FTC delays Red Flags Rule enforcement again

May 27, 2010

At the request of several members of Congress, the U.S. Federal Trade Commission (FTC) announced today that it is further delaying enforcement of the Red Flags identity theft rule through December 31, 2010. The decision is designed to give Congress more time to consider legislation that would affect the scope of entities covered by the rule, the agency said.

Published by the FTC in conjunction with the U.S. Department of the Treasury and other federal financial oversight agencies, the Red Flags Rules requires businesses that accept deferred payments from clients -- including dentists and other healthcare providers -- to develop a written plan to detect identity theft in their businesses. Failure to comply could result in administrative penalties and up to $2,500 in fines per violation.

The ADA, which has been aggressively lobbying for the exemption of dentists from the rule, has estimated that the average cost to implement and manage a Red Flags program will be at least $600 per dental office, or $80 million for 130,000 dental offices.

The association has been a strong proponent of H.R. 3763, a bill that would exclude any healthcare practice, accounting practice, or legal practice with 20 or fewer employees from the meaning of "creditor," as defined in the Red Flag Rule. That legislation unanimously passed the U.S. House of Representatives in October 2009, but has been pending before the Senate Committee on Banking, Housing, and Urban Affairs ever since, delayed in part by the financing reform package.

The logjam may be on the verge of clearing, however. On May 25, Sens. John Thune (R-SD) and Mark Begich (D-AK) introduced S. 3416, the Senate's version of H.R. 3763, which also calls for the exemption of certain small businesses -- including dentists and physicians -- from the Red Flag Rule.

"Congress needs to fix the unintended consequences of the legislation establishing the Red Flags rules -- and to fix this problem quickly," said FTC Chairman Jon Leibowitz in a published statement. "We appreciate the efforts of Congressmen Barney Frank and John Adler for getting a clarifying measure passed in the House, and hope action in the Senate will be swift."