Item 4MM E M O R A N D U M
October 1, 2008
To:
Honorable Mayor and Members of the City Council
From:
Sharen Jackson, Director of Finance
Subject: Identity Theft Prevention Program
Action
Requested:
Approval of Identity Theft Prevention Program
Background
Information:
The Federal Trade Commission (FTC), the federal bank
regulatory agencies, and the National Credit Union
Administration (NCUA) have issued regulations (the Red
Flags Rules) requiring financial institutions and creditors to
develop and implement written identity theft prevention
programs, as part of the Fair and Accurate Credit
Transactions (FACT) Act of 2003. The programs must be in
place by November 1, 2008, and must provide for the
identification, detection, and response to patterns, practices,
or specific activities-known as “red flags” that could indicate
identity theft.
The Red Flags Rules apply to “financial institutions” and
“creditors” with “covered accounts.”
A creditor is any entity that regularly extends, renews,
or continues credit; any entity that regularly arranges
for the extension, renewal, or continuation of credit; or
any assignee of an original creditor who is involved in
the decision to extend, renew, or continue credit.
Accepting as a form of payment does not in and of
itself make an entity a creditor. Creditors include
finance companies, automobile dealers, mortgage
brokers,utility companies, and telecommunications
companies. Where government entities defer
payment for goods or services, are considered
creditors.
A covered account is an account used mostly for
personal, family, or household purposes, and that
involves multiple payments or transactions. Cover
accounts include credit card accounts, mortgage
loans, automobile loans, margin accounts, cell phone
accounts,utility accounts, checking accounts, and
savings account.
Honorable Mayor and City Council
Page 2 of 2
Under the Red Flags, financial institutions and creditors must
develop a written program that identifies and detects the
relevant warning signs or “red flags” of identity theft. These
may include, for example, unusual account activity, fraud
alerts on a consumer report, or attempted use of suspicious
account application documents. The program must also
describe appropriate responses that would prevent and
mitigate the crime and detail a plan to update the program.
The program must be managed by the Board of Directors or
senior employees of the financial institution or creditor,
include appropriate staff training, and provide for oversight of
any service providers.
Financial
Considerations:
N/A
Citizen Input/
Board Review:
N/A
Legal Review:
Alternatives:
City Council may decide to approve or modify this policy.
Supporting
Documents:
Identity Theft Prevention Program
Staff
Recommendation:
Staff recommends approval
Identity Theft Prevention Program
Effective beginning November 1, 2008
I.PROGRAM ADOPTION
The City of Southlake ("Utility") developed this Identity Theft Prevention Program
("Program") pursuant to the Federal Trade Commission's Red Flags Rule (“Rule”), which
implements Section 114 of the Fair and Accurate Credit Transactions Act of 2003. 16 C. F. R. §
681.2. This Program was developed with oversight and approval of the City Council. After
consideration of the size and complexity of the Utility's operations and account systems, and the
nature and scope of the Utility's activities, the City Council determined that this Program was
appropriate for the City of Southlake, and therefore approved this Program on _____________,
2008.
II.PROGRAM PURPOSE AND DEFINITIONS
A.Fulfilling requirements of the Red Flags Rule
Under the Red Flag Rule, every financial institution and creditor is required to establish an
“Identity Theft Prevention Program” tailored to its size, complexity and the nature of its
operation. Each program must contain reasonable policies and procedures to:
1.Identify relevant Red Flags for new and existing covered accounts and incorporate those
Red Flags into the Program;
2.Detect Red Flags that have been incorporated into the Program;
3.Respond appropriately to any Red Flags that are detected to prevent and mitigate Identity
Theft; and
4.Ensure the Program is updated periodically, to reflect changes in risks to customers or to
the safety and soundness of the creditor from Identity Theft.
B.Red Flags Rule definitions used in this Program
The Red Flags Rule defines “Identity Theft” as “fraud committed using the identifying
information of another person” and a “Red Flag” as a pattern, practice, or specific activity that
indicates the possible existence of Identity Theft.
