FTC Grants Six-Month Delay of Enforcement of the Red Flag Rules
Published: October 23, 2008
Commission gives creditors and financial institutions until May 1 to comply. Other federal agencies, however, are keeping the Nov. 1 date.

The Federal Trade Commission (FTC) announced on Oct. 22, 2008, it will suspend enforcement of the new Red Flag Rules until May 1, 2009, to provide creditors, financial institutions and service providers additional time to develop and implement written identity theft prevention programs. The rules required mandatory compliance by Nov. 1, 2008, and were promulgated pursuant to the Fair and Accurate Credit Transactions Act of 2003 (FACT Act).

During the course of its efforts to offer information about the Red Flag Rules, the FTC learned some industries and entities within the FTC's jurisdiction expressed confusion and uncertainty over their coverage under the rule. In particular, many entities indicated they were unaware they were undertaking activities that would cause them to be considered a “creditor” or “financial institution” under the FACT Act. Other entities stated they were unaware of the Red Flag Rules because they are generally not required to comply with FTC rules in other contexts.

Due to this confusion, the FTC extended the compliance deadline for the Red Flag Rules to May 1, 2009, for entities subject to the FTC's enforcement authority.

Notably, the FTC underscored its announcement and release of an Enforcement Policy Statement does not affect other federal agencies' enforcement of the original Nov. 1, 2008, deadline for institutions subject to their oversight to be in compliance. Other federal agencies enforcing the Red Flag Rules include the Office of Comptroller of the Currency, the Office of Thrift Supervision of the Department of the Treasury, the Federal Reserve Board, the Federal Deposit Insurance Corporation and the National Credit Union Administration. As a result, it is very important to be aware third-party debt collectors who act as service providers for financial institutions or creditors regulated by these federal agencies are still required to comply with the Red Flag Rules by Nov. 1, 2008.

The extension of the compliance deadline for the FTC's enforcement of the Red Flag Rules does not extend enforcement of the rules requiring credit and debit card issuers to assess the validity of change of address notifications. Similarly, users of consumer reports are still required to comply with the address discrepancy rules by Nov. 1, 2008.

The Asset Buyers Division of ACA International will be hosting a session at the upcoming Fall Forum conference, Nov. 5-7, 2008, at The Westin Michigan Avenue in Chicago, discussing the Red Flag Rules and what asset buyers and debt collectors need to do to comply with the rules. There's still time to register for this valuable conference. ACA's Oct. 13 teleseminar on the Red Flag Rules is available for purchase on CD-ROM or downloadable MP3. Purchase of the recording includes teleseminar handouts and a Model Identity Theft Prevention Program sample.

The Oct. 22, 2008, press release and the FTC's Enforcement Policy Statement are available on the FTC's Web site.

One in Four Companies Plan Layoffs, But Most Are Taking Measured Approach to Economic Crisis
Published: October 23, 2008
Few companies plan to freeze salaries, reduce 401(k) matches or freeze pension plans.

As the impact of the global economic crisis takes hold, a quarter of U.S. employers expect to make layoffs in the next 12 months. However, most companies are focusing on increased employee communication and smaller cost-saving measures, according to a survey by Watson Wyatt, a global consulting firm.

According to the survey of 248 companies conducted in mid-October 2008, more than one-third are planning to increase their communication around pay (37 percent) and benefits (35 percent). And roughly one of four is planning layoffs (26 percent), hiring freezes (25 percent) or raising employee contributions to healthcare plans (25 percent). While some companies also plan other changes, including travel restrictions, restructuring and reductions in training, relatively few expect to freeze salaries, reduce 401(k) matches or freeze or close their pension plan.

Additionally, three out of 10 employers (28 percent) have reduced their merit pay budgets in the wake of recent financial developments. Of those employers that reduced their budgets, the projected raise is now 2.5 percent for 2009, down from 3.7 percent.

The survey also found that employees are making moves with their 401(k) plans. More than one-half of employers (53 percent) reported their employees are moving investments in their 401(k) plans out of equities. Also, about two in 10 employers (19 percent) reported more employees taking out plan loans, while slightly fewer (15 percent) reported an increase in hardship withdrawals.

Identity Theft Spooks Two-Thirds of Consumers
Published: October 23, 2008
Survey reveals the majority of adults worry about identity theft.

An overwhelming majority of U.S. adults (65.6 percent) are worried about identity theft or fraud, according to a new survey commissioned by TrueCredit.com and conducted by Zogby International. Even with Halloween just around the corner, respondents indicate they are significantly less scared of the holiday's frightful horror movies (9.4 percent), haunted houses (2.5 percent) and ghost stories (.8 percent) compared to the prospect of falling victim to fraud-related crimes (43 percent).

The survey also reveals that more than half of respondents (50.6 percent) either have, or know someone who has, been a victim of identity theft or fraud. Seventy-eight percent of those surveyed said they check their credit card and checking account statements regularly for signs of fraud.

Majority of Healthcare Debt is Caused by Insured Patients
Published: October 20, 2008
Study finds that insured patients are responsible for 65 percent of the healthcare industry’s uncollected debt.

Contrary to popular belief, the healthcare industry's debt problem can't be blamed solely on the uninsured, according to a just-published national study conducted by nTelagent.

nTelagent's aged trial balance (ATB) analyses of healthcare service providers across the country showed that approximately 65 percent of all bad debt is the result of insured patients, not uninsured patients. This is due to the frequent noncollection of upfront payments such as co-pays, co-insurance, deductibles and other out-of-pocket costs. The average outstanding insured patient portion ranges from $700-$1,100, depending on geography.

