Red Flags Compliance BANKERS ADVISORY 1 Red Flags Compliance Fair & Accurate Credit Transactions Act (FACTA) Identity Theft Prevention

Red Flags Compliance BANKERS ADVISORY 2 Compliance rules are effective November 1, 2008 Implemented by the Federal Trade Commission (FTC) in compliance to the Fair and Accurate Credit Transactions Act (FACTA) Regulation, Section 114 Rules apply to banks, thrifts, credit unions, finance companies, automobile dealers, mortgage companies – including brokers All businesses must have a comprehensive system in place that serves to detect, prevent and mitigate identity theft. Red Flag Facts

Red Flags Compliance BANKERS ADVISORY 3 Every business must have a written policy The policy must be approved by the companys board of directors or senior executive committee who shall direct a designated senior management employee to oversee the program The designated person must implement the program, train staff, oversee audits, complete annual reports and monitor compliance to all persons who have access to covered accounts (new or existing borrowers) The plan must reflect the size, structure and business model of the institution and updated periodically Red Flag Program

Red Flags Compliance BANKERS ADVISORY 4 The plan must identify and list all possible red flags Red flags apply to covered accounts such as: New or existing customer information accessed by your company New or existing customer information accessed by 3 rd parties The Federal Trade Commission has identified 26 Red Flags to be used as a guide for drafting an internal policy The FTC list is not be used as a checklist and lenders must list sources and examples that are specific to their business model Red Flag List

Red Flags Compliance BANKERS ADVISORY 5 Red flags are comprised of various sources: –Suspicious documents furnished by the consumer –Suspicious documents furnished by transaction parties –Suspicious documents furnished by asset or income sources –Alerts, notifications or warnings from a consumer reporting agency –Alerts from an SSN validation check –Alerts from a Factual ID or Fraud-Check –Notices received from outside persons or entities in connection to the covered account being serviced by the institution Red Flag Sources

Red Flags Compliance BANKERS ADVISORY 6 Ordering vendor reports, such as SSN checks or Factual ID are not mandatory … but help support red flag detection Vendor reports can help a lender save time and also resolve false positives by clearing unwarranted discrepancies If a vendor report indicates any type of Alert the lender must respond to that alert Often red flags are detected by manual review of various file documents or other sources, such as… Red Flag Detection GoogleGoogleGoogleGoogle

Red Flags Compliance BANKERS ADVISORY 7 Red Flag Detection Source: Credit Report - SSN Check 1.Look for exact or partial match on borrower name borrower address 2.Note Date of Birth (DOB) & compare with 1003 application 3.Note Issue Date & Validation 4.Note Deceased Flag or FKA / AKA (formerly known as, also known as) 5.Note Address History & compare with 1003 application NAME MATCH? ADDRESS MATCH? SSN VALIDATED ? Memo to File Compliance Check Completed

Red Flags Compliance BANKERS ADVISORY 8 Red Flag Detection Source: Factual ID – Red Flag Response 1.Red Flag Response is completed by: Requesting documents from the borrower or third party, such as property seller Ordering a factual report from a vendor 2.When ordering the Factual ID, the lender may request a specific action, such as Verify Social Security Number Obtain confirmation from SS Administration Validate borrower occupancy Confim telephone is land-line or mobile phone 3.Document file memorandum red flag detection and response completed satisfactory. ACTIONS ADDRESS VARIANCES? OCCUPANCY ? CLEAR TO CLOSE

Red Flags Compliance BANKERS ADVISORY 9 Once a Red Flag has been detected, lenders must assess the level of risk and evaluate the exposure to identity theft to either the lender or consumer Examples of responses are: Ask borrower to submit a written explanation Ask borrower to submit supporting documentation to clear the discrepancy Request borrowers employer to furnish supplementary payroll records Complete an internal red flag checklist that documents the detection and response, place in borrower folder with copy to compliance officer As appropriate, and in accordance with the established procedure: –Notify Law Enforcement Agency –Complete a Suspicious Activity Report (SAR) –Notify parties in connection with identity theft Red Flag Response

Red Flags Compliance BANKERS ADVISORY 10 Bankers Advisory, Inc. has developed a comprehensive Red Flag Toolkit that covers all steps and activities required by law. The toolkit includes three components, which may be purchased separately: Red Flags Compliance Manual Summary of FACTA Regulation and requirements related to mortgage lending Job Description for designated program manager Step by step plan for all required functions for monitoring & reporting List of red flags & sample policy guide Camera-ready forms & worksheets Customized Policy Guide Customized for lender, appropriate to business model & institution type Addresses every internal department or facility with access to consumer information Addresses every external entity & 3 rd party service providers Procedures for vendor orders, detection, incident-based response & mitigation Directives for SAR filing and reporting Delivered on CD Rom in editable MS Word document Red Flag Toolkit

Red Flags Compliance BANKERS ADVISORY 11 Power Point Training Program Summary of FACTA Red Flag rules & requirements Description of red flag categories and explanation of the Red Flag List Illustrations & examples of red flags found on mortgage documentation Illustrations & examples of red flags detected on consumer credit reports Effective use of SSN validation, Factual ID and other investigative tools Options & directives for response, mitigation and SAR reporting Bankers Advisory, Inc. 375 Concord Avenue, Belmont MA Tel Fax For further information, contact Anna DeSimone Red Flag Toolkit