Red Flags Rule: A 3-Hour Cure
To prepare for the new identity-theft rule, ensure your policy is in shape
By Brad Kelso, vice president and director of marketing and product development, Informative Research
After granting extensions
for compliance, the Federal Trade
Commission (FTC) begins enforcing the Fair and Accurate Credit
Transactions Act’s (FACTA) Red Flags
Rule on Nov. 1. This rule requires creditors and financial institutions — including many brokers — to implement certain
identity-theft-protection programs.
Red Flags Rule compliance requires a
fairly comprehensive, custom response
at the broker level. To best deliver this
Brad Kelso is vice
president and director of
marketing and product
development at Informative Research. He has 22
years in financial services.
Before joining Informative Research, Kelso led
Countrywide’s credit-fraud initiatives and
system-development efforts with credits as a
national expert and speaker on authorized-user-score fraud. Reach him at (800) 473-4633,
ext. 150, or bradk@informativeresearch.com.
For compliance suggestions, visit Informative
Research’s complimentary “Red Flags Broker
Tool Kit” at www.informativeresearch.com/
RedFlags/Broker_Tool_Kit/index.htm.
response, brokers first must address potential issues with compliance and understand
what goes into proper policy.
Three problems can arise with potential
Red Flags Rule compliance. These include:
1. Brokers can’t fake their way through:
This is not like a high school essay exam, in
which you can read CliffsNotes for 15 minutes and still get a “B” for explaining what
Moby Dick symbolizes. Brokers actually
must read, assess, understand, document,
use new tools, create an audit trail, gain
consensus, train and get board approval
to prevent identity theft.
2. No safe harbor exists from the FTC:
Three times, the FTC extended its enforcement deadline, first to May 1, then to Aug. 1
and then to Nov. 1. This means no safe harbor will exist for laggards. The entire industry must create and execute programs that
protect customers and institutions from
identity theft. The FTC means business —
and in this case, to the tune of $3,200 per
noncomplying occurrence.
3. Brokers and their employers could be
in denial: Brokers have already asked if the
rule is for lenders only and if filling in blanks
on a ready-to-go policy will complete the
compliance task, among other questions.
Complying with the Red Flags Rule
likely takes three hours of focused efforts to document a policy and procedures that detect, prevent and mitigate
identity theft.
First, brokers should know that 11 of
the 26 guidelines in the FACTA regulations apply to them, unless they service
loans. This means that most identity-theft issues are at least potentially detected by existing fraud-alert forms, such
as credit reports, or by fraudulent proof
of identity.
Brokers also can verify a person’s identity definitively through the Social Security Administration form No. 89 (online:
ssa.gov/cbsv/docs/FormSSA89.pdf).
Armed with those facts, brokers can
document required identity-theft policies
and procedures. Without excessive counseling, the recommended three-hour process goes something like this:
1. Read the regulation (bit.ly/redflag) until you understand what applies to brokers
and what doesn’t. (20 minutes)
2. Reread it to ensure you can write cogent
policies and procedures. (20 minutes)
3. Focus on understanding the suggested
11 guidelines in Appendix J of the regulation that directly pertain to a broker’s work.
(30 minutes)
4. Start documenting a policy that says
which of these 11 guidelines you will address and why or why not. For nine of the
11, the answer will come from ordering
and responding to the fraud alerts available on credit reports. The other two are
related to blatant identification forgery.
(40 minutes)
5. Document simple procedures for what
a loan officer should do if an alert appears
on the credit report or if the provided
identity clearly is a forgery or fictional. Use
Social Security Administration form No. 89
as the escalation product. (30 minutes)
6. Plan and document the remaining compliance steps. These include
getting signoff at the highest level and
how to complete training and updates.
(40 minutes)
7. Share and publish the final result with
all in the shop and follow up.
Armed with at least these efforts, you
can help prevent many occurrences of
identity theft and meet Red Flags Rule
requirements.
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22 Scotsman Guide | Residential | scotsmanguide.com | August 2009
