FTC Requires More From Creditors and Banks

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FTC Requires More From Creditors and Banks

Source: web

The Federal Trade Commission announced in late November a new publication that provided guidelines on identity theft and “red flags”. These guidelines significantly narrow the circumstances under which creditors are covered by the law.

Directed by Congress, the FTC and several other watchdog groups and banking agencies were required to put into place new compliance regulations specifically for “financial institutions” and “creditors”. They were tasked with developing and then implementing written compliance theft prevention programs. Further, there was an emphasis on identifying so-called red flags for identity theft so that they were better prepared were it to happen. The goal is to ensure businesses are prepared and can recognize patterns that are suspicious. Further, guidelines for acting when ID theft is suspected were also ordered to be put into place. The goal is to reduce the number of incidents, protect consumers and protect businesses. By being able to spot potential problems and then prevent them, businesses and the industry as a whole are better able to prevent costly identity theft.

Under the new rule, these Red Flag Programs are required to have four parts.

There must be reasonable policies and procedures, such as a Standard Operating Procedure, put into place that identify these red flags in day to day operations of a business. The second part First, the Program must include reasonable policies and procedures to identify signs – or “red flags” – of identity theft in the day-to-day operations of the business. Second, the program must have definitive measures in place that help detect the would-be red flags of identity theft. Up next, there must be procedures in place to handle suspected identity theft and finally, businesses are required to update their manuals on a consistent basis since identity theft continues to change and evolve; it’s a “living” entity, so to speak. Those new guidelines must address those new risks.

You may recall this came up in 2007 and while Congress enacted an official definition of creditors that would be affected by the rules, these new changes cover creditors who, in the normal course of business, often:

  • Tasked with or uses any kind of consumer report, such as a credit report, in conjunction with its daily operations;
  • Reports any kind of information any consumer reporting agency as part of any of its credit transaction;
  • Advances funds to or on behalf of a person or entity.

Currently, the Commission is seeking comment on the Interim Final Rule and this continues for 60 days. Once the sixty day comment period expires and the reviews of those comments are made, the law becomes final and goes into effect.

It should be noted these changes were announced as part of a unanimous decision of the Commission. The details are currently being published and are available on the Federal Trade Commission’s website.

That’s not all the FTC has been up to these days, either. At the urging of the banking agency, a federal court found a credit repair service companies in contempt for violating a previous court order.

A U.S. district court announced a credit repair operation was indeed in contempt for violating a previous court order that required the defendants to cease their promotions of “bogus” credit repair products and services to consumers. As part of that ruling, the defendants were ordered to pay $6.4 million to the FTC within 30 days. Not only that, but it’s been ordered to permanently shut down their credit repair business. It covers Kevin Hargrave and Latrese Hargrave as well as their companies they control, including BFS Empowerment Financial Services Inc., Help My Credit Now Credit Services Inc., and Kevtrese Enterprises Inc.

During its investigation, it found an earlier order, dated January 2010, that barred the defendants, based in Florida, from deceptively marketing credit repair services. The defendants have continued to violate both the FTC Act and the Credit Repair Organizations Act by claiming that they are able to permanently remove negative information from consumers’ credit reports. They promised to do this even when the information on the credit report was indeed was accurate. The $250 enrollment fee was also found to be in violation of the first ruling.

Dated November 19, 2012, the civil contempt also put into place the permanent closing of the defendants’ credit repair operations. Further, they have been banned from selling or providing any credit repair products or services and they may not provide assistance to anyone else who’s “filling in” on their behalf.

During a 2008 investigation around the nation against credit repair companies that deceived consumers with their services, it was discovered the defendants had advertised their bogus services online and on radio stations. They charged between $250 and $300 per consumer or up to $500 per couple for credit repair services. The fees were often required up front, before any action had been made or attempted on their behalf. They advertised that they “specialized in erasing bad credit”.

The Better Business Bureau also issued a new alert as a result of the ruling in November, warning consumers to beware of companies promising to fix their credit.

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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