According to the Rule, a municipal utility is a creditor subject to the Rule requirements. The
Rule defines creditors “to include finance companies, automobile dealers, mortgage brokers,
utility companies, and telecommunications companies. Where non-profit and government
entities defer payment for goods or services, they, too, are to be considered creditors.”
All the Utility’s accounts that are individual utility service accounts held by customers of the
utility whether residential, commercial or industrial are covered by the Rule. Under the Rule, a
“covered account” is:
1.Any account the Utility offers or maintains primarily for personal, family or household
purposes, that involves multiple payments or transactions; and
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2.Any other account the Utility offers or maintains for which there is a reasonably
foreseeable risk to customers or to the safety and soundness of the Utility from Identity
Theft.
“Identifying information” is defined under the Rule as “any name or number that may be used,
alone or in conjunction with any other information, to identify a specific person,” including:
name, address, telephone number, social security number, date of birth, government issued
driver’s license or identification number, alien registration number, government passport
number, employer or taxpayer identification number, unique electronic identification number,
computer’s Internet Protocol address, or routing code.
III.IDENTIFICATION OF RED FLAGS.
In order to identify relevant Red Flags, the Utility considers the types of accounts that it
offers and maintains, the methods it provides to open its accounts, the methods it provides to
access its accounts, and its previous experiences with Identity Theft. The Utility identifies the
following red flags, in each of the listed categories:
A. Notifications and Warnings From Credit Reporting Agencies
Red Flags
1) Report of fraud accompanying a credit report;
2) Notice or report from a credit agency of a credit freeze on a customer or applicant;
3) Notice or report from a credit agency of an active duty alert for an applicant; and
4) Indication from a credit report of activity that is inconsistent with a customer’s usual pattern
or activity.
B.Suspicious Documents
Red Flags
1.Identification document or card that appears to be forged, altered or inauthentic;
2.Identification document or card on which a person’s photograph or physical description is
not consistent with the person presenting the document;
3.Other document with information that is not consistent with existing customer
information (such as if a person’s signature on a check appears forged); and
4.Application for service that appears to have been altered or forged.
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C.Suspicious Personal Identifying Information
Red Flags
1.Identifying information presented that is inconsistent with other information the customer
provides (example: inconsistent birth dates);
2.Identifying information presented that is inconsistent with other sources of information
(for instance, an address not matching an address on a credit report);
3.Identifying information presented that is the same as information shown on other
applications that were found to be fraudulent;
4.Identifying information presented that is consistent with fraudulent activity (such as an
invalid phone number or fictitious billing address);
5.Social security number presented that is the same as one given by another customer;
6.An address or phone number presented that is the same as that of another person;
7.A person fails to provide complete personal identifying information on an application
when reminded to do so (however, by law social security numbers must not be required);
and
8.A person’s identifying information is not consistent with the information that is on file
for the customer.
D.Suspicious Account Activity or Unusual Use of Account
Red Flags
1.Change of address for an account followed by a request to change the account holder's
name;
2.Payments stop on an otherwise consistently up-to-date account;
3.Account used in a way that is not consistent with prior use (example: very high activity);
4.Mail sent to the account holder is repeatedly returned as undeliverable;
5.Notice to the Utility that a customer is not receiving mail sent by the Utility;
6.Notice to the Utility that an account has unauthorized activity;
7.Breach in the Utility's computer system security; and
8.Unauthorized access to or use of customer account information.
E.Alerts from Others
Red Flag
1.Notice to the Utility from a customer, identity theft victim, law enforcement or other
person that it has opened or is maintaining a fraudulent account for a person engaged in
Identity Theft.
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IV.DETECTING RED FLAGS.
A.New Accounts
In order to detect any of the Red Flags identified above associated with the opening of a
new account
, Utility personnel will take the following steps to obtain and verify the identity of
the person opening the account:
Detect
1.Require certain identifying information such as name, date of birth, residential or
business address, principal place of business for an entity, driver's license or other
identification;
2.Verify the customer's identity (for instance, review a driver's license or other
identification card);
3.Review documentation showing the existence of a business entity; and
4.Independently contact the customer.
