Regulators Finalize Red Flag Rule Part-3

Part 3 from F&I Magazine

Some examples of appropriate responses listed in the guidelines are contacting the customer or law enforcement. Others relate to how credit accounts are opened and accessed by customers. Another appropriate response, Goodman adds, is for the dealer to conduct further investigation.

“Not opening a new account is just one of several responses that a dealer can consider,” he says. “While a dealer may decide to discuss this with legal counsel, it is not a dealer’