The so-called Red Flags Rule is one of the Fair Credit Reporting Act’s Identity Theft Rules. The Federal Trade Commission began to enforce it in 2011 in order to decrease stealing identities, which, according to the Commission, happens to approximately nine million Americans every year (Federal Trade Commission). Identity theft bears risks to the financial sustainability of victims, their businesses, and even medical treatment. In order to prevent that, any financial institution or creditor has to implement specially developed software for detecting the markers of a possible theft that are referred to metaphorically as red flags.
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In the vast majority of cases, stealing happens during routine operations, hence frequently remains unnoticed. Therefore, the program needs to incorporate in the day-to-day performance of a business so that it is able to watch consumer accounts at their opening or maintenance (FINRA). The risk group includes the accounts that permit financial transactions, especially multiple ones. The software, meanwhile, detects the activities that have been identified by the user as suspicious and instruct the user on further behavior.
Red Clay Renovations cooperates with its customers in opposing the practice of stealing identities. Notably, it encourages the customer to safeguard themselves from the unwanted consequences of theft by protecting their personal data. Those data include passport particulars and, which is of special importance, financial details such as bank account numbers. The company, from its end, is responsible for implementing and maintaining all policies that are necessary to address the possible concerns in the sphere of information technologies.
It is obliged to protect any information about its customers that is possible to use for emptying their bank accounts, damaging their medical records, or others. Since the communication between Red Clay and its customers involves regular financial operations, the business may have covered transaction accounts. In this case, it is to comply with the Fair Credit Reporting Act’s Identity Theft Rules, including the Red Flags Rule (Mariano, 2019). Therefore, Red Clay has to install, implement, and incorporate the software for monitoring the maintenance of the covered accounts so that the suspicious activities are possible to detect in time.
The higher probability of a timely detection is, apparently, the most substantial benefit of the Red Frag Rule. The categories of red flags the rule involves, hence the theft prevention program is presupposed to react to, are as follows. The most frequent and apparent ones are warnings from consumer-reported agencies or the providers of fraud detection services. Other notices are considered as well, notably, those from customers themselves, identity theft victims, local authorities, or other.
Then, suspicious documents, such as the ones that seem to have been altered, and suspicious personal data, for instance, invalid phone numbers of addresses. Another point is the abnormal use of covered accounts, such as a sudden modification to the spending patterns the given customer usually utilizes (Lyons Blog). Whichever of the above requires an immediate reaction in order to prevent the misappropriation of the customer’s identity and, consequently, the misuse of their finance by a third person. The activities of that kind are frequently noticed when it is too late, for which reason the detection software has been developed.
However, if installing it was voluntary, there would be no guarantee that a particular business protects the customers’ identities. In addition, the fact that installing the software is mandatory apparently allows for legal action against the business whose clients have suffered from its absence.
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Federal Trade Commission. (n.d.). Fighting identity theft with the Red Flags Rule: A how-to guide for business. Web.
Mariano, Mike. (2019). What is the FTC Red Flags Rule and who must comply? Partners: Adults without anxiety. Web.
Red Flags Rule compliance part 1: What’s a red flag & who needs to know. Lyons Blog. Web.
SEC identity theft red flags rule. (n.d.). FINRA. Web.