As we reported here, the Senate passed legislation to clarify the application of the "red flag" rules to "creditors." The law, the Red Flag Program Clarification Act of 2010, made its way through the House and, on December 18, 2010, was signed into law by President Barack Obama.
The Act makes clear that the red flag rules apply to a creditor that:
regularly and in the ordinary course of business -
(i) obtains or uses consumer reports, directly or indirectly, in connection with a credit transaction;
(ii) furnishes information to consumer reporting agencies [defined elsewhere in the Fair Credit Reporting Ac] in connection with a credit transaction; or
(iii) advances funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person.
The definition of "creditor" under the Act goes on, however, to exclude those creditors that fall into item (iii) above, if the creditor advances funds for expenses incidental to a service provided by the creditor to the person. For many who believed that the red flag rules were never intended to apply to them, such as health care providers and attorneys, this language is expected to provide the relief they were seeking.