[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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