What is a Financial Institution or Creditor?

When I speak to business owners about the new Red Flags Rule, (FACTA), I am often confronted by a common response. "We are not a financial institution." I hear that from law firms, accountancys, stock brokerages, and many other types of businesses that by the definitions below are financial institutions.

In an attempt to clarify once and for all what the Federal Trade Commission considers to be a “creditor” or a “financial institution” the links below will hopefully provide a definitive explanation.

The FTC recently clarified that “creditors” covered under the Red Flags Rule are as defined by the Equal Credit Opportunity Act (ECOA). This broad ECOA definition of creditor includes any business that bills or invoices customers after products are delivered or services are rendered.

The ECOA definition includes many small businesses and professionals such as contractors, consultants, lawyers, doctors, retailers and a spectrum of clinics and practices in the health care industry including those that submit medical insurance claims on behalf of patients.

From my business experience, the ECOA definition covers most every business and many public and volunteer sector organizations too, because at least on occasion, most of them bill or invoice for goods or services after they are delivered. An FTC staff attorney said that if a business bills more than once every two years, they should consider the business covered.