TSC Trusted Advisors’ Blog

Red Flags Rule is really Red Herring Rule

The Red Flags Rule, an outgrowth of the Fair and Accurate Credit Transactions Act of 2003, or as I’m going to call it, the Future Assurance of Consulting Transactions Act of 2003, is another example of bureaucrats trying to solve a criminal problem with technology. FACT’s aim is to stem the tide of identity theft by forcing organizations that deal with credit information to implement a fraud detection program that will supposedly slow down and prevent identity theft incidents. So, starting in November, anyone that offers credit, such as car dealerships, utility companies, or telecom companies, must now implement a credit fraud detection program.

Will this engender warm and fuzzy feelings in the general public? It sure will! I’m feeling better already knowing that the local car dealerships will be implementing more complicated and of course, even more expensive procedures designed to ensure that someone doesn’t buy a car with my credit. That is, assuming that the car dealerships are still in business after the recession’s over.

What might these procedures look like, you might ask? Good question! At the very basic level, they will compare the address that you put on your credit application with the one that comes back in the credit report. If they don’t match, that’s what the geniuses in Congress call a “red flag.” Thanks to FACT, you will now have to find out why they don’t match.

Now, I’m thinking that nobody will use the excuse “I just bought a house” for a while so we should be good there. The other side of that coin, “my house just foreclosed” would probably be a “negative indicator” if you’re trying to buy a new car as well, so there goes that excuse. Thanks to Red Flags, bad guys will stick out like a sore thumb! OK, that was sarcastic because the bad guys are going to be armed with really good excuses and the dealerships are desperate so if you’re warm and breathing….

The bottom line here is that the Red Flag Rule creates a great opportunity for a lot of consultants to charge small businesses a lot of money they don’t have for a set of processes that really won’t be making much of a dent in the problem of identity theft. The idea being that the desired outcome of FACT is good, but the implementation is still way too fuzzy.

Watch out! Learn what is really required of you and what you need to do to protect your customers, your business, and be compliant with Red Flags. Then we might actually see the tide change.