FTC delays Red Flags Rule enforcement until end of year

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The Federal Trade Commission is, for the fifth time, pushing back the deadline for financial institutions and creditors to comply with the Red Flags Rules.

The FTC did specify a new deadline, but said it would delay enforcement through Dec. 31, 2010. Enforcement of the rule had been scheduled to take effect June 1. The latest enforcement extension comes at the request of members of Congress, who are working to finalize legislation that would limit the scope of businesses covered by the rule, the agency said in a Friday announcement.

“The Commission urges Congress to act quickly to pass legislation that will resolve any questions as to which entities are covered by the rule and obviate the need for further enforcement delays,” the FTC said in its announcement.

If Congress passes legislation limiting the scope of the Red Flags Rule earlier than Dec. 31, 2010, the Commission will begin enforcement as of that date, the agency said.

The Red Flags Rule, developed in accordance with the Fair and Accurate Credit Transactions Act of 2003 (FACTA), require financial institutions and other organizations classified as “creditors” to develop programs to identify, detect and respond to indications of identity theft.

The rules have been met with opposition, resulting in numerous delays. Some organizations complained that the provision was written too broadly. Others said they were unprepared to meet the requirements. The rules originally were to begin being enforced on Nov. 1, 2008.

The American Medical Association last week filed a lawsuit in federal court seeking to prevent the FTC from extending the Red Flags Rule to physicians.

“We call on the FTC to exempt physicians from the rule completely,” Cecil Wilson, AMA president-elect, said in a statement. "For two years, the AMA has made the case to the FTC that physicians are not creditors, like banks and lenders, and the misguided Red Flags Rule should not apply to them.”

The AMA's lawsuit follows two similar lawsuits filed by the American Bar Association (ABA) on behalf of lawyers and the American Institute of Certified Public Accountants (AICPA) on behalf of accountants.

A U.S. District Court in October 2009 ruled in favor of the ABA and found that lawyers were not covered by the rule. The FTC in February appealed this ruling.

Additionally, in March, a U.S. District Court issued an order preventing the FTC from enforcing the rule for accounts for 90 days after the U.S. Court of Appeals makes a ruling in the ABA's case against the FTC.

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