Wednesday, December 26, 2007

Regulators Finalize Red Flag Rule Part-2

Part 2 from F&I Magazine

“If my identity was used to buy a car that was later wrecked and my credit report is negatively affected by that, which prevents me from buying something, I might want to sue that dealer,” says Randy Henrick, associate general counsel for DealerTrack. “And failure to have an accurate program would fall under the FTC Act for unfair and deceptive trade practices.”
Dealers also need to remember that the guidelines will be a moving target, which means they will be updated as new trends and risks arise. As a result, dealers will need to update their programs periodically and conduct their own internal reporting each year.

Identity Theft is a Growing Concern.

One of two remaining components left over from the implementation of the Fair and Accurate Credit Transaction (FACT) Act of 2003, the Red Flag Rules were regulators’ response to what is the fastest-growing crime in the United States. Identity theft currently accounts for more than 42 percent of all complaints filed with the FTC.

The F&I industry has also been warning dealers that ID thieves are now targeting dealerships and are moving away from credit cards. According to an analysis by the Center for Identity Management and Protection of 517 U.S. Secret Service identity-theft cases closed between 2000 and 2006, a business was the point of compromise 50 percent of the time. It also reports the most frequent type of employment from which personal information was stolen was retail stores (43 percent), such as car dealerships, gas stations, casinos and restaurants.

A recent poll conducted by Harris Poll also supports the finalization of the Red Flag Rules. It reports that 60 percent of Americans say they will not support a store with questionable privacy protections.

“I think it’s going to increase CSI tremendously, and I think many dealers are already well on their way to complying,” says Henrick. “And if it helps you sell one less car to ID thieves, it already paid for itself. This is not going to be hard to do.”

Complying With the Red Flags

The first step for dealers is to audit their current methods for spotting ID theft, including a full review of how the dealership handled past incidents. The dealership will then have to create a company-wide procedure on how to identify when a Red Flag is raised and what the employee should do thereafter.

“Think of this as a menu process. Identify the issues and set up the processes from there,” Henrick says. “You don’t want the employee to think; he should just execute the steps.”

The last step for dealers is to appoint someone who will supervise the program and provide guidance on what the dealership should do once a Red Flag is raised. Henrick says a dealer’s response to an incident will fall into place on its own. However, putting the responsibility on dealers as to how to respond is what has some industry insiders concerned.

“Remember, the rules aren’t saying that a dealership won’t be hit by an ID thief,” Henrick explains. “All regulators want is for dealers to have a reasonable process in place to mitigate the situation.”

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