Red Flag Rules for Banks: New Technology Now Available for Validating ID

The latest buzz in the financial world is new Red Flags Rules, which should be in place for financial institutions by November of this year.

In a nutshell, the FTC/federal government is requiring financial institutions to put identity theft prevention measures in place when opening new accounts and monitoring existing accounts. There are 3 basic items which must be addressed:

1. The entity must have and maintain/update reasonable procedures for detecting, preventing and mitigating identity theft.

2. The entity must be able to identify relevant patterns of activity signaling possible identity theft.

3. The entity must incorporate the detection of patterns signaling identity theft into their policies and procedures.

The term financial institutions leaves the scope wide open. TCB verified with the FTC and basically anyone signing up accounts where money is going to be moving around is considered a financial institution. This applies to ISOs, banks, processors, check cashing, payday loans, and cash advance companies to name a few. Car rental/leasing companies, auto dealerships, cell phone providers, hospitals, and anyone else extending credit also falls within this realm.

Many smaller businesses do not know that they are being impacted by these new laws. If you do business with any of these business types, mention the subject to them. Education is key.

The challenge for everyone is that some transactions require a more in depth look at the person while others do not. Keeping the lines moving at a bank teller window is important, but the person's identity still needs to be established. A bank obviously cannot pull credit on every customer coming in to cash a check.

Banks are having to implement a face to face quick verification process and a verification process for bigger transactions, loans, etc.

If you would like to learn more about the Red Flag Rules and how it might impact your business, you can visit the FTC's website: http://www.ftc.gov.

SNARE is a new system on the market used for validating state issued pieces of identification. It was designed with the new Red Flag Rules in mind.

This system is a cost rapid implementation piece for financial institutions, hospitals, car dealerships, cell phone providers, check cashing, and large ticket merchants to name a few.

The premise is simple. There are literally 2 million websites selling fake pieces of identification. Many are so good, even a trained member of law enforcement cannot detect it by just looking at them. Not many (if any) people can validate identification pieces for all 50 states. Most fake IDs are not properly encoded on the magnetic stripe or the 2D Barcodes. This system allows the user to swipe the ID piece. The system validates the algorithm on the barcode or magnetic stripe, then displays the information on the screen to allow comparison to the ID piece.

The readers tie to a database which allows multiple locations/branches see how many times that id piece has been used. The system also houses an alerts system which allows an identification piece to be tied to an account number. If an account number has been deemed fraud or an "at risk" account, the next person presenting the identification piece will flag with an alert. The database can be hosted on an internal or web server, so the entity is not relying on yet another third party provider's security for sensitive data. Once implemented, the entity must simply integrate the use into the policy and procedure manuals and they have achieved compliance with the Red Flag Regulations. The system is also capable of functioning as a stand alone pc. This situation is ideal for a single check cashing, a merchant taking checks for high dollar tickets or performing financing of any kind, etc. Initial studies show a 95% reduction in the use of fake pieces of identification after implementation of the SNARE system.