[Congressional Record Volume 156, Number 154 (Tuesday, November 30, 2010)]
[Senate]
[Pages S8288-S8289]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               RED FLAG PROGRAM CLARIFICATION ACT OF 2010

  Mrs. MURRAY. Madam President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of S. 3987, introduced earlier 
today.
  The PRESIDING OFFICER. The clerk will report the bill by title.
  The assistant editor of the Daily Digest read as follows:

       A bill (S. 3987) to amend the Fair Credit Reporting Act 
     with respect to the applicability of identify theft 
     guidelines to creditors.

  There being no objection, the Senate proceeded to consider the bill.


                         DEFINITION OF CREDITOR

  Mr. THUNE. Madam President, I wish to engage my colleagues Senator 
Dodd and Senator Begich in colloquy.
  I rise today in support of S. 3987, the Red Flag Program 
Clarification Act of 2010, legislation that Senator Begich and I have 
introduced to narrow the scope of section 114 of the Fair and Accurate 
Credit Transactions Act of 2003--the FACT Act. This section of the FACT 
Act directed financial regulatory agencies, including the Federal Trade 
Commission, FTC, to promulgate rules requiring ``creditors'' and 
``financial institutions'' to implement programs to detect and respond 
to red flags--patterns, practices, or specific activities--that could 
indicate identity theft.
  The purpose of the Red Flag Program Clarification Act of 2010 is to 
identify and limit the type of ``creditor'' that must be covered. If 
the FTC's final red flags rule is implemented, this rule could require 
small businesses to undertake costly, burdensome measures to prevent 
identity theft in industries where it poses little threat. Identity 
theft is a serious problem, but the definition of ``creditor'' for 
purposes of the FTC's red flags rule is too broad and would cover small 
businesses that pose little risk to consumers.
  Under the legislation that Senator Begich and I are proposing, only a 
``creditor'' that regularly and in the ordinary course of its business 
obtains or uses consumer reports in connection with a credit 
transaction, furnishes information to consumer reporting agencies in 
connection with a credit transaction, or advances funds would be 
required to develop and implement a written identity theft prevention 
and detection program.
  So, for example, an accountant would not become a creditor simply for 
obtaining a consumer report--with the permission of any consumer whose 
report is obtained--in order to examine the integrity of a company's 
management.
  And the legislation makes clear that an advance of funds does not 
include a creditor's payment in advance for fees, materials, or 
services that are incidental to the creditor's ability to provide 
another service that a person initiated or requested, such as the 
advance payment of expert witness fees by a lawyer to support the 
representation of a client.
  Any other type of creditor may only be covered through a rulemaking 
based upon an agency's determination that these types of creditors 
offer or maintain accounts that pose a reasonably foreseeable risk of 
identity theft. Such creditors would receive notice that they could be 
covered by a rule, and there would be a public airing of the issues 
when the proposed rule is published for notice and comment.
  Could Senator Dodd, as chairman of the committee of jurisdiction, the 
Senate Banking Committee, provide us with some context regarding the 
legislation under which the FTC's rule was promulgated?
  Mr. DODD. Gladly. The FTC's red flags rule implementing section 114 
of the FACT Act became effective on January 1, 2008. The rule applied 
to ``creditors,'' defined under the FACT Act the same way as in the 
Equal Credit Opportunity Act, ECOA, to include any person that sells a 
product or service for which the consumer can pay later.
  After the red flags rule became final, many businesses and other 
entities indicated that they were not aware that they would be covered 
by this rule. At first, the FTC delayed enforcement of the rule several 
times to allow these entities time to come into compliance with the 
rule. Then, a number of professional organizations, including the 
American Bar Association and the American Medical Association, sued the 
FTC for taking the position that professionals were ``creditors'' when 
they allowed consumers to pay later, and would have to comply with its 
red

[[Page S8289]]

flags rule. On May 28, 2010, the FTC announced that it would delay 
enforcing its red flags rule through December 31, 2010, and asked 
Congress to pass legislation that would resolve any questions about 
which entities should be covered as ``creditors'' and to obviate the 
need for further enforcement delays.
  Mr. BEGICH. I thank the Senator. Unless this bipartisan bill becomes 
law, many small businesses for which identity theft is not a threat 
could be required to spend time and effort to comply with the red flags 
rule implementing the FACT Act. This could require them to take time 
away from growing their businesses and creating jobs. Small businesses 
are the economic driver of our country, and in a time of high 
unemployment and stagnant economic growth, businesses should be focused 
on job creation, and should not have to spend the money to comply with 
regulatory burdens disproportionate to the scope of the identity theft 
problem.
  This bill would address what the chairman of the FTC, Jon Leibowitz, 
called ``the unintended consequences of the legislation establishing 
the red flags rule.'' While this list isn't exclusive, many small 
businesses such as doctor's and dentist's offices, pharmacies, 
veterinary clinics, accounting offices, and other types of health care 
providers and other service providers were classified as ``creditors'' 
because they sometimes let clients pay after they provide their 
services. This legislation makes clear that these small businesses 
should not be swept under the red flags rule in the future just because 
they allow payment to be deferred, when they don't offer or maintain 
accounts that pose a reasonably foreseeable risk of identity theft.
  I would ask the chairman of the Banking Committee if he agrees with 
my description of what the Red Flag Program Clarification Act of 2010 
will accomplish?
  Mr. DODD. Yes, I agree that this bill narrows the applicability of 
the red flag identity theft provisions of the FACT Act to cover those 
creditors where identity thieves can do the most harm--creditors that 
use consumer reports, furnish information to consumer reporting 
agencies, and other creditors that loan money, such as payday lenders, 
that do not necessarily use consumer reports or furnish information to 
consumer reporting agencies.
  The legislation also makes clear that lawyers, doctors, dentists, 
orthodontists, pharmacists, veterinarians, accountants, nurse 
practitioners, social workers, other types of health care providers an 
other service providers will no longer be classified as ``creditors'' 
for the purposes of the red flags rule just because they do not receive 
payment in full from their clients at the time they provide their 
services, when they don't offer or maintain accounts that pose a 
reasonably foreseeable risk of identity theft.
  Mr. THUNE. I applaud the FTC's cooperation in delaying implementation 
of their red flags rule to wait for congressional clarification on this 
issue and thank Senator Dodd for his assistance in drafting this 
legislation. I am confident that our efforts to provide a legislative 
solution that protects consumers and businesses alike can be achieved 
through this legislation.
  Mrs. MURRAY. Madam President, I ask unanimous consent that the bill 
be read a third time and passed, the motion to reconsider be laid upon 
the table, and that any statements be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The bill was ordered to be engrossed for a third reading, was read 
the third time, and passed, as follows:

                                S. 3987

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Red Flag Program 
     Clarification Act of 2010''.

     SEC. 2. SCOPE OF CERTAIN CREDITOR REQUIREMENTS.

       (a) Amendment to FCRA.--Section 615(e) of the Fair Credit 
     Reporting Act (15 U.S.C. 1681m(e)) is amended by adding at 
     the end the following:
       ``(4) Definitions.--As used in this subsection, the term 
     `creditor'--
       ``(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.

  The PRESIDING OFFICER. The Senator from Washington.

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