Red Flag Program Clarification Act of 2010

Mr. Speaker, I move to suspend the rules and pass the bill (S. 3987) to amend the Fair Credit Reporting Act with respect to the applicability of identity theft guidelines to creditors.

Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days in which to revise and extend their remarks and to insert extraneous material thereon.

Mr. Speaker, I yield myself such time as I may consume.

I rise today in support of the Red Flag Program Clarification Act of 2010. This legislation, which I introduced in the House, will narrow the scope of the Fair and Accurate Credit Transaction Act of 2003.

The FACT Act directed the Federal Trade Commission to promulgate rules requiring creditors to implement programs to detect and respond to so-called red flags that could indicate identity theft. Clearly, we all agree that identity theft is a serious problem and we must respond with strong regulations to protect consumers. That was the intent of the Congress in 2003. This Congress shares that intent.

However, we need to be careful that the laws we pass address the problem and do so in a way that doesn't adversely and unfairly impact small businesses. America's small businesses are struggling in today's tough economy. Congress needs to work in a bipartisan manner to find commonsense solutions to help America's small businesses remain as competitive as possible so they can create good-paying jobs.

I am pleased the House is taking up my legislation that will reduce burdensome regulations on small businesses. The purpose of the Red Flag Program Clarification Act is to limit the type of creditor that must be covered by the FTC's Red Flags Rule.

When I think of the word ``creditor,'' dentists, accounting firms, and law firms do not come to mind. However, the FACT Act, as read by the FTC, states that these professions and others will be required to comply with Red Flag's regulations. It is clear when Congress wrote the law, they never contemplated including these types of businesses within the broad scope of that law. The FTC, to its great credit, has already delayed implementation of the Red Flags Rule numerous times because of this issue. And I want to thank FTC Chairman Jon Leibowitz for his understanding that Congress in no way intended back in 2003 to include these sorts of businesses in the broad scope of the FACT Act.

We must act by the end of this year to head off the potentially damaging impact of this rule, and I am pleased this bill, this bipartisan bill, will provide a permanent solution to this problem. The Senate passed this bill unanimously. The House passed similar legislation, which I co-wrote with Mr. Broun and Mr. Simpson, last year by a narrow vote of 400-0.

I want to thank my colleagues, particularly Congressman Broun and Congressman Simpson, along with Mr. Maffei and Mr. Lee, for their leadership on this issue. I also wish to thank, once again, Chairman Frank and Ranking Member Bachus for allowing this bill to come to the floor. We worked together on a bipartisan basis to solve a problem. Today we achieve a worthy balance the right way, a bipartisan solution to a nonpartisan problem.

Mr. Speaker, I urge passage of this legislation that is so important to our small businesses.

I reserve the balance of my time.

Mr. Speaker, the gentleman from Idaho (Mr. Simpson) and I agree. We agree on lots of things. And we also agree, I think, that this Chamber should see more bills like this, more processes like this.

The House and Senate actually cooperated and got something good done that helps our small businesses, that helps Americans all across this country and that brings a little bit of common sense.

A few years ago, Congress tried to do a good thing and overreached just a little bit with good intent over each little bit. As Mr. Simpson acknowledged, we saw the problem. Chairman Leibowitz of the FTC also saw the problem, and we worked together. The bureaucracy was not inflexible. It showed some restraint and didn't impose an additional burden on small businesses--on the doctors and dentists and lawyers

around the country, who are clearly not creditors. So, for once, the process kind of worked.

This gives hope to the people who will be serving in the next Congress. They can work together on a bipartisan basis. This gives hope to people like me, who are leaving at the end of this term, that Congress will continue to function, in some way, in a bipartisan, commonsense manner.

I am satisfied we've done a good job here.

I yield back the balance of my time.

Mr. Speaker, I strongly support S. 3987, the Red Flag Program Clarification Act of 2010, which will remove a regulatory burden that our nation's small businesses are facing. I would like to thank Chairman Frank and Ranking Member Bachus for bringing this bill to the floor, and I thank the Committee staff for their hard work.

