[Federal Register Volume 79, Number 34 (Thursday, February 20, 2014)]
[Proposed Rules]
[Pages 9645-9647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-03264]
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FEDERAL RESERVE SYSTEM
12 CFR Part 222
[Docket No. R-1484]
RIN 7100 AE14
Identity Theft Red Flags (Regulation V)
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking; request for public comment.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is proposing to amend its Identity Theft Red Flags rule, which
implements section 615(e) of the Fair Credit Reporting Act (FCRA). The
Red Flag Program Clarification Act of 2010 (Clarification Act) added a
definition of ``creditor'' in FCRA section 615(e) that is specific to
section 615(e). Accordingly, the proposed rule would amend the
definition of ``creditor'' in the Identity Theft Red Flags rule to
reflect the definition of that term as added by the statute. The
proposed rule would also update a cross-reference in the Identity Theft
Red Flags rule to reflect a statutory change in rulemaking authority.
DATES: Comments must be received on or before April 21, 2014.
ADDRESSES: You may submit comments, identified by Docket No. R-1484, by
any of the following methods:
Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include the
docket number in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Robert deV. Frierson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments are available from the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets NW.) between
9:00 a.m. and 5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Kara L. Handzlik, Counsel, Legal
Division, at (202) 452-3852, Board of Governors of the Federal Reserve
System, 20th and C Streets NW., Washington, DC 20551. For users of
Telecommunications Device for the Deaf (TDD) only, contact (202) 263-
4869.
SUPPLEMENTARY INFORMATION:
I. Background
On November 9, 2007, the Board, along with the other banking
agencies \1\ and the Federal Trade Commission (FTC) (collectively, the
``Agencies''), published final rules and guidelines on identity theft
``red flags'' (``Red Flags rule'') to implement section 615(e) of the
Fair Credit Reporting Act (FCRA) (15 U.S.C. 1681m(e)).\2\ The final
rules require each financial institution and creditor that holds any
consumer account, or other account for which there is a reasonably
foreseeable risk of identity theft, to develop and implement an
identity theft prevention program in connection with new and existing
accounts. The program must include reasonable policies and procedures
for detecting, preventing, and mitigating identity theft. The Agencies
also issued guidelines to assist financial institutions and creditors
in developing and implementing a program, including a supplement that
provides examples of red flags.
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\1\ The other banking agencies included the Office of the
Comptroller of the Currency (OCC); Federal Deposit Insurance
Corporation (FDIC); Office of Thrift Supervision (OTS); and National
Credit Union Administration (NCUA). The Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act) added the
Commodity Futures Trading Commission (CFTC) and the Securities and
Exchange Commission (SEC) to the list of agencies with rulemaking
and enforcement authority under the Fair Credit Reporting Act with
respect to the Red Flags rule. Public Law 111-203, 124 Stat. 1376
(2010).
\2\ 72 FR 63718 (Nov. 9, 2007).
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The Red Flags rule, implemented in the Board's Regulation V Subpart
J, defines the terms ``credit'' and ``creditor'' by cross-reference to
FCRA section 603(r)(5). 15 U.S.C. 1681a(r)(5). Section 603(r)(5)
defines the terms ``credit'' and ``creditor'' by cross-reference to
section 702 of the Equal Credit Opportunity Act (ECOA). ECOA section
702 defines ``creditor'' as ``any person who regularly extends, renews,
or continues credit; any person who regularly arranges for the
extension, renewal, or continuation of credit; or any assignee of an
original creditor who participates in the decision to extend, renew, or
continue credit.'' 15 U.S.C. 1691a(e). The ECOA defines ``credit'' as
``the right granted by a creditor to a debtor to defer payment of debt
or to incur debts and defer its payment or to purchase property or
services and defer payment therefor.'' 15 U.S.C. 1691a(d). Thus, the
FCRA's red flags provisions have been broadly applied to banks, finance
companies, automobile dealers, mortgage brokers, utility companies, and
telecommunications companies. 12 CFR 222.90(b)(5).
The scope of the Board's Red Flags rule is set forth in Sec.
222.90(a), which states that the Board's rule applies to financial
institutions and creditors that are state member banks (other than
national banks) and their respective operating subsidiaries, branches
and agencies of foreign banks (other than federal branches, federal
agencies, and insured state branches of foreign banks), commercial
lending companies owned or controlled by foreign banks, and
organizations operating under section 25 or 25A of the Federal Reserve
Act. Financial institutions and creditors that are not covered by the
Board's rule are covered by substantially identical rules issued by
other federal agencies.
