Feds require financial institutions to create identity theft system

WASHINGTON (Thomson Financial) – The Federal Reserve Board and other bank regulators released rules today that will require financial institutions to step up efforts to combat identity theft, part of an effort to reduce the costs — counted in the billions of dollars each year — that identity theft imposes on individuals and businesses.

The rule requires institutions to create ‘reasonable policies and procedures’ for detecting and preventing identity theft. The procedures must be sensitive enough to allow institutions to develop a list of ‘red flag’ activities that signal possible identity theft, and respond when a red flag is raised.

As one example, the rule requires credit and debit card issuers to closely scrutinize change-of-address requests from customers, particularly when these requests are followed by a request for an additional card.

‘These rules provide consumers with an additional layer of protection by requiring financial institutions and creditors to adopt identify theft prevention programs that apply to all consumer accounts — without exception,’ said Federal Reserve Board Governor Randall Kroszner.

The regulators also released guidelines aimed at helping financial institutions develop an identity theft program. The rule will take effect on Jan 1, and financial institutions covered by it will have until Nov 1, 2008 to comply.

Aside from the Fed, the rule was put out by the Federal Deposit Insurance Corporation, Federal Trade Commission, National Credit Union Administration, Office of the Comptroller of the Currency, and Office of Thrift Supervision

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