In November of 2007, the Federal Trade Commission issued a regulation, known as the ``Red Flags'' rule, as required by section 114 of the Fair and Accurate Credit Transaction Act of 2003. Red Flags required financial regulatory agencies, including the FTC, to craft rules requiring financial institutions and creditors to implement programs to detect and respond to patterns, practices, or specific activities--in other words, ``Red Flags''--that could lead to potential identity theft.

The FTC broadly interpreted ``creditors'' to include any business that allows clients to establish a payment plan in exchange for their services rendered, sweeping in many businesses that do not operate as a creditor in the general understanding of the term, such as dentists, doctors, veterinarians, lawyers, accountants, and many other health care providers that offer their clients payment plans.

Congress did not intend to have the Red Flags rule cover these types of small businesses when it passed the Fair and Accurate Credit Transaction Act of 2003. Because of the uncertainty as to the definition of a creditor and subsequent law suits filed against the FTC, the FTC delayed enforcement of the Red Flags Rule multiple times since its original implementation date of January 1, 2008. The Rule is now scheduled to go into effect on January 1, 2011, and if it does, it could require small businesses to undertake costly and burdensome measures to prevent identity theft in industries that pose little threat. This legislation will eliminate the need to request another enforcement delay.

It also clarifies who must comply with the Red Flags Rule as those creditors that use consumer reports, furnish information to consumer reporting agencies, and other creditors that loan money. Should it become apparent that there are industries that present a reasonably foreseeable risk of identity theft, the FTC will have the authority to issue a rule open for public comment that shows the industry should comply with the Reds Flag rule.

This legislation has broad bipartisan support. It passed the Senate by unanimous consent last week, and similar legislation I cosponsored passed the House last fall on the Suspension calendar with a 400-0 vote. It is supported by over 30 medical associations and the U.S. Chamber of Commerce.

In its initial regulatory analysis, the FTC estimated that the proposed Red Flags regulation would cover approximately 11.1 million entities ``across almost every industry,'' ninety percent of which were expected to qualify as small businesses. At a time when we are experiencing record high unemployment, Congress needs to provide our nation's job creators relief from unnecessary regulations. This legislation will do just that.

I urge my colleagues to support this bill, so that we can ease the regulatory burden on those industries that were not supposed to be covered by the Red Flags rule.

Madam President, I wish to engage my colleagues Senator Dodd and Senator Begich in colloquy.

I rise today in support of S. 3987, the Red Flag Program Clarification Act of 2010, legislation that Senator Begich and I have introduced to narrow the scope of section 114 of the Fair and Accurate Credit Transactions Act of 2003--the FACT Act. This section of the FACT Act directed financial regulatory agencies, including the Federal Trade Commission, FTC, to promulgate rules requiring ``creditors'' and ``financial institutions'' to implement programs to detect and respond to red flags--patterns, practices, or specific activities--that could indicate identity theft.

The purpose of the Red Flag Program Clarification Act of 2010 is to identify and limit the type of ``creditor'' that must be covered. If the FTC's final red flags rule is implemented, this rule could require small businesses to undertake costly, burdensome measures to prevent identity theft in industries where it poses little threat. Identity theft is a serious problem, but the definition of ``creditor'' for purposes of the FTC's red flags rule is too broad and would cover small businesses that pose little risk to consumers.

Under the legislation that Senator Begich and I are proposing, only a ``creditor'' that regularly and in the ordinary course of its business obtains or uses consumer reports in connection with a credit transaction, furnishes information to consumer reporting agencies in connection with a credit transaction, or advances funds would be required to develop and implement a written identity theft prevention and detection program.

So, for example, an accountant would not become a creditor simply for obtaining a consumer report--with the permission of any consumer whose report is obtained--in order to examine the integrity of a company's management.

