Red Flags Compliance

1
Red Flags Compliance

• Fair Accurate Credit Transactions Act (FACTA)
• Identity Theft Prevention

2
Red Flag Facts

• Compliance rules are effective November 1, 2008
• Implemented by the Federal Trade Commission (FTC)
  in compliance to the Fair and Accurate Credit
  Transactions Act (FACTA) Regulation, Section 114
• Rules apply to banks, thrifts, credit unions,
  finance companies, automobile dealers, mortgage
  companies including brokers
• All businesses must have a comprehensive system
  in place that serves to detect, prevent and
  mitigate identity theft.

3
Red Flag Program

• Every business must have a written policy
• The policy must be approved by the companys
  board of directors or senior executive committee
  who shall direct a designated senior management
  employee to oversee the program
• The designated person must implement the
  program, train staff, oversee audits, complete
  annual reports and monitor compliance to all
  persons who have access to covered accounts (new
  or existing borrowers)
• The plan must reflect the size, structure and
  business model of the institution and updated
  periodically

4
Red Flag List

• The plan must identify and list all possible red
  flags
• Red flags apply to covered accounts such as
• New or existing customer information accessed by
  your company
• New or existing customer information accessed by
  3rd parties
• The Federal Trade Commission has identified 26
  Red Flags to be used as a guide for drafting an
  internal policy
• The FTC list is not be used as a checklist and
  lenders must list sources and examples that are
  specific to their business model

5
Red Flag Sources

• Red flags are comprised of various sources
• Suspicious documents furnished by the consumer
• Suspicious documents furnished by transaction
  parties
• Suspicious documents furnished by asset or income
  sources
• Alerts, notifications or warnings from a consumer
  reporting agency
• Alerts from an SSN validation check
• Alerts from a Factual ID or Fraud-Check
• Notices received from outside persons or entities
  in connection to the covered account being
  serviced by the institution

6
Red Flag Detection

• Ordering vendor reports, such as SSN checks or
  Factual ID are not mandatory but help support
  red flag detection
• Vendor reports can help a lender save time and
  also resolve false positives by clearing
  unwarranted discrepancies
• If a vendor report indicates any type of
  Alert the lender must respond to that alert
• Often red flags are detected by manual review of
  various file documents or other sources, such as

Google
7
Red Flag Detection

• Source Credit Report - SSN Check
• Look for exact or partial match on
• ? borrower name
• ? borrower address
• Note Date of Birth (DOB) compare with 1003
  application
• Note Issue Date Validation
• Note Deceased Flag or FKA / AKA (formerly known
  as, also known as)
• Note Address History compare with 1003
  application

NAME MATCH?
ADDRESS MATCH?
SSN VALIDATED ?
Memo to File ? Compliance Check Completed
8
Red Flag Detection

• Source Factual ID Red Flag Response
• Red Flag Response is completed by
• ? Requesting documents from the borrower
• or third party, such as property
  seller
• ? Ordering a factual report from a vendor
• When ordering the Factual ID, the lender may
  request a specific action, such as
• ? Verify Social Security Number
• ? Obtain confirmation from SS Administration
• ? Validate borrower occupancy
• ? Confim telephone is land-line or mobile phone
• Document file memorandum red flag detection and
  response completed satisfactory.

ACTIONS
ADDRESS VARIANCES?
OCCUPANCY ?
CLEAR TO CLOSE
9
Red Flag Response

• Once a Red Flag has been detected, lenders must
  assess the level of risk and evaluate the
  exposure to identity theft to either the lender
  or consumer
• Examples of responses are
• Ask borrower to submit a written explanation
• Ask borrower to submit supporting documentation
  to clear the discrepancy
• Request borrowers employer to furnish
  supplementary payroll records
• Complete an internal red flag checklist that
  documents the detection and response, place in
  borrower folder with copy to compliance officer
• As appropriate, and in accordance with the
  established procedure
• Notify Law Enforcement Agency
• Complete a Suspicious Activity Report (SAR)
• Notify parties in connection with identity theft

10
Red Flag Toolkit

• Bankers Advisory, Inc. has developed a
  comprehensive Red Flag Toolkit that covers all
  steps and activities required by law. The
  toolkit includes three components, which may be
  purchased separately
• Red Flags Compliance Manual
• Summary of FACTA Regulation and requirements
  related to mortgage lending
• Job Description for designated program manager
• Step by step plan for all required functions for
  monitoring reporting
• List of red flags sample policy guide
• Camera-ready forms worksheets
• Customized Policy Guide
• Customized for lender, appropriate to business
  model institution type
• Addresses every internal department or facility
  with access to consumer information
• Addresses every external entity 3rd party
  service providers
• Procedures for vendor orders, detection,
  incident-based response mitigation
• Directives for SAR filing and reporting
• ? Delivered on CD Rom in editable MS
  Word document

11
Red Flag Toolkit

• Power Point Training Program
• Summary of FACTA Red Flag rules requirements
• Description of red flag categories and
  explanation of the Red Flag List
• Illustrations examples of red flags found on
  mortgage documentation
• Illustrations examples of red flags detected on
  consumer credit reports
• Effective use of SSN validation, Factual ID and
  other investigative tools
• Options directives for response, mitigation and
  SAR reporting
• 
  Bankers Advisory, Inc.
• 375 Concord Avenue, Belmont MA 02478
• Tel [phone] Fax [phone]
• For further information, contact Anna DeSimone
• anna_at_bankersadvisory.com