The Senate has unanimously approved a clarification to the Federal Trade Commission’s oft-delayed Red Flags rule after lobbying by the American Institute of CPAs and a variety of state CPA societies.
On Tuesday evening, the Senate passed S. 3987, the Red Flag Clarification Act of 2010. The bill amends the Fair Credit Reporting Act by exempting many small businesses, including accounting firms, from the rule. The Red Flags rule would require many businesses to develop programs to protect their customers against identity theft of their credit card and debit card information, but its effective date has been repeatedly delayed because of objections from various industries. The new exemption could apply to accounting and law firms, pharmacies, and physicians.
The bill adds a definition of creditor as:
“(A) means a creditor, as defined in section 702 of the Equal Credit Opportunity Act (15 U.S.C. 1691a), that regularly and in the ordinary course of business--
“(i) obtains or uses consumer reports, directly or indirectly, in connection with a credit transaction;
“(ii) furnishes information to consumer reporting agencies, as described in section 623, in connection with a credit transaction; or
“(iii) advances funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person;
“(B) does not include a creditor described in subparagraph (A)(iii) that advances funds on behalf of a person for expenses incidental to a service provided by the creditor to that person; and
“(C) includes any other type of creditor, as defined in that section 702, as the agency described in paragraph (1) having authority over that creditor may determine appropriate by rule promulgated by that agency, based on a determination that such creditor offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft.'.
“(b) Effective Date- The amendment made by this section shall become effective on the date of enactment of this Act.”
AICPA president and CEO Barry Melancon praised the passage of the bill. “On behalf of the U.S. accounting profession, the AICPA is very pleased the Senate last night unanimously passed S. 3987, Red Flag Program Clarification Act of 2010, a bill to amend the Fair Credit Reporting Act,” he said. “The bill brings common sense to the Federal Trade Commission’s proposed Red Flags rule by clarifying that CPAs and CPA firms are not classified as creditors because they do not offer or maintain accounts that pose a risk of identity theft.
“The AICPA and state CPA societies fought tirelessly for this clarification over the past year,” Melancon added. “This change will relieve CPAs and CPA firms, already subject to confidentiality requirements, of the unwarranted burden of developing and implementing identity theft prevention and detection programs under the FTC rule. We urge the House of Representatives to move quickly to enact this amendment into law before Congress adjourns.”
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