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Agencies issue frequently asked questions on ID theft rules
By Michael Thompson
Editors note: On July 29, 2009, the Federal Trade Commission delayed the deadline for compliance with its Red Flags Rules until Nov. 1, 2009. Click here to read the FTC's press release announcing the delay.
As a small business owner, you may feel that it's unfair for the government to hold your merchant account responsible for identity theft. After all, credit cards are a part of life in modern society; you have no choice but to operate a merchant account. How can you be expected to prevent identity theft when as many as 9 million Americans have their identities stolen each year?
Federal administrators say that it's in the best interest of your small business, and your merchant account, to help identify patterns of identity theft. No, you aren't expected to totally thwart ID theft. The Fair and Accurate Credit Transactions Act of 2003, which is still being implemented, simply requires that you put in place an identity theft prevention program designed to detect warning signs, or "red flags."
Red flag rules for merchant account transactions, mostly involving credit cards, were made effective at the start of 2008. On June 11, 2009, a team of federal agencies issued a Q & A report, "Identity Theft Red Flags and Address Discrepancies." This report will help you determine required steps for compliance.
In essence, you must implement "reasonable policies and procedures" to spot credit account red flags, and then take "appropriate actions." Employees who process merchant account transactions must receive ID theft training. The law gives you flexibility to fit your identity theft prevention program to the size and nature of your enterprise.
Small business owners must do more than simply provide data security for their merchant accounts. Red flags go a step beyond data security, with the intent of preventing credit card fraud on the front end.
The government describes merchant account red flags as:
For new accounts, identity theft precautions can include obtaining a government ID card such as a driver's license or a passport.
Article by Michael Thompson
Updated: July 29, 2009