Page 41 - MetalForming January 2011

You and The Law
By Douglas B.M. Ehlke
If You Haven’t Heard of the Red Flags Rule, You Need to Read This
Recently passed rules by the Federal Trade Commission, an entity most readers of this publication probably do not deal with regularly, may require your compliance. The Red Flags rule is designed to prevent identity theft by requiring businesses to be aware of any suspicious activity with a customer’s account.
If you are like most businesses in this industry, you probably cannot imagine a customer ordering goods from you under a fictitious name or providing a fraudulent form of payment (your customers may not always pay on time, but at least they aren’t stealing credit cards to pay for goods). However, regardless of the actual or theoretical risk of fraud in your business, if you extend any sort of cred- it to a customer, you must comply with the new Red Flags rule.
To determine if you qualify, the Federal Trade Commission has published a guidebook at: www.ftc.gov/bcp/edu/pubs/ business/idtheft/bus23.pdf. This is a good resource to con- sult, in addition to an attorney. Remember, PMA members are entitled to three free hours of legal advice from my firm—we can provide guidance on this rule. It says, in general, that any business that delivers a good or provides a service and later bills the customer/client is considered a creditor. A Net 30 account is considered a form of credit—any company that receives payment subsequent to delivery of goods or subse- quent to providing a service is considered a creditor under the currently written law.
This all-encompassing rule is being challenged by the American Bar Association on behalf of lawyers. It is likely that other industries will either challenge the law in court or lobby for exclusion through their elected representatives. However, at this time, no exceptions are written into the law.
In order to comply, written policies must be adopted in accordance with the rule. Again, the Federal Trade Com- mission has published a guideline on how to create these poli- cies: www.ftc.gov/bcp/edu/microsites/redflagsrule/diy-tem-
Doug Ehlke, a national board-certified civil trial lawyer, has for more than 30 years represented met- alforming companies in OSHA litigation and in labor- union elections. His law practice emphasizes labor law, personal injury, product liability, probate, estate planning and environmental and employment discrimination law.
Ehlke Law Offices
28840 11th Avenue South
Federal Way, WA 98003-3705
tel. 253/839-5555
fax. 253/874-5475
dehlke@ehlkelawoffices.com
plate.shtm. The policies must identify your risk level, detail how you will detect red flags, give guidance on how to respond to red flags, and must give instruction on the future administration of the Red Flag program.
Once you have created an acceptable policy, the rule must be formally adopted by the company’s board. For smaller corporations, the policy must be signed by the owner. The Red Flags rule requires the policy to be written, regard- less of whether the measures are already in place, whether or not your company has a lawyer on staff. Even if you outsource your accounting, you still are required to have a written policy. Furthermore, the policy must be examined for changes and updates, and then formally renewed by the board of directors or the owner each year.
As of December 1, 2010, the rule is set to take effect on December 31. Nobody
knows for sure if it will—
the Federal Trade Com-
mission has delayed it
repeatedly over the past
two years. Unfortunately,
because the Federal Trade
Commission has not yet
announced a delay, it is
better to become compli-
ant as soon as possible
rather than waiting. Even
if you have missed the
deadline, creating the policy as soon as possible is highly recommended.
If you extend any sort of credit to a customer, you must comply with the new Red Flags rule.
Compliance will be monitored by the Federal Trade Commission, which likely will issue large fines for non- compliance if your company is ever involved with a con- sumer/business who reported identity theft (as the vic- tim), or if you actually were involved in a fraudulent transaction and did not have properly document compli- ance with the Red Flags rule. We do not know if any spot checks will be done or what methods the Federal Trade Commission will ultimately use to determine compliance (absent the investigation of complaints of identity theft) at this time.
The good news, for most metalformers, is that a bill recently has been introduced that would create an excep- tion for businesses “that advance funds on behalf of a per- son for expenses incidental to a service provided by the cred- itor to that person.” If this bill passes as written, it may exempt manufacturers that sell goods they manufacture on credit. MF
www.metalformingmagazine.com
MetalForming/January 2011 39