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Red Flags Compliance. Fair & Accurate Credit Transactions Act (FACTA ) Identity Theft Prevention. Red Flag Facts. Compliance rules are effective November 1, 2008

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Red flags compliance

Red Flags Compliance

Fair & Accurate Credit Transactions Act (FACTA)

Identity Theft Prevention


Red Flag Facts

  • Compliance rules are effective November 1, 2008

  • Implemented by the Federal Trade Commission (FTC) in compliance to the Fair and Accurate Credit Transactions Act (FACTA) Regulation, Section 114

  • Rules apply to banks, thrifts, credit unions, finance companies, automobile dealers, mortgage companies – including brokers

  • All businesses must have a comprehensive system in place that serves to detect, prevent and mitigate identity theft.


Red Flag Program

  • Every business must have a written policy

  • The policy must be approved by the company’s board of directors or senior executive committee who shall direct a designated senior management employee to oversee the program

  • The designated person must implement the program, train staff, oversee audits, complete annual reports and monitor compliance to all persons who have access to covered accounts (new or existing borrowers)

  • The plan must reflect the size, structure and business model of the institution and updated periodically


Red Flag List

  • The plan must identify and list all possible red flags

  • Red flags apply to “covered” accounts such as:

    • New or existing customer information accessed by your company

    • New or existing customer information accessed by 3rd parties

  • The Federal Trade Commission has identified “26 Red Flags” to be used as a guide for drafting an internal policy

  • The FTC list is not be used as a “checklist” and lenders must list sources and examples that are specific to their business model


    Red Flag Sources

    • Red flags are comprised of various sources:

      • Suspicious documents furnished by the consumer

      • Suspicious documents furnished by transaction parties

      • Suspicious documents furnished by asset or income sources

      • Alerts, notifications or warnings from a consumer reporting agency

      • Alerts from an SSN validation check

      • Alerts from a Factual ID or Fraud-Check

      • Notices received from outside persons or entities in connection to the covered account being serviced by the institution


    Red Flag Detection

    • Ordering vendor reports, such as SSN checks or Factual ID are not mandatory … but help support red flag detection

    • Vendor reports can help a lender save time and also resolve “false positives” by clearing unwarranted discrepancies

    • If a vendor report indicates any type of “Alert” the lender must respond to that alert

    • Often red flags are detected by manual review of various file documents or other sources, such as…



    Red flag detection

    Red Flag Detection

    • Source: Credit Report - SSN Check

    • Look for exact or partial match on

    •  borrower name

    •  borrower address

    • Note Date of Birth (DOB) & compare with 1003 application

    • Note Issue Date & Validation

    • Note Deceased Flag or FKA / AKA (formerly known as, also known as)

    • Note Address History & compare with 1003 application




    Memo to File

     Compliance Check Completed


    Red flag detection1

    Red Flag Detection

    • Source: Factual ID – Red Flag Response

    • Red Flag Response is completed by:

    • Requesting documents from the borrower

    • or third party, such as property seller

    • Ordering a factual report from a vendor

    • When ordering the Factual ID, the lender may request a specific action, such as

      Verify Social Security Number

       Obtain confirmation from SS Administration

      Validate borrower occupancy

       Confim telephone is land-line or mobile phone

    • Document file memorandum red flag detection and response completed satisfactory.






    Red Flag Response

    • Once a Red Flag has been detected, lenders must assess the level of risk and evaluate the exposure to identity theft to either the lender or consumer

    • Examples of responses are:

      • Ask borrower to submit a written explanation

      • Ask borrower to submit supporting documentation to clear the discrepancy

      • Request borrower’s employer to furnish supplementary payroll records

  • Complete an internal “red flag checklist” that documents the detection and response, place in borrower folder with copy to compliance officer

  • As appropriate, and in accordance with the established procedure:

    • Notify Law Enforcement Agency

    • Complete a Suspicious Activity Report (SAR)

    • Notify parties in connection with identity theft


    Red Flag Toolkit

    Bankers Advisory, Inc. has developed a comprehensive Red Flag Toolkit that covers all steps and activities required by law. The toolkit includes three components, which may be purchased separately:

    Red Flags Compliance Manual

    • Summary of FACTA Regulation and requirements related to mortgage lending

    • Job Description for designated program manager

    • Step by step plan for all required functions for monitoring & reporting

    • List of red flags & sample policy guide

    • Camera-ready forms & worksheets

      Customized Policy Guide

    • Customized for lender, appropriate to business model & institution type

    • Addresses every internal department or facility with access to consumer information

    • Addresses every external entity & 3rd party service providers

    • Procedures for vendor orders, detection, incident-based response & mitigation

    • Directives for SAR filing and reporting

       Delivered on CD Rom in editable MS Word document


    Red Flag Toolkit

    Power Point Training Program

    • Summary of FACTA Red Flag rules & requirements

    • Description of red flag categories and explanation of the “Red Flag List”

    • Illustrations & examples of red flags found on mortgage documentation

    • Illustrations & examples of red flags detected on consumer credit reports

    • Effective use of SSN validation, Factual ID and other investigative tools

    • Options & directives for response, mitigation and SAR reporting

      Bankers Advisory, Inc.

      375 Concord Avenue, Belmont MA 02478

      Tel 617-489-2008 Fax 617-489-2208

      For further information, contact Anna DeSimone

      [email protected]