New FTC Red Flag Rule Will Apply To Some Community Associations

The Federal Trade Commission has adopted new regulations, called the “Red Flag” rules, that are intended to provide protection against consumer identity fraud, which can be found at 16 C.F.R. Part 681. These rules will go into effect on June 1, 2010 and may apply to some community associations.

The Red Flag rules provide that an entity that is engaged in providing installment plans where the payment for goods and services is delayed must comply with FTC requirements. It does not appear that the FTC drafted the Red Flag rules with the specific intent to include community associations, but given the broad language used in the new regulations they may apply to some. Associations that accept installment payments for assessments/dues of any kind and have a “reasonable” risk of identify theft (such as larger associations, association with a number of employees with access to association members’ financial records, use of management companies, and frequency of financial transactions with residents) are most likely to fall under the purview of the Red Flag rules.

In order to protect an association from potential FTC enforcement, it would be wise to consider putting into place some sort of program that complies with the Red Flag rules’ requirements. Such a program would need to include “reasonable” policies and procedures for identifying relevant “red flags” for identify theft, to detect red flags on an ongoing basis, to prevent and mitigate identity theft, and to provide for periodic updates to the program.

More information on the Red Flags rule can be found on the FTC website, or you can contact us to discuss whether your association might need to comply with the rule and what kind of steps your association can take, cost-effectively, to comply.

By: Amy H. Bray, a partner in our Commercial Real Estate Department