One of the challenges companies have faced under the Red Flags Rules, part of FACTA, is that the definition of creditor was quite broad, and included a number of business scenarios that most people did not consider to give rise to status as a creditor. The FTC just released an interim final rule that changes the definition of creditor under the Red Flags Rule, and narrows it.
The whole history of the challenges to the Red Flag Rule are beyond the scope of this post, but they include a challenge by the ABA, as well as amendments in 2010 to modify the scope of the definition. The FTC, recognizing these changes, as issued the Rule, which is open to comment for 60 days, and the amended Red Flags Rule now provides that a creditor is covered only if, in the ordinary course of business, it regularly:
- Obtains or uses consumer reports in connection with a credit transaction;
- Furnishes information to consumer reporting agencies in connection with a credit transaction; or
- Advances funds to or on behalf of a person, in certain cases.
This is important because many businesses were included within the broader definition of creditor, and now may not be under the new definition. The Lares Institute will be submitting comments on this Interim Final Rule.