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Municipal Utilities and the Red Flag Program Clarification Act of 2010

February 9, 2011

As previously posted on this blog, the Federal Trade Commission (FTC) delayed enforcement of the Red Flag Rules until December 31, 2010, in large part due to extensive litigation and controversy regarding the scope of the Rules.  According to the FTC’s press release, during the delay period, Congress was scheduled to consider legislation that would alter the scope of entities covered by the Rule, and more specifically the definition of a “creditor.”

At the end of December 2010, Congress passed the Red Flag Program Clarification Act of 2010, which as expected, changed the definition of “creditor.”  Though Congress redefined the term creditor, it did not clearly include or exclude specific types of entities, such as utilities, from the purview of the Red Flags Rule.  In short, it is not clear whether municipal utilities are still required to comply with the Red Flags Rule.  However, until the FTC revises its guidance, it is best to begin enforcing the Identity Theft Prevention Program that your municipal utility adopted in anticipation of the December 31st deadline.

Before the Clarification Act was enacted, only “creditors” and “financial institutions” with one or more “covered accounts” were required to develop and implement a written Identity Theft Prevention Program.  A “creditor” was defined as an entity that regularly extended, renewed, or continued credit.  A “creditor” included businesses or organizations that regularly deferred payment for goods or services or provided goods or services and billed customers later.  Municipal utilities were considered “creditors” under this Rule both because utilities defer payment for services and because the FTC’s regulations specifically referenced utilities as an example of a “creditor.”

The Clarification Act, however, changed the definition of a “creditor.”  Now, a “creditor” is defined as any person who regularly extends, renews, or continues credit, and who regularly and in the ordinary course of business:

(1) obtains or uses consumer reports, directly or indirectly, in connection with a credit transaction; or

(2) furnishes information to consumer reporting agencies in connection with a credit transaction; or

(3) advances funds to or on behalf of a person, based on an obligation of the person to repay the funds or repayable from specific property pledged by or on behalf of the person.

Finally, Congress stated that the term “creditor” includes any other type of creditor, as the term was previously defined prior to the Clarification Act, if the Federal banking agencies, the National Credit Union Administration, or the Federal Trade Commission deem that the entity continues to be a “creditor” by regulation.  In order to enact such a regulation, the Federal banking agencies, the National Credit Union Administration, and the Federal Trade Commission must make a determination that such creditor offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft. 

Based upon the Congressional Record in both the House and Senate, it appears that Congress wanted to limit the scope of the Red Flags Rule to those creditors that use consumer reports, furnish information to consumer reporting agencies, and to those creditors that loan money.  However, the Act specifically gives some discretion to the FTC and other regulatory agencies to include creditors which offer or maintain accounts that are subject to a reasonably foreseeable risk of identity theft.  To date, the FTC has not updated its regulations to include any other “creditors” within the scope of the Act.

From this new definition of “creditor,” a few basic principles can be distilled:

(1) Municipal utilities met the “old” definition of a creditor, so if your utility regularly obtains or uses consumer reports or if it provides information to consumer reporting agencies, your utility is still subject to the Rules.  Because the definition of a “creditor” includes the indirect use of consumer reports, your utility is probably still subject to the Rules, for example, if it contracts with collection agencies that obtain or use consumer reports or that report delinquencies to a consumer reporting agency.

(2) If your utility (and any collection agencies you contract with) does not obtain or use consumer reports or furnish information to consumer reporting agencies, your utility is no longer covered by the Red Flag Rules, except in the rare circumstance that you loan funds to customers.  Some utilities may provide conservation loans, septic loans, or other utility-related loans to customers, in which case, your utility would be a “creditor” under subparagraph (3).

(3) Even if your utility does not obtain or use consumer reports, furnish information to consumer reporting agencies, or provide loans to customers, the FTC or another federal regulatory agency may enact regulations to include utilities within the scope of the Red Flag Rules in the near future.  The FTC cited utility accounts as sources of identity theft in its previous regulations, and therefore, it seems likely that the FTC will include utilities within the scope of the Red Flag Rules in its revised regulations.  Because of this likelihood, it may be wise to continue to implement your Identity Theft Prevention Program in the interim.

(4) Remember that the Clarification Act has not changed the definition of a “covered account.”  Even if your utility continues to be a “creditor” under the new definition, only those creditors which maintain “covered accounts” must develop and implement a written Identity Theft Prevention Program.  “Covered accounts” are those which are offered or maintained by a creditor “primarily for personal, family, or household purposes, that involves or is designed to permit multiple payments or transactions” or “for which there is a reasonably foreseeable risk to customers” of identity theft.

A link to the text of the Red Flag Program Clarification Act is provided here.

A link to the FTC’s webpage regarding Red Flag Rules is provided here.

If you have further questions regarding the Clarification Act or need assistance in drafting your Identity Theft Prevention Program please contact Kristin Eick at or 206-447-7000.


