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FTC Red Flags Rule

March 4, 2009

Associated File: Red Flags Identity Theft Prevention Program form

The Federal Trade Commission (FTC) (Section 14) has issued regulations called the Red Flags Rule requiring financial institutions and creditors to develop and implement written identity theft prevention programs as part of the Fair and Accurate Credit Transactions Act of 2003 (FACTA). MHI, our national trade association, has determined that mobilehome dealers who assist customers with applications for home loans are covered under the Red Flags rule, as are dealers who are mortgage brokers. The Red Flags programs must be in place by May 1, 2009 and must provide for the identification, detection, prevention and response to activities known as “red flags” that could be indicators of identity theft. The Red Flags Identity Theft Prevention Program must enable a financial institution or creditor to:

1. Identify relevant patterns, practices, and specific forms of activity that are “red flags” signaling possible identity theft and incorporate those red flags into the Program.

2. Detect red flags that have been incorporated into the Program;

3. Respond appropriately to any red flags that are detected to prevent and mitigate identity theft; and

4. Ensure the Program is updated periodically to reflect changes in risks from identity theft.

The Red Flags Rule also requires the program to be overseen by an employee at the level of senior management who will have the following responsibilities:

1. Assigning specific responsibility for the program’s implementation;

2. Reviewing reports prepared by staff regarding compliance at least annually. Reports from staff should address and evaluate issues such as: the effectiveness of the policies and procedures in addressing the risk of identity theft in connection with taking loan application; significant incidents involving identity theft and management’s response; and recommendations for material changes to the program;

3. Approving material changes to the program as necessary to address changing identity theft risks.

Some Potential Red Flag Alerts:

1. A fraud alert included with a consumer report

2. Notice of a credit freeze in response to a request for a consumer report

3. A consumer reporting agency providing a notice of address discrepancy

4. Usual credit activity, such as an increased number of accounts or inquiries

5. Documents provided for identification appearing altered or forged

6. Photographs on ID inconsistent with appearance of customer

7. Information on ID inconsistent with information provided by person opening account

8. Information on ID, such as signature, inconsistent with information on file at the financial institution

9. Application appearing forged or altered or destroyed and reassembled

10. Information on ID not matching any address in the consumer report, Social Security number has not been issued or appears on the Social Security Administration’s Death Master File, a file of information associated with Social Security numbers of those who are deceased.

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