BANKERS ADVISORY1 Red Flags Compliance

Red Flags Compliance

Fair & Accurate Credit Transactions Act (FACTA)

Identity Theft Prevention

BANKERS ADVISORY2 Red Flags Compliance

• 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.

Red Flag Facts

BANKERS ADVISORY3 Red Flags Compliance

• Every business must have a written policy

• The policy must be approved by the company’s 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

Red Flag Program

BANKERS ADVISORY4 Red Flags Compliance

• 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

Red Flag List

BANKERS ADVISORY5 Red Flags Compliance

• 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

Red Flag Sources

BANKERS ADVISORY6 Red Flags Compliance

• 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…

Red Flag Detection

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BANKERS ADVISORY7 Red Flags Compliance

Red Flag Detection

Source: Credit Report - SSN Check

1. Look for exact or partial match on

borrower name

borrower address

2. Note Date of Birth (DOB) & compare with 1003 application

3. Note Issue Date & Validation

4. Note Deceased Flag or FKA / AKA (formerly known as, also known as)

5. Note Address History & compare with 1003 application

NAME MATCH?

ADDRESS MATCH?

SSN VALIDATED ?

Memo to File

Compliance Check Completed

BANKERS ADVISORY8 Red Flags Compliance

Red Flag Detection

Source: Factual ID – Red Flag Response

1. 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

2. 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

3. Document file memorandum red flag detection and response completed satisfactory.

ACTIONS

ADDRESS VARIANCES?

OCCUPANCY ?

CLEAR TO CLOSECLEAR TO CLOSE

BANKERS ADVISORY9 Red Flags Compliance

• 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 borrower’s 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

Red Flag Response

BANKERS ADVISORY10 Red Flags Compliance

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

Red Flag Toolkit

BANKERS ADVISORY11 Red Flags Compliance

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 02478Tel 617-489-2008 Fax 617-489-2208

For further information, contact Anna DeSimone

anna@bankersadvisory.com

Red Flag Toolkit