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FTC Raises Red Flags to Protect Credit Reports

By Faye Mergel
Published: Monday, November 2nd, 2009

The Federal Trade Commission is setting new rules that would help protect consumer information and battle identity theft. Starting today, businesses and other organizations dealing with credit will be required to take extra measures to verify the identity of their customers.

FTC Raises Red Flags to Protect Credit ReportsIn most cases, consumers will not know that they have become a victim of identity theft until they have been rejected by a creditor because someone has severely tarnished their credit report.

Beginning Nov. 1, Federal Trade Commission will require businesses and organizations to implement an Identity Theft Prevention Program to protect consumers from the fraud in their day-to-day operations. The rule will require those groups to raise warning signs, or “red flags”, when there is a suspected fraud.

All businesses, from service providers to medical institutions, will be required to remain constantly alert for fraud alert on their client’s credit report, identification that does not seem to match the person presenting it, and any document that appears to be forged.

These, and 23 more red flags, were designed by federal government to make sure that businesses know who they are dealing with. The rules are also meant to make sure that items that businesses sell could easily be tracked in case they are used for terrorist activities.

The rules have been prepared last year but the implementation has been extended until the beginning of this month to make sure that businesses are able to comply with them. FTC says planned to give businesses an ample time to come up with written plans on how they could prevent their customers’ identity from being stolen.

All financial institutions and organizations that can be considered creditors are required to comply with the new rules. This includes merchants who arrange credit for their customers and business owners who provide clients with goods and bill them later. But FTC made it clear that stores accepting credit cards for payment are not necessarily creditors and are exempted from complying with the Red Flags rule.

For nine years and running, identity theft has been the number one complaint received by the Federal Trade Commission, with about 314,000 complaints filed last year.

The new rules will shift the burden of fight fraud from consumers to businesses since they are the ones extending credit. However, FTC tells consumers to take responsibility for their protection and not to solely rely on creditors.

Consumers are advised to freeze their credit report once they suspect a fraud in order to prevent potential creditors and others from accessing it. This can be done by contacting the major credit bureaus.

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