Articles and Newsletters

Client Alert from the Municipal Law Group - June 2010

"RED FLAG RULE" UPDATE:
ANOTHER NEW ENFORCEMENT DATE!

By Heather R. Baldwin Vlasuk

The Federal Trade Commission (FTC) has once again extended the enforcement date for its "Red Flag Rule," which had been scheduled for June 1, 2010. The "Red Flag Rule" requires that entities which extend credit to consumers create and implement an identity theft prevention program. The new enforcement deadline will be the earlier of the following two dates: either December 31, 2010, or the effective date of federal legislation limiting the scope of businesses covered by the Rule.

Legislation currently pending in Congress would provide specific exemptions for health care, accounting, and legal practices having twenty or fewer employees and would exempt businesses that: (1) know all of their customers or clients individually; (2) only perform services in or around the residences of their customers; or (3) have not experienced incidents of identity theft, and identity theft is rare for businesses of that type. A federal District Court has already ruled that lawyers are not subject to the Red Flag Rule, and the American Institute of Certified Public Accountants and the American Medical Association have filed similar lawsuits seeking blanket exemptions from the Red Flag Rule.

Nonetheless, as the law currently stands, the Red Flag Rule contains a broad definition of "creditor," which encompasses such entities as private and municipal healthcare providers (including EMS providers) that defer payment obligations while patient insurance claims are pending, as well as municipal and non-municipal utility companies that use periodic billing.