Extension for Compliance with Red Flags Rule to August 1, 2009

Late yesterday, the Federal Trade Commission ("FTC") issued a press release stating that enforcement of the "Red Flags Rule" is being delayed until August 1, 2009. The rule had originally been set to take effect November 1, 2008, and last fall the FTC announced that enforcement would be delayed until May 1, 2009.

The release also noted that: "For entities that have a low risk of identity theft, such as businesses that know their customers personally, the Commission will soon release a template to help them comply with the law." View the FTC's press release.

The Red Flags Rule was enacted by the FTC pursuant to the Fair and Accurate Credit Transaction Act of 2003. The Red Flags Rule applies to local government entities considered to be "creditors" with "covered accounts." The FTC considers a government entity to be a creditor where it defers payment for goods or services by its customers. This generally includes local government entities that provide utility services and loans. Under the Red Flags Rule, creditors are required to develop and implement identity theft prevention programs.

The Red Flag Rules provide guidelines to assist in the designing of the program. These Rules are designed to be flexible regulations to allow tailoring of the programs in accordance with the size, complexity and nature of the operations of the entity. They also require that the Board/Council or senior employees of the entity manage the program and provide for appropriate staff training for and oversight of the program. Failure to design and implement a program may lead to an administrative fine from the FTC of up to $2500, as well as exposure to liability in civil actions.

Meyers Nave has been advising various agencies on the implementation of identity theft prevention programs and is assisting in the development of these programs. For answers to questions about the Red Flag Rules and identity theft prevention programs, contact Joanna Smith at 916.556.1531 or jsmith@meyersnave.com.