FACTA to add new set of rules

PBN Staff

04/13/2009

Okay, life wasn’t tough enough, right? Now, starting May 1, millions of small and medium businesses that extend credit or defer payments for goods and services will be subject to a new set of rules under something called the Fair and Accurate Transaction Act. FACTA, as it is known, is aimed at helping curb identify theft in the ways that sensitive information is handled by businesses.
The new rules – known as the “FACTA Red Flags Rules” – are basically federally mandated precautions certain businesses must take to protect customers from identity theft crimes. Never heard of FACTA? Join the club. Legions of small businesses that will now be covered – including auto dealers, jewelers, furniture companies, health care companies, mortgage brokers, doctors, dentists, equipment leasing dealers and suppliers of various types – are still unaware of this looming regulatory issue.
Even business owners who are aware are often confused about what they will have to do, and many of them are just now scrambling to figure out what FACTA really means. And forget about an extension of the compliance deadline. The Federal Trade Commission (FTC), the enforcing agency here, already stretched the deadline, which was originally set for last November. The FTC says it extended the deadline because so many businesses it talked to were unaware they were the type of business that fell under the rule’s requirements.
Why the term “red flags?” It’s because the new rules require covered businesses to create a process for detecting so-called “red flags” in identity verification, such as these:
• Discrepancies in address history.
• Fraud alerts on credit reports.
• Suspicious use of Social Security numbers.
• Inactive accounts that suddenly become active.
• Credit-freeze notifications.
• Credit reports with suspicious activity patterns.
• Notices from identity theft victims or law agencies, among others.
These red flags are supposed to be an indication to your business that the person applying for credit may not be who they say they are. These are the four basics of what a business is required to do:
1. Develop and follow a clear verification process that helps spot and avoid identify theft.
2. Create a written policy outlining your process.
3. Apply your process to daily practices in your business.
4. Follow your process in each transaction where credit is pulled, or where other credit file data is accessed. •

Daniel Kehrer can be reached at
editor@business.com.

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