The Red Flags Rule

In an age when identity theft is rampant, it isn’t surprising to learn that the federal government created some updates to the Fair and Accurate Credit Transactions Act (FACTA) and to the Federal Credit Reporting Act (FRCA). Most of the rules are designed to help consumers protect themselves from identity theft, but there are some rules designed to make businesses more responsible for detecting identity theft and procedures in place to protect the information given to them by consumers that others may use to commit identity theft.

What is the Red Flags Rule?

The Red Flags Rule is a regulation published by the Federal Trade Commission to require businesses to develop written plans to fight identity theft. You can find more information about it at: http://www.ftc.gov/redflagsrule. 

What do I need to know?

All landlords need to be aware of the state and federal laws that govern their relationship with tenants and applicants. FACTA permits active duty military and victims of identity theft to place an alert on their credit bureau accounts. If you are reviewing a credit report to determine whether to rent to a tenant, you need to take other reasonable steps to determine if the person matches the information or is attempting to steal someone’s identity.

Businesses are prohibited from printing the entire account number and date of expiration of the credit card on any receipt. If a victim of identity theft requests a copy of the application and other records of a person’s who used their identity, the business should require a copy of a police report and proof the person’s identity and then you must supply them and law enforcement officials with copies of those documents. Be careful and make sure you have a high degree of confidence in the victim’s true identity.

You must have in place protocol for the disposal of documents that could be used to steal another’s identity. The website listed above can provide you with the specifics of the FACTA Disposal Rule.

You must have in place protocol for the detection, prevention and mitigation of identity theft. Look for common “flags” that there might be evidence of identity theft such as:

  • Documents that appear to forged or altered.
  • An alert on a credit report.
  • Information on the application that doesn’t match the credit report or other information, such as addresses that don’t match up.
  • A social security number that doesn’t match the rest of the information provided.
  • Phone numbers for references that can only be contacted during specific hours of the day or only contacting a specific person at that number.
  • Failure to know or fill out all questions in the application.

What do I need to do? 

The most important thing a landlord can do is to use good business practices in your office. Know what information you are gathering, determine whether it is really essential, decide who at your office needs to have access to that information, keep the information in a place separate, and apart from the lease file if that file is not locked away and employees may have access to it.

Create protocol that addresses all of these issues. Update that protocol yearly to comply with any changes in state of federal law. Be aware of the practices that can create potential liability.

BOTTOM LINE: Protect your self from lawsuits by protecting other’s information and being aware of potential evidence of stolen identities.

For a sample Identity Theft Prevention Program, see our form #41 on our forms page.