Articles and Newsletters

Client Alert from the Municipal Law Group - November 2009

"RED FLAG RULE" UPDATE: NEW ENFORCEMENT DATE AND
ANTICIPATED EXEMPTIONS TO THE REGULATIONS

By Heather R. Baldwin Vlasuk

Recently, there has been much movement around the Federal Trade Commission's (FTC) "Red Flag Rule" which requires that entities that extend credit to consumers create and implement an identity theft prevention program. On October 30, 2009, the FTC announced that it would once again postpone the enforcement of its Red Flag Rule until June 1, 2010.

This announcement comes in the wake of the U.S. House of Representative's unanimous passage of H.R. 3763. If passed by the U.S. Senate, the Bill would provide specific exemptions for health care, accounting, and legal practices having twenty or fewer employees and would exempt businesses that: (1) know all its customers or clients individually; (2) only perform services in or around the residences of its customers; or (3) have not experienced incidents of identity theft, and identity theft is rare for businesses of that type.

Also this past week, in a lawsuit brought by the American Bar Association, a federal District Court ruled that lawyers were not subject to the Red Flag Rule. However, this ruling has not yet been validated by an appellate court.

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