Red Flags Compliance. How This Affects All Mortgage Brokers and Creditors

The Red Flags Act is apart of the Fair and Accurate Credit Transactions (FACT) Act of 2003. This act was put into place in hopes of protecting consumers against identity theft and other types of credit fraud.  All financial institutions and creditors, both big and small, are required to be compliant with the Red Flags Act by November 1, 2008, or face potentially large fines and difficult audits by the Federal Trade Commission (FTC).

There are 4 Red Flags Compliance issues that you need to be aware of:

1. When is the compliance deadline?

As stated before, November 1, 2008 is the deadline for you to be compliant with this new law.  There has been almost no publicity regarding this November 1, 2008 deadline and it is expected to catch a lot of mortgage brokers, financial institutions and creditors off guard.

2. Who must comply with these new rules? 

Basically any company working with consumer credit; mortgage brokers, banks, credit unions, credit issuers, utility companies, auto dealers, healthcare companies, debt collection agencies, etc.

3. How can you quickly comply with Red Flags Act? 

The following is just a basic overview of the items that all companies must comply with, to get a more detailed explanation you can visit the FTC Website or view a special report on the topic at Red-Flags-Help.com

Owners of companies (or senior managers) must approve the identity theft prevention program as well as be involved in the oversight, development, implementation and administration of the program.

The company must have specific procedures in writing regarding the implementation, audit compliance, training of staff, issuing annual reports and overseeing anyone granted access to accounts.

The important aspects of this act are to have specific procedures in writing, produce annual reports and have a strict procedure for handling suspicious documents or activities. Companies are now responsible for helping to detect fraudulent activities and responding according to the Red Flags Act.

It is not enough to just keep a watchful eye out for problems. And it is not enough to only take action when there is a problem in the future. These rules are real and written procedures must be put into place before November 1, 2008 or else companies can face strict enforcement.

4. What is the next step in getting compliant?

If you work with consumer credit in anyway, then you must take action now and get compliant. There are 2 ways to achieve this.

You can do it yourself by reading through the 256 page FTC Report (just Google "FTC red flags compliant" to see the report).  I have read through parts of this report and was thoroughly overwhelmed.

Or you can find a company that specializes in helping companies getting compliant.  I contacted several companies regarding this and found that prices and quality were very inconsistent.  Do your due diligence and choose wisely because finding the right company can make this process go much smoother and faster for you.