  Since most older and more mature organizations already have an Identity Theft Prevention Program in place, it won’t be a huge change. We have already begun to see a connection between the Red Flags Rule and a decrease in the ease with which identities are stolen out of businesses. Hopefully, this trend will continue.

In the meantime, you should get started on designing and implementing your identity theft prevention plan. For help understanding the process and other privacy issues that your and your business face, attend the Privacy Survival Boot Camp for Small Businesses hosted by John Sileo, America’s Top Identity Theft Expert.


Bulletproof Your Business Against Data Breach, Identity Theft, and Corporate Espionage

Join John September 17th in Denver, Colorado for his Privacy Survival Boot Camp for Businesses. You will walk away with the Privacy Best Practices Kit:


  • John Sileo’s latest book, Privacy Means Profit
  • A Sample Privacy Policy to guide you through creating your own
  • Guidelines for establishing Social Networking Best Practices
  • A Mobile Data Protection Checklist for your laptop, smart phone, etc.
  • An Action List for Implementing Red Flags Rule compliance

Seats are going fast so don’t miss this opportunity to learn first-hand how to immediately protect your profits!


Posted by Identity Theft Speaker in Fraud Detection & Prevention, Identity Theft Prevention, Video Tips and tagged , , , , , , , , , , .

1 Responses to FTC Red Flags Rule: Is Your Business Ready?

  1. andi: May 27, 2010 at 11:06 pm

    Great info for business owners. Once again you take a complicated issue and break it down into manageable steps. Your website has helped our business so much-we are forever grateful.
    And great blogs on Facebook Privacy issues-I’ve been hearing so much about it in the news and this helped me understand the issue-once again well done! and Thank you!

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