Daily Rules, Proposed Rules, and Notices of the Federal Government
On November 9, 2007, the Commission and banking agencies published final rules and guidelines
The final Commission rule (the Red Flags Rule)
The final rule, therefore, defined the term “creditor” in this manner. The definition included businesses or organizations that regularly provide goods or services first and allow consumers to pay later.
In December 2010, Congress enacted the Red Flag Program Clarification Act (Clarification Act), 15 U.S.C. 1681m(e)(4), which narrows the scope of entities covered as “creditors” under the Red Flags Rule.
1. Obtain or use consumer reports, directly or indirectly, in connection with a credit transaction;
2. Furnish information to consumer reporting agencies in connection with a credit transaction;
3. 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.
In addition to limiting the scope of coverage for “creditors” by creating these specified categories, the Clarification Act empowers the Commission, banking agencies, CFTC, and SEC
Pursuant to the Clarification Act, the definition of “creditor” is amended to ensure that it is consistent with the amended text of the FCRA. Accordingly, the FTC is amending its regulations applicable to the entities subject to its jurisdiction to clarify that the definition of “creditor” set forth in the interim final rule has the same meaning as in 15 U.S.C. 1681m(e)(4).
By referencing the statutory definition of creditor, the interim final rule limits the definition of “creditor” to those ECOA creditors that “regularly and in the ordinary course of business” engage in the specific conduct set forth in the Clarification Act.
A “creditor” will be covered by the interim final rule if it regularly and in the ordinary course of its business obtains or uses consumer reports, directly or indirectly, in connection with a credit transaction. This includes any use of a consumer report in connection with a credit transaction, even if the report is not directly obtained by the creditor and even if the creditor uses a service provider to make the credit determination. For this
The Commission notes that for this prong to apply, the creditor must use or obtain a consumer report “in connection with a credit transaction.” Accordingly, the use of consumer reports for purposes other than credit B such as employment B will not trigger coverage under the interim final rule's definition of “creditor.”
A creditor will be covered by the interim final rule if it regularly and in the ordinary course of business furnishes information to a consumer reporting agency, as described in section 623 of the FCRA, in connection with a credit transaction.
Further, a creditor will be covered by the interim final rule if it regularly and in the ordinary course of business advances funds to a person, or on behalf of a person, where that person is obligated to repay the funds or the funds are repayable from pledged specific property by or on behalf of the person.
At the same time, the interim final rule provides that the term “advancing funds” does not include a creditor that advances funds “on behalf of a person for expenses incidental to a service provided by the creditor to that person.” This limitation makes clear that advancing funds does not include 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. Accordingly, a lawyer, for example, who advances funds on behalf of a client to pay expert witness fees or other expenses that are incidental to a request by a client for the provision of legal services in the course of litigation will not be deemed to be “advancing funds.” Thus, unlike a commercial lender making a loan, a business will not be deemed a creditor merely by advancing funds and deferring payment for fees incurred in the course of providing services to a client or customer.
Finally, the Clarification Act provides that the definition of “creditor” includes any other type of creditor that an agency with jurisdiction determines, through a rulemaking, offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft. At this time, the Commission is not initiating discretionary rulemaking to extend coverage of the Red Flags Rule to additional creditors.
The Commission finds good cause for adopting the interim final rule without advance public notice and opportunity for public comment. Advance public notice and comment are not required “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.”
As discussed above, the Clarification Act amends the definition of “creditor” for purposes of the Red Flags Rule. This amendment necessitates a technical revision of the Red Flags Rule to ensure that the regulation is consistent with the text of the amended FCRA.
The Commission finds that prior public comment on the Rule is unnecessary because the Commission has merely codified the amended statutory definition of “creditor.” Delay in adoption of the rule revision to allow for prior public comment would prolong uncertainty about the applicability of the Red Flags Rule requirements to the class of “creditors,” as defined in the amended FCRA. As a result, adoption of this amendment serves the public interest by providing clarity to the public regarding the entities that are subject to the Rule and furthering the effectiveness of the Commission's ongoing efforts to prevent identity theft and fraud through the enforcement of the Rule.
Accordingly, the Commission finds that there is good cause for adopting this interim final rule as effective on February 11, 2013, without prior public comment. Nonetheless, in order to promote good and open government, the Commission exercises its discretion to invite public comment on the interim final rule. Based on comments received, the Commission may adjust the interim final rule as necessary.
You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before February 11, 2013. Write “Red Flags Interim Final Rule,” on your comment. Your comment—including your name and your state—will be placed on the public record of this proceeding, including, to the extent practicable, on the public Commission Web site, at
Because your comment will be made public, you are solely responsible for making sure that your comment doesn't include any sensitive personal information, such as anyone's Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment doesn't include any sensitive health information, such as medical records or other individually identifiable health information. In addition, don't include any `[t]rade secret or any commercial or financial information which is obtained from any person and which is privileged or confidential,” as provided in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, don't include competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes, or customer names.
If you want the Commission to give your comment confidential treatment, you must file it in paper form, with a request for confidential treatment, and you have to follow the procedure explained in FTC Rule 4.9(c), 16 CFR
Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, we encourage you to submit your comments online. To make sure that the Commission considers your online comment, you must file it at
If you file your comment on paper, write “Red Flags Interim Final Rule” on your comment and on the envelope, and mail or deliver it to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex M), 600 Pennsylvania Avenue NW., Washington, DC 20580. If possible, submit your paper comment to the Commission by courier or overnight service.
Visit the Commission Web site at
Written communications and summaries of transcripts of oral communications respecting the merits of this proceeding from any outside party to any Commissioner will be placed on the public record.
The interim final rule does not include any new information collection requirements under the provisions of the Paperwork Reduction Act of 1995 (PRA).
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, requires that the Commission provide an Initial Regulatory Flexibility Analysis (IRFA) with a proposed rule and a Final Regulatory Flexibility Analysis (FRFA), if any, with a final rule. As noted above, the Commission finds that good cause exists for adopting this interim final rule without advance public notice or an opportunity for public comment. Because notice and comment is not statutorily required, the requirement to publish an analysis under the Regulatory Flexibility Act does not apply in this proceeding.
Consumer reports, Consumer report users, Consumer reporting agencies, Credit, Creditors, Fair credit, Information furnishers, Identity theft, Trade practices.
For the reasons discussed in the preamble, the Commission amends part 681 of title 16 of the Code of Federal Regulations as follows:
15 U.S.C. 1681m(e); 15 U.S.C. 1681m(e)(4); 15 U.S.C. 1681c(h).
(b) * * *
By direction of the Commission.