Loan Officer Practice Exam

The Red Flags Rule requires businesses to develop an identity theft prevention program under which federal law?

1. Fair and Accurate Credit Transactions Act

2. Dodd-Frank Act

3. Bank Secrecy/Anti-Money Laundering Act

4. Gramm-Leach-Bliley Act

The correct answer is: Fair and Accurate Credit Transactions Act

The answer is rooted in the Fair and Accurate Credit Transactions Act (FACTA), which was enacted in 2003 as an amendment to the Fair Credit Reporting Act (FCRA). The Red Flags Rule, established under FACTA, mandates that certain businesses and organizations must implement an identity theft prevention program to address and mitigate risks of identity theft. This requirement is designed to help protect consumers by ensuring that businesses actively monitor warning signs—known as "red flags"—that could indicate potential identity theft. The implementation of such programs is essential as it holds businesses accountable not only for the protection of consumer data but also for the proactive steps towards identifying and responding to indicators of identity theft. Other acts mentioned do not specifically relate to the requirements laid out in the Red Flags Rule. The Dodd-Frank Act focuses more broadly on financial regulation reforms; the Bank Secrecy Act pertains to anti-money laundering measures; and the Gramm-Leach-Bliley Act deals with the protection of consumers' personal financial information. While all are important pieces of legislation in the financial context, only FACTA directly establishes the framework for identity theft prevention programs through the Red Flags Rule.