II. The Red Flag Program Clarification Act of 2010
On December 18, 2010, Congress enacted the Red Flag Program
Clarification Act of 2010 (the Clarification Act).\3\ The Clarification
Act amended section 615(e) of the FCRA (15 U.S.C. 1681m(e)) by adding a
definition of the term ``creditor'' specific to section 615(e). The
Clarification Act continues to define creditor by cross-reference to
[[Page 9646]]
the ECOA's definition of creditor, but limits the application of the
red flags provisions of the FCRA to only those creditors that regularly
and in the ordinary course of business: (a) Obtain or use consumer
reports, directly or indirectly, in connection with a credit
transaction; (b) furnish information to consumer reporting agencies, as
described in FCRA section 623, in connection with a credit transaction;
or (c) advance 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. 15 U.S.C.
1681m(e)(4)(A).
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\3\ Public Law 111-319, 124 Stat. 3457 (Dec. 18, 2010).
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The Clarification Act's revised definition excludes, however, those
creditors that advance funds on behalf of a person for expenses
incidental to a service provided by the creditor to that person. 15
U.S.C. 1681m(e)(4)(B). The legislative intent of narrowing the
definition of ``creditor'' in the Red Flags rule was to exclude from
coverage those persons that sell a product or service for which the
consumer can pay later, such as lawyers and doctors.\4\
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\4\ 156 Cong. Rec. S8289 (daily ed. Nov. 30, 2010) (statement of
Sen. Dodd).
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The Clarification Act also grants authority to the Board and the
other agencies to determine, through a rulemaking, whether there are
other creditors that offer or maintain accounts that are subject to a
reasonably foreseeable risk of identity theft that should be subject to
the Red Flags rule. 12 U.S.C. 1681m(e)(4)(C). The Board is not using
its discretionary rulemaking authority at this time to extend the
application of its Red Flags rule to additional creditors.
III. Proposed Amendment
The Board is proposing to amend the definition of ``creditor'' in
Regulation V (12 CFR 222.90) to conform the rule to the definition of
``creditor'' in FCRA as amended by the Clarification Act. As noted
above, the existing definition of ``creditor'' in Sec. 222.90(b)(5)
makes a cross-reference to the general definition of ``creditor'' in
section 603(r)(5) of the FCRA and provides a list of examples of
lenders. The proposed revised definition of ``creditor'' in Sec.
222.90(b)(5) would instead cross-reference the more limited definition
of creditor in section 615(e) of the FCRA, which is specific to the
statute's red flags provisions. Accordingly, proposed Sec.
222.90(b)(5) provides that ``creditor has the same meaning as in 15
U.S.C. 1681m(e)(4).''
As discussed above, the Red Flags rule requires each financial
institution and creditor that holds any consumer account, or other
account for which there is a reasonably foreseeable risk of identity
theft, to develop and implement an identity theft prevention program.
Under the revised definition, creditors that do not regularly and in
the ordinary course of business: (a) Obtain or use consumer reports in
connection with a credit transaction; (b) furnish information to
consumer reporting agencies in connection with a credit transaction; or
(c) advance funds to or on behalf of a person, would no longer be
covered by the rule. The Board notes, however, that the Red Flags rule
still covers all financial institutions, regardless of whether they
meet the revised definition of creditor.\5\
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\5\ The Board has consulted and coordinated with the other
banking agencies, the FTC, the CFTC, and the SEC with respect to
this proposed rulemaking to amend the Red Flags rule to conform it
to the Clarification Act. The Board understands that the other
banking agencies will act separately with respect to any necessary
updates to each of the banking agency's Red Flags rules. The FTC
issued an interim final rule that amends the definition of
``creditor'' in its Red Flags rule, consistent with the revised
definition in the Clarification Act. See 77 FR 72712 (Dec. 6, 2012).
The CFTC and SEC issued final Red Flags rules implementing section
615 of FCRA, which includes the definition of ``creditor'' as set
forth in the Clarification Act. See 76 FR 23638 (Apr. 19, 2013).
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The Board is also proposing to update a citation in Supplement A to
Appendix J of the Red Flags rule. Supplement A to Appendix J includes a
cross-reference to the Board's definition of a ``notice of address
discrepancy'' in Regulation V (12 CFR 222.82(b)). Pursuant to the Dodd-
Frank Act, the Board's rulemaking authority for the notice of address
discrepancy provisions of the FCRA (15 U.S.C. 1681c(h)) transferred to
the Consumer Financial Protection Bureau (CFPB). Accordingly, the Board
is proposing to update the cross-reference to the CFPB's definition of
a ``notice of address discrepancy'' in the CFR's Regulation V Sec.
