Red Flag Rule

I read the article and followed that to the link from the legal office that they based their article on. Once again it is amazing to me what comes from people in the legal profession.

The basis that the law firm used was “directly or indirectly hold a ‘transaction’ account belonging to a consumer.”

Now this is of particular interest because on the FTC's site for the Red Flag Rule FAQ I find part of this with the following explanation:

...any other entity that directly or indirectly holds a “transaction account” belonging to a consumer.2“Transaction accounts” are deposits or accounts from which a consumer can make payments or transfers to third parties. ...
(http://www.ftc.gov/bcp/edu/microsites/redflagsrule/faqs.shtm#B)

Now I can assure you that my HOA does not allow one to make payments or transfers to third parties. Nor do we amount to a creditor as we don't offer a service ahead of payment. In fact, we expect payment ahead of the time frame for which the dues cover. This is pretty typical from my understanding.

I don't believe HOAs fall under the jurisdiction of this rule.

Thanks Kirk and Mary.

I assume from the lack of direct comments, no one serving as a board member has been advised by their attorneys that this is (or is not) an issue.

I wouldn't be so quick to dismiss the notion that the Red Flag Policy applies to HOA's and other common interest property associations. Many local governments have adopted Red Flag policies, presumably being creditors from the extension of credit with respect to payment of taxes. Are HOA's that different?

FWIW, the FTC has even indicated that the Red Flags Rule applies to lawyers, and the American Bar Association has filed suit to enjoin enforcement. See http://tinyurl.com/ydbocpa for a copy of the complaint.

Also FWIW, I raised this with our board's attorney - they hadn't heard of the Rule (and hadn't considered whether it applied to HOA's).

I agree that it should not apply to HOA's, but I think that may be wishful thinking.

Michele,

I wasn't suggesting that HOA's are governmental entities or that they "tax". I was suggesting the possibility that HOA's are creditors since they extend credit to their or members, just as local governments extend credit to taxpayers. Given the nature of HOA's, and local governments, being a creditor is unavoidable - by the FTC's definition, and pronouncement that it be applied broadly. Even if dues are assessed in advance.

Michele,

Like I said, I was suggesting a possibility. I have not concluded that HOA's are creditors (as defined by the FTC in the Red Flags Rule) and am not trying to shove anything into a hole.

My HOA must be unique in that we do have some delinquent accounts. Assessments were due by Jan 1 and a dozen or so (of 582) have not yet been paid (even a few from last year). Seems to me that we may be a "creditor" under the FTC definition.

Again, I am not stating that we are a "creditor" or are definitely subject to the Rule. Just raising the possibility.

And I am not the only one raising that possibility - the law firm whose article I mentioned in my OP concluded that it applies to HOA's.

I think there are three areas that associations should look at with respect to these rules: 1) If their attorney or a third party is handling collections (a third-party debt collector who regularly renegotiates the terms of a debt would be a creditor under the Rule) 2) If their management company provides for automatic withdrawal(ACH)and collects financial information (any other entity that directly or indirectly holds a “transaction account” belonging to a consumer. “Transaction accounts” are deposits or accounts from which a consumer can make payments or transfers to third parties); and 3) if their assessment is an annual assessment, payable in installments (The Rule defines that term (financial institution)as either: 1) consumer accounts designed to permit multiple payments or transactions.....). This last one is very iffy and probably won't end up being applcable under the rule, but we should keep an eye on it.

Joe

Overall I agree that most HOAs or Condo Associations are probably not impacted directly by this rule. However, Joe has a good point about a Management Company. While our Management company does not have SSNs in their possession, nor do we take credit cards or initiate ACH entries, they do keep copies of the checks used to pay monthly dues!

Following is a link to an article posted on the CAI web site concerning the Red Flag Rule:

http://www.caionline.org/govt/news/Political HeadsUp Public Document Library/FTC Red Flag Rule Head's Up.pdf

Mary it worked for me. Try this link.

There are two requirements before you need to comply with the red flag rule. First, you need to be a financial inistitution or a creditor. Second, if you qualify as a creditor or a financial institution, you need to have covered accounts as well. The cited legal blog posting focuses on the covered accounts but not whether or not the community association is a creditor.

An HOA would be a creditor under the rule if it regularly defers payment for goods or services. The FTC's guidance on what "regularly" means is more than isolated.

While deliquent assessments likely does not qualify as deferring payment, HOAs that perform any amount of submetering of one or more utilities to one or more properties likely qualifies since it provides those utilities before billing for them. For example, my association in my mixed-use condominium, which submeters the water to the one commercial unit and bills them for their actual usage, probably qualifies as a creditor within the meaning of the rule. However, the association's attorney and I (also a licensed attorney in Washington State) disagree on whether this activity is routine enough to qualify as "regularly." I believe it does since we bill the commercial unit periodically as required by our Declaration but the attorney apparently believes it is not regularly since this only happens for 1 unit out of 127 units.