Enforcement of Red Flags Rule by FTC Postponed until June 1, 2010

November 4, 2009

On October 30, 2009, the Federal Trade Commission (“FTC”) announced that it was postponing until June 1, 2010, its enforcement of the “Red Flags Rule” (the “Rule”), which may be found at 16 C.F.R. 681. Previously, enforcement of the Rule was scheduled to begin on November 1, 2009. Under the Rule, certain businesses and organizations are required to spot and act on certain activities or “red flags” that are often indicators of identity theft. To comply with the Rule, these businesses and organizations will need to develop and adopt a written “red flags program” to identify and detect “red flags” and ensure that the program is kept up to date in order to minimize damage from identity theft.
The FTC delayed enforcement of the Rule at the request of several members of Congress due to pending legislation that would affect the scope of the Rule. On October 20, 2009, the House of Representatives unanimously approved HR 3763, a bill that would exempt any health care, accounting, or legal practice with twenty or fewer employees, as well as certain other businesses, from the provisions of the Rule. On October 29, 2009, certain members of Congress requested that the FTC further delay enforcement of the Rule in order to allow Congress to finalize this legislation. The FTC issued the postponement in the enforcement of the Rule in order to avoid enforcing a regulation that Congress intended to supersede.
The delay in enforcement of the Rule may also have been due to a ruling by the U.S. District Court of the District of Columbia on October 30, 2009, that the FTC may not apply the Rule to attorneys. The FTC has not yet announced whether it intends to appeal the ruling.
While the enforcement of the Rule has been delayed until June 1, 2010, we would recommend that businesses to which the Rule would apply use the extra time available to prepare and adopt a Red Flags Policy that complies with the Rule.
If you have questions regarding the above, please contact Derek Prestin, the author of this article, or any of the attorneys in the Business Transactions Practice Group of Ruder Ware.

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