Sep 01, 2011
CPAs and other professional service providers will be exempt from the Federal Trade Commission’s (FTC) red flags mandate if President Obama signs the “Red Flag Program Clarification Act of 2010” (S. 3987) recently passed in the U.S. House and Senate, or if the President allows the legislation to become law without his signature.
The U.S. Senate clarified the definition of “creditor” so that it does NOT include CPAs and other professionals, thanks in large part to lobbying efforts from The Ohio Society, the AICPA and many other state CPA societies.
Sen. Chris Dodd (D-CT) added language amending the “Fair Credit Reporting Act” which states service providers “will no longer be classified as 'creditors' for the purposes of the red flags rule just because they do not receive payment in full from their clients at the time they provide their services, when they don't offer or maintain accounts that pose a reasonably foreseeable risk of identity theft.” This move reinforces Congress’s intent that licensed professionals, including CPAs, were never the target of the original law or subsequent rule.
Without the exemption, accounting firms were likely to become subject to the FTC’s red flags rule, since interpretations from the FTC to other professional organizations (lawyers, physicians) indicated that a “creditor” includes “any entity that defers payments, even in the normal course of a traditional billing process.”
This legislative victory primarily benefits CPAs in public practice. Other companies and associations are still covered by the FTC’s red flags rule, which is expected to go into effect on Dec. 31, 2010.