Feds Require Financial Firms to Take Identity Theft Prevention Steps

October 31, 2007

Federal regulators are requiring that every financial institution have a program to detect and prevent identity theft on consumer accounts.

The federal financial institution regulatory agencies and the Federal Trade Commission have issued final rules on identity theft “red flags” and how firms must incorporate these warnings into their operations.

The final rules require each financial institution and creditor that holds any consumer account, or other account for which there is a “reasonably foreseeable risk of identity theft,” to develop and implement an Identity Theft Prevention Program for combating identity theft in connection with new and existing accounts. The program must include “reasonable policies and procedures for detecting, preventing, and mitigating identity theft” and enable a financial institution or creditor to:

Identify relevant patterns, practices, and specific forms of activity that are “red flags” signaling possible identity theft and incorporate those red flags into the program;

Detect red flags that have been incorporated into the program;

Respond appropriately to any red flags that are detected to prevent and mitigate identity theft; and

Ensure the program is updated periodically to reflect changes in risks from identity theft.

The final rules are effective on Jan. 1, 2008. Covered financial institutions and creditors must comply with the rules by Nov. 1, 2008.

According to a report of the President’s Identity Theft Task Force, identity theft results in billions of dollars in losses each year to individuals and businesses.

The agencies also issued guidelines to assist financial institutions and creditors in developing and implementing a program, including a supplement that provides examples of red flags.

The final rules also require credit and debit card issuers to develop policies and procedures to assess the validity of a request for a change of address that is followed closely by a request for an additional or replacement card.

In addition, the final rules require users of consumer reports to develop reasonable policies and procedures to apply when they receive a notice of address discrepancy from a consumer reporting agency.

The final rule was issued by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.

Source: The Office of the Comptroller of the Currency

The final rule can be found at

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