With recent votes from the House and Senate, Congress has passed the Red Flag Program Clarification Act of 2010 (S. 3987), legislation that will ensure health centers and other professionals are no longer required to comply with the Federal Trade Commission’s so-called Red Flags Rule. The bill, sponsored by John Thune (SD) and Mark Begich (AK) in the Senate and Representatives John Adler (NJ), Paul Broun (GA) and Mike Simpson (ID) in the House, limits the type of “creditor” that must comply with the Red Flag Rules. When signed into law, the bill will ensure that the Federal Trade Commission (FTC) can no longer interpret the Red Flags identity theft rules to apply to health centers and other medical and service providers and professionals. Although the bill is short, Congress’ intent is clear: on the Senate floor Senators Dodd, Thune and Begich stressed that that the legislation responds to stakeholders concerns to ensure that lawyers, doctors, dentists, pharmacists, veterinarians, accountants, nurses, social workers, other types of health care and other service providers will no longer be classified as “creditors” for the purposes of the Red Flags rule simply because they do not receive payment in full from their clients at the time they provide services. NACHC has been following the Red Flags Rule through rulemaking and published an issue brief last year to help health centers understand how to comply should the regs be implemented. However, provided the legislative language is interpreted as Congress intends, this is a positive change for health centers and will ensure health centers do not need to comply with the FTC’s Red Flag Rule.
Red Flags Recap
The so-called Red Flag Rule, promulgated by the FTC, aims to ensure creditors meet high standards and take precautions to protect consumers against identity theft and credit fraud. Final regulations were released in 2008 and the FTC has postponed implementation through December 31, 2010 due to objections raised by many provider and professional trade groups about who, exactly, the FTC considers a “creditor” for purposes of the rule. Under the current interpretation of the rule, FTC applies the definition of creditor broadly to include all types of providers and professionals who provide a service without requiring full payment at the time of service (for example, medical providers who allow their patients to pay for treatment on a payment plan). National groups including NACHC, the American Medical Association and the American Bar Association, for example, have voiced concerns to the FTC that this interpretation is overbroad, that professionals represented by these organizations do not, in the normal course of business, put consumers in danger of identity theft, and that compliance would require businesses bear the burden of costly legal counsel and administrative policy changes.
The Red Flag Program Clarification Act of 2010 is Congress’ response to stakeholders’ concerns. The bill limits the definition of “creditor” to only include those who regularly and in the course of business obtain or use consumer reports, furnish information to consumer reporting agencies, or advance funds. Health centers do not fit into these categories and so are not considered “creditors” under the bill. W hen signed into law, the bill will exempt health centers from the Red Flags Rule. President Obama is expected to sign the bill. NACHC will continue to follow this change through implementation to ensure that the legislation is interpreted as Congress intends and that health centers remain unaffected by the Red Flags Rule.