And the legislation makes clear that an advance of funds does not include a creditor's 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, such as the advance payment of expert witness fees by a lawyer to support the representation of a client.

Any other type of creditor may only be covered through a rulemaking based upon an agency's determination that these types of creditors offer or maintain accounts that pose a reasonably foreseeable risk of identity theft. Such creditors would receive notice that they could be covered by a rule, and there would be a public airing of the issues when the proposed rule is published for notice and comment.

Could Senator Dodd, as chairman of the committee of jurisdiction, the Senate Banking Committee, provide us with some context regarding the legislation under which the FTC's rule was promulgated?

I applaud the FTC's cooperation in delaying implementation of their red flags rule to wait for congressional clarification on this issue and thank Senator Dodd for his assistance in drafting this legislation. I am confident that our efforts to provide a legislative solution that protects consumers and businesses alike can be achieved through this legislation.

Gladly. The FTC's red flags rule implementing section 114 of the FACT Act became effective on January 1, 2008. The rule applied to ``creditors,'' defined under the FACT Act the same way as in the Equal Credit Opportunity Act, ECOA, to include any person that sells a product or service for which the consumer can pay later.

After the red flags rule became final, many businesses and other entities indicated that they were not aware that they would be covered by this rule. At first, the FTC delayed enforcement of the rule several times to allow these entities time to come into compliance with the rule. Then, a number of professional organizations, including the American Bar Association and the American Medical Association, sued the FTC for taking the position that professionals were ``creditors'' when they allowed consumers to pay later, and would have to comply with its red

flags rule. On May 28, 2010, the FTC announced that it would delay enforcing its red flags rule through December 31, 2010, and asked Congress to pass legislation that would resolve any questions about which entities should be covered as ``creditors'' and to obviate the need for further enforcement delays.

Yes, I agree that this bill narrows the applicability of the red flag identity theft provisions of the FACT Act to cover those creditors where identity thieves can do the most harm--creditors that use consumer reports, furnish information to consumer reporting agencies, and other creditors that loan money, such as payday lenders, that do not necessarily use consumer reports or furnish information to consumer reporting agencies.

The legislation also makes clear that lawyers, doctors, dentists, orthodontists, pharmacists, veterinarians, accountants, nurse practitioners, social workers, other types of health care providers an other service providers will no longer be classified as ``creditors'' for the purposes of the red flags rule just because they do not receive payment in full from their clients at the time they provide their services, when they don't offer or maintain accounts that pose a reasonably foreseeable risk of identity theft.

Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I rise today in support of S. 3987, the Red Flag Program Clarification Act of 2010. This bill, as was mentioned, is a bipartisan, commonsense approach to protecting our Nation's small businesses from needless, burdensome government regulations. This legislation clarifies the definition of ``creditor'' for the purposes of complying with the Red Flags Rule. Under this law, a creditor would include only those entities that regularly use consumer reports or furnish information to consumer reporting agencies.

Mr. Speaker, our doctors and dentists across the country are not financial institutions, do not present an identity theft risk, and should not be treated as such. Under the old rule, many of these medical and dental offices were considered creditors because they worked with patients to develop payment plans that they could afford. This rule actually discourages efforts to improve access to care for people who can't afford to pay. This goes against all of our efforts to improve our health care system. Congress never meant for small businesses such as doctors, dentists, accountants, and others to be included in this definition.

This legislation is a good compromise in addressing the concerns of impacted businesses and health care providers while still protecting individuals from the risk of identity theft.

I would like to thank my good friends, Congressman Adler and Congressman Broun. I have enjoyed working with you on this legislation. I would like to recognize the work of Chairman Frank and Ranking Member Bachus to craft a balanced bill that addresses everyone's concerns, as well as Senator Begich and Senator Thune for their work on this issue. Finally, I would like to thank the FTC chairman, Chairman Leibowitz, for working with us so diligently on this issue throughout this rather long and arduous process.

I yield back the balance of my time.