1022.82(b).\6\
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\6\ The Board notes that there is no substantive difference
between the Board's definition of a ``notice of address
discrepancy'' and the CFPB's definition. The Board also notes that
it plans to make further revisions to Regulation V outside of this
Red Flags rulemaking to reflect changes in rulemaking authority.
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IV. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires an agency to perform an assessment of the impact a
rule is expected to have on small entities. Based on its analysis, and
for the reasons stated below, the Board believes that this proposed
rule will not have a significant economic impact on a substantial
number of small entities. A final regulatory flexibility analysis will
be conducted after consideration of comments received during the public
comment period.
1. Statement of the need for, and objectives of, the proposed rule.
As noted above, the Clarification Act amended the definition of
``creditor'' in the FCRA for purposes of the red flags provisions. The
Board is proposing to amend the definition of ``creditor'' in its Red
Flags rule to reflect the revised definition of that term in the
Clarification Act. As also noted above, the Board is proposing to
update a cross-reference in the Red Flags rule to reflect the CFPB's
rulemaking authority for the notice of address discrepancy provisions
in the FCRA.
2. Small entities affected by the proposed rule. The proposed rule
would amend the definition of ``creditor'' in the Board's Regulation V
Subpart J to conform to the revised definition of that term in the
Clarification Act. The proposed definition continues to refer to the
FCRA definition of ``creditor,'' which references the ECOA definition
of ``creditor,'' but limits the application of the red flags provisions
to only those creditors that regularly and in the ordinary course of
business: (a) Obtain or use consumer reports in connection with a
credit transaction; (b) furnish information to consumer reporting
agencies in connection with a credit transaction; or (c) advance 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. 12 U.S.C. 1681m(e)(4)(A). Creditors that advance
funds on behalf of a person for expenses incidental to a service
provided by the creditor to that person are excluded from the
definition. Small entity creditors that do not meet this more limited
definition would no longer be covered by the rule. However, small
entities that are financial institutions would still be covered by the
rule, regardless of whether they meet the revised definition of
creditor.
The proposed rule would also update a cross-reference in the Red
Flags rule to reflect the CFPB's rulemaking authority for the notice of
address discrepancy provisions in the FCRA. This revision would have no
effect on small entities because there is no substantive difference
between the Board's definition of a ``notice of address discrepancy''
and the CFPB's definition.
3. Recordkeeping, reporting, and compliance requirements. The
proposed rule does not impose any new recordkeeping, reporting, or
compliance requirements on small entities. Small entities that no
longer meet the
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narrower definition of ``creditor'' would not have to comply with the
requirements of the Red Flags rule. However, small entity financial
institutions would still be required to comply with the Red Flags rule,
regardless of whether they meet the revised definition of creditor.
4. Other federal rules. The Board has not identified any federal
statutes or regulations that would duplicate, overlap, or conflict with
the proposed revision.
5. Significant alternatives to the proposed revisions. The proposed
revisions to the definition of ``creditor'' and the cross-reference to
the definition of a ``notice of address discrepancy'' reflect statutory
changes. The Board does not believe there are significant alternatives
to these revisions. Although the Board has authority to determine
through a rulemaking that any other creditor that offers or maintains
accounts that are subject to a reasonably foreseeable risk of identity
theft is subject to the Red Flags rule, the Board does not believe it
is appropriate to use its discretionary rulemaking authority at this
time.
III. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the rule
under the authority delegated to the Federal Reserve by the Office of
Management and Budget (OMB). The proposed rule contains no requirements
subject to the PRA.
List of Subjects in 12 CFR Part 222
Banks, banking, Consumer protection, Holding companies, Safety and
soundness, and State member banks.
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
amend Regulation V, 12 CFR part 222, as set forth below:
PART 222--FAIR CREDIT REPORTING (REGULATION V)
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1. The authority citation for part 222 continues to read as follows:
Authority 5 U.S.C. 1681b, 1681c, 1681m and 1681s; Secs. 3, 214,
and 216, Pub. L. 108-159, 117 Stat. 1952.
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2. Amend Sec. 222.90 by revising paragraph (b)(5) to read as follows:
Sec. 222.90 Duties regarding the detection, prevention, and
mitigation of identity theft.
* * * * *
(b) * * *
(5) Creditor has the same meaning as in 15 U.S.C. 1681m(e)(4).
* * * * *
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3. Amend Supplement A to Appendix J by revising example 3. to read as
follows:
Appendix J to Part 222--Interagency Guidelines on Identity Theft
Detection, Prevention, and Mitigation
* * * * *
Supplement A to Appendix J
* * * * *
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3. A consumer reporting agency provides a notice of address
discrepancy, as defined in 12 CFR 1022.82(b).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, February 10, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-03264 Filed 2-19-14; 8:45 am]
BILLING CODE P