How Will the New FTC "Red Flags Rule" Change Your Small Business Operation?

Protecting your company from identity theft might not be at the forefront of your mind as a small business owner. However, the Federal Trade Commission (FTC) has instated a new “Red Flags Rule” that may change how you conduct business in the near future. The “Red Flags Rule” is designed to protect American consumers and business owners from identity theft, a crime that is growing steadily in popularity. Identity theft is a huge problem that can tarnish one’s reputation, both personally and professionally, for many years.

The FTC’s “Red Flags Rule” targets specific types of institutions to better safeguard personal information. These institutions include banks, any company that issues credit cards, or companies that offer loans and/or deferred payment options to customers. The “Red Flags Rule” insists that businesses who lend money must take measures to verify the identity of those who are borrowing money or establishing lines of credit. This rule might impact business operations in the following ways.

  • Industries. The “Red Flags Rule” may impact small business like small banks, private medical and legal practices. These types of businesses grant loans or offer extended payment plan options and often times have pertinent information about their customers on file. This makes them vulnerable to identity theft attacks.

  • Complying. There are several different ways that small business will need to comply with the “Red Flags Rule.” Address verification is a critical factor. Before lending money or extending a line of credit, business owners must ensure that the address on record matches the address that appears on a basic credit report. Another measure for compliance includes verification of information. For example, if a customer calls to change their address or add another name to the account, the business must attempt to verify the caller’s identity through strategies such as calling the customer back at the phone number on record.

  • Costs. The costs of complying with the “Red Flags Rule” are minimal. It might be as easy as instating policies that require employees to ask certain questions. Overall, these measures should reduce incidences of fraud and save the business money in the long run.

For more information on the new “Red Flags Rule,” consult the FTC’s official website on the law at

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