B.Existing Accounts
existing account
In order to detect any of the Red Flags identified above for an , Utility
personnel will take the following steps to monitor transactions with an account:
Detect
1.Verify the identification of customers if they request information (in person, via
telephone, via facsimile, via email);
2.Verify the validity of requests to change billing addresses; and
3.Verify changes in banking information given for billing and payment purposes.
V.PREVENTING AND MITIGATING IDENTITY THEFT
In the event Utility personnel detect any identified Red Flags, such personnel shall take
one or more of the following steps, depending on the degree of risk posed by the Red Flag:
Prevent and Mitigate
1.Continue to monitor an account for evidence of Identity Theft;
2.Contact the customer;
3.Change any passwords or other security devices that permit access to accounts;
4.Not open a new account;
5.Close an existing account;
6.Reopen an account with a new number;
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7.Notify the Program Administrator for determination of the appropriate step(s) to take;
8.Notify law enforcement; or
9.Determine that no response is warranted under the particular circumstances.
Protect customer identifying information
In order to further prevent the likelihood of identity theft occurring with respect to Utility
accounts, the Utility will take the following steps with respect to its internal operating procedures
to protect customer identifying information:
1.Ensure that its website is secure or provide clear notice that the website is not secure;
2.Ensure complete and secure destruction of paper documents and computer files
containing customer information;
3.Ensure that office computers are password protected and that computer screens lock after
a set period of time;
4.Keep offices clear of papers containing customer information;
5.Request only the last 4 digits of social security numbers (if any);
6.Ensure computer virus protection is up to date; and
7.Require and keep only the customer information that is necessary for utility purposes.
VI.PROGRAM UPDATES
This Program will be periodically reviewed and updated to reflect changes in risks to
customers and the soundness of the Utility from Identity Theft. At least annually, the Director of
Finance “Program Administrator/Chief Security Officer” will consider the Utility's experiences
with Identity Theft situation, changes in Identity Theft methods, changes in Identity Theft
detection and prevention methods, changes in types of accounts the Utility maintains and
changes in the Utility's business arrangements with other entities. After considering these
factors, the Program Administrator will determine whether changes to the Program, including the
listing of Red Flags, are warranted. If warranted, the Program Administrator will update the
Program and present the City Council with his or her recommended changes and the City
Council will make a determination of whether to accept, modify or reject those changes to the
Program.
VII. PROGRAM ADMINISTRATION
.
A. Oversight
Responsibility for developing, implementing and updating this Program lies with an
Identity Theft Committee for the Utility. The Committee is headed by a Program Administrator
or his or her appointee. Two or more other individuals appointed by the Program Administrator
comprise the remainder of the committee membership. The Program Administrator will be
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responsible for the Program administration, for ensuring appropriate training of Utility staff on
the Program, for reviewing any staff reports regarding the detection of Red Flags and the steps
for preventing and mitigating Identity Theft, determining which steps of prevention and
mitigation should be taken in particular circumstances and considering periodic changes to the
Program.
B. Staff Training and Reports
Utility staff responsible for implementing the Program shall be trained either by or under
the direction of the Program Administrator in the detection of Red Flags, and the responsive
steps to be taken when a Red Flag is detected.
C. Service Provider Arrangements
In the event the Utility engages a service provider to perform an activity in connection
with one or more accounts, the Utility will take the following steps to ensure the service provider
performs its activity in accordance with reasonable policies and procedures designed to detect,
prevent, and mitigate the risk of Identity Theft.
1.Require, by contract, that service providers have such policies and procedures in place;
and
2.Require, by contract, that service providers review the Utility's Program and report any
Red Flags to the Program Administrator.
D. Specific Program Elements and Confidentiality
For the effectiveness of Identity Theft prevention Programs, the Red Flag Rule envisions
a degree of confidentiality regarding the Utility’s specific practices relating to Identity Theft
detection, prevention and mitigation. Therefore, under this Program, knowledge of such specific
practices are to be limited to the Identity Theft Committee and those employees who need to
know them for purposes of preventing Identity Theft. Because this Program is to be adopted by
a public body and thus publicly available, it would be counterproductive to list these specific
practices here. Therefore, only the Program’s general red flag detection, implementation and
prevention practices are listed in this document.
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