Red Flags Rule update: court rules on definition of “creditor”

In the latest development in the long debate over enforcement of the Red Flags Rule, the D.C. Circuit Court has ruled that the Federal Trade Commission’s (FTC’s) definition of a creditor as any entity that defers payment is no longer valid. The Red Flags Rule, established after the Fair and Accurate Credit Transactions Act, requires creditors that maintain covered accounts to adopt an identity theft prevention program. After release of the rule, the FTC maintained that it applied to any entity that defers payment, including healthcare providers, who bill monthly or defer billing their patients until after submitting claims to insurers.

This ruling came after the American Bar Association (ABA) sued the FTC in an effort to exclude lawyers from the rule. In December, Congress intervened by passing the Red Flag Program Clarification Act, which changed the definition of a creditor. Because of this, the Court found that the ABA’s lawsuit was moot since Congress’s definition of a creditor supersedes the FTC’s.

Under the act, creditors subject to the rule are those that use information from or report information to consumer reporting agencies as well as those who advance funds. The act also allows the FTC to develop a new regulation aimed at creditors that offer or maintain accounts where there is a foreseeable risk of identity theft. Based on the recent court decision, the FTC will need to go through a formal notice-and-comment rulemaking process in order to include healthcare providers in the definition of a “creditor” subject to the rule.

Dallas L Alford IV, CPA is a licensed Certified Public Accountant in the state of North Carolina and owner of Atlantic Financial Consulting, a consulting firm that provides comprehensive medical billing services, practice management consulting, coding audits, Medicare compliance, Medicare RAC support and other general medical practice consulting services.
To learn more about Atlantic Financial Consulting you may visit their website at http://atlanticfinancial.us or contact Dallas L Alford IV, CPA directly at 1 888-428-2555, Ext. 200.