The Right to be Obnoxious

May 5, 2010

By Phil Olbrechts

Ogden Murphy Wallace, PLLC

Published in CityVision Magazine, March/April 2010

Does the First Amendment and the Open Public Meetings Act (“OPMA”) protect obnoxious people?  The short answer is that they do protect obnoxious people, but not really obnoxious people.   That’s why obnoxious people are free to call you short-sighted and over your head at City Council meetings, but they can’t make disparaging remarks about the size of your nose or your choice of wardrobe.  So as you pack your Council chambers to overflowing with your stellar public engagement program, here are the boundaries on how “engaged” your audience can truly be:

1.  The Right to Speak.  A common misperception is that everyone can talk at city council meetings.  Not true.  People have a right to attend, but they don’t have a right to speak unless you invite them to speak (or there’s a mandatory public hearing).  The citizen comment period portion of the agenda is the invitation that most city councils do extend to their citizens.  If you put that on the agenda, the public can say their peace on anything related to City business.  It’s a time honored tradition in this Country to denigrate and humiliate those who volunteer to serve their communities,  so if you let the public speak they get to make fun of you.  But the comments have to be related to City business, so commenting on the size of your nose or your wardrobe doesn’t have to be tolerated.  If you don’t want people to talk, just keep the citizen comment period off the agenda.  Then you’re free to toss out anyone who tries to say something during your meeting, and they in turn can toss you out at the next election. 

2.  The Right to Attend.  Obnoxious people have a right to attend City meetings, really obnoxious people do not.  The OPMA gives every citizen the right to attend Council meetings and any other meeting held by a “governing body,” which includes all decision- and policy-making bodies such as planning commissions, civil service commissions and parks boards.  However, the OPMA recognizes that people disrupting meetings can be “removed.”  Disrupting a lawful public assembly is not protected by the First Amendment and constitutes disorderly conduct, a crime.  Police can haul people away for committing crimes, but you cannot.   So if that citizen making fun of your nose makes loud honking noises every time you speak and simply will not stop, call in the police.  Just be very sure that the really obnoxious person is being disorderly.  Hauling people away for the wrong reasons can lead to nasty lawsuits involving assault, false imprisonment, federal civil rights violations, and intentional or negligent infliction of emotional distress.  It also creates a situation where the police are put under pressure from their civilian superiors to take action against their own better judgment.  Calling in the troops should always be a last resort.

3.  The Right to Hurt Your Feelings.  The public does have the right to attack your skills and accomplishments (or lack thereof) as a public servant.  They can call you unqualified and short-sighted, but any examples they use better be accurate.  Elected and appointed officials are generally fair game for any opinions and nasty comments, so long as any factual allegations are not made in reckless disregard of the truth (called defamation in this state, slander in others).  For example, it’s fair game for a citizen to comment that the quality of your contribution to council meetings leads him to believe that you must be drunk.  If said in a facetious manner, this is just opinion.  However, if the citizen states as a matter of fact that you show up at council meetings drunk and it turns out later that his only evidence is the jewels of stupidity that drop from your mouth on a regular basis, that’s probably defamation.  Defamatory comments are not protected by the First Amendment, so you can stop them from being made at a Council meeting.  The presiding officer (the Mayor in Council meetings) should simply ask “what evidence do you have that Councilmember Smith appears at Council meetings drunk?”  If no intelligible answer is forthcoming, the officer can shut that line of discussion down. If you are the target of defamatory comments, you have a cause of action for monetary damages against the defamer.  Keep in mind, however, that you need to prove some damage in order to reap some compensation.  If nobody takes the defamer seriously (maybe he was the one drunk), damages may be minimal.

Although citizens have a right to be offensive, they can’t be really offensive.  There are some limits to personal attacks, what the courts call “fighting words.”  “Fighting words” are those which by their very utterance inflict injury or tend to incite an immediate breach of the peace.  The courts have not shown much consistency in what constitutes a “fighting word,” so it’s best to err on the side of caution when deciding whether to stop a personal attack on that basis.  This is why facetiously exclaiming that a council member must be drunk should be tolerated.  Personal insults should be directed specifically at an individual and highly inflammatory to be excluded.  “You, sir, are a LIAR and a scoundrel” may qualify as fighting words (even though it’s the best entertainment all night), although it could get through rephrased as “I have trouble believing you, given the deliberate inaccuracies of your prior comments.”   Comments like “I’ve taped a bomb to the bottom of your chairs” would qualify as something inciting an immediate breach of the peace, but are highly appreciated if true. 


Conclusion:  I have liberally used the term “really” in this article to emphasize that First Amendment rights are often a matter of degree, and a subjective one at that.  A little common sense and a respect for the right of citizens to express their opinions will be enough to guide you through most situations involving obnoxious people.  Always err on the side of letting comments come in. Only forcibly remove a person when that person is making it very difficult to hold your meeting.  Following these basic guidelines will keep you out of trouble and honor the First Amendment as intended by our constitution.

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