“The findings of the study show that, in terms of bad debt, it's not just the $10,000 bills that are causing the problem. The real issue is the many thousands of smaller uncollected balances, those in the $500 to $1,000 range, belonging to insured patients. It's the sheer volume of these instances that is causing a big problem, because payments are not being collected at the time of service,” said Earl T. Winter, chairman and CEO of nTelagent.

In the past, the primary payors in the healthcare industry were either private or public insurance organizations, and healthcare providers' systems were built specifically to bill and accept payments from these payors. Today, the industry has shifted to a retail model, as the patient-responsible portion of the bill has increased dramatically thanks to trends such as consumer-driven healthcare; higher co-pays; co-insurance and deductibles for traditional insurance plans; and the growing uninsured population.

“Healthcare service providers must adapt to the fact that the industry has moved to a retail model, with consumers taking on more and more financial responsibility for their care,” Winter said. “Determining and initiating collections from patients at the point of service is critical, as the likelihood of collecting from patients after discharge is far less. Also essential is that those patients eligible for charity care and social services assistance are identified and signed up as soon as possible.”

Shifting Consumer Delinquency Trends
Published: October 9, 2008
Economic trends may require lenders to change traditionally accepted risk strategies.

Conventional wisdom that consumers who hold a mortgage are less risky than those who don't may need to be rethought in light of the mortgage market turmoil, according to a new Experian study analyzing delinquency trends across consumer risk segments. The changing delinquency trends highlight the severe affect of the mortgage crisis on subprime consumers and its continuing permeation into the prime consumer segment.

The first quarter of 2005 has been identified as a pivotal point in time when analyzing delinquencies. Consumers with mortgages originated prior to 2005 can be said to perform closely to historical statistical patterns accepted within the industry. However, for consumers with mortgages originated January 2005 and after, the delinquency pattern begins to shift. The study identifies the shift in overall delinquencies, first mortgage delinquencies, delinquency progression and foreclosure trends.

Some of the key findings of the study include:

• One out of four subprime adjustable-rate mortgages originated after 1Q05 are at 60 days past due.
• Prime consumers with adjustable rate mortgages originated after 1Q05 have experienced a 286 percent increase in the rate of bankcard delinquency.
• Of all mortgages originated after 1Q05 that entered foreclosure, more than 35 percent are in California.

The data used for the analysis was compiled from Experian consumer credit data. The statistically valid sample was randomly selected and followed through all time periods of the analysis to provide a true progression of delinquency trend among the sample.

Settlement Agreement on Receipt Truncation Upheld
Published: October 9, 2008
FCRA amendment has no effect on settlement reached before it was enacted, according to a Pennsylvania court..

The Western District of Pennsylvania held the recent Fair Credit Reporting Act (FCRA) amendment clarifying willful noncompliance for failure to truncate credit and debit card receipts did not affect a settlement agreement reached prior to its enactment.

In this case, the consumer brought a class action suit alleging the merchant violated Section 605(g) of the FCRA by giving the consumer an electronically printed receipt which included the expiration date of the consumer's debit or credit card when the merchant had actual knowledge of the FCRA's truncation requirements. Prior to completion of the court's Alternative Dispute Resolution Program, the parties entered into a settlement agreement.

Subsequently, in June of this year, the FCRA was amended by making technical corrections to the definition of willful noncompliance in regard to violations involving the printing of a credit or debit card's expiration date on a consumer's receipt. Specifically, the amendment added the following subsection to Section 616 of the FCRA:

(d) Clarification of Willful Noncompliance—For the purposes of this section, any person who printed an expiration date on any receipt provided to a consumer cardholder at a point of sale or transaction between Dec. 4, 2004, and the date of the enactment of this subsection but otherwise complied with the requirements of Section 605(g) for such receipt shall not be in willful noncompliance with Section 605(g) by reason of printing such expiration date on the receipt.

This amendment eliminated a private cause of action based solely on the failure to truncate the expiration date for parties who printed an expiration date on any receipt between Dec. 4, 2004, and June 3, 2008, but otherwise complied with Section 605(g). The amendment applies to any action, other than an action that has become final, without regard to whether the action is brought before or after the enactment date of the amendment. The merchant in this case brought the instant action to vacate the aforementioned settlement agreement on the grounds the amendment eliminated the consumer's private cause of action.

The court stated if the amendment had been enacted prior to the execution of the settlement agreement, the court likely would have granted a motion to dismiss for failure to state a claim.

However, as the agreement had already been reached, the court held the amendment did not purport to limit the parties' ability to negotiate binding settlement agreements or judicial authority to enforce such agreements. Therefore, the court affirmed the settlement agreement, as the FCRA amendment offered no impediment its enforcement.

Consumers Turn More Conservative With Investments
Published: October 9, 2008
Although some investors are reacting to the economic downturn by changing their strategy, the majority are maintaining their approach..

The current state of downbeat financial news is leading many consumers to shift toward a more conservative investment strategy, according to recent survey data, though a majority claims to be sticking with the same investing approach despite market conditions.

When asked how a down market like the current one affects them, 30 percent of U.S. consumers said they have become "more conservative" in how they think about and make investment choices. In contrast, only 7 percent of survey participants said they have become "more aggressive," while a 63 percent majority reports no change in approach.

Survey interviews were conducted the week preceding the bankruptcy of Lehman Brothers and the rescue of insurance giant AIG.

The proportion of consumers who are becoming more conservative in their investment strategy does not vary much across demographic groups. However, consumers now claiming a more aggressive investment approach are more likely to be from affluent households ($100,000-plus income) and more apt to be men than women. Not surprisingly, consumers nearer retirement (age 55 and up) are much less likely to be moving toward a more aggressive investment posture.

The survey was conducted by Morpace, a marketing research firm serving financial services firms as well as companies in automotive, healthcare, retail and technology sectors.