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How The Red Flags Rule Affects You

The federal government’s Red Flags Rule is an important effort to prevent identity theft and fraud — but many still aren’t clear about if, and how, the Rule affects their business or professional practice. The Notary Bulletinconsulted with the U.S. Federal Trade Commission to clarify how the Rule affects Notaries. Details follow:

What is the “Red Flags Rule?”

The Red Flags Rule is a federal regulation that requires certain businesses and organizations to implement a written Identity Theft Prevention Program that includes:

  • Policies to define and detect warning signs (“red flags”) of identity theft in day-to-day business activities — such as screening processes to detect questionable or forged IDs.
  • A policy of appropriate steps to take when a “red flag” is spotted. For example, if an attempt at identity theft is spotted during a notarization, the policy may require the notarization to be halted.
  • A process for reevaluating the business’ Identity Theft Prevention Program periodically to make sure it is up to date and addresses new risks.

What does the Red Flags Rule mean for Notaries?

Because Notaries play a key role in spotting and preventing identity theft during document transactions, any business that is required to implement a Red Flags Rule policy should include guidelines for its Notaries. Notaries should work with their supervisors to make sure the company’s Red Flags Rule policies comply with all state Notary laws, Recommended Notary Practices and ethics. In addition, Notaries who are also mortgage brokers or real estate agents and are considered “creditors” under the rule may be required to implement their own identity theft fraud prevention program.

Is my employer affected by the Red Flags Rule?

There are two main business categories affected by the law. The first is “financial institutions,” such as banks, lenders, credit unions or persons who directly or indirectly hold a consumer transaction account. The second is “creditors” — businesses or individuals that regularly grant loans, arrange for loans, extend credit or make credit decisions. Retailers, auto dealers, mortgage brokers, real estate agents, utility companies and others that offer credit or financing options may qualify as a “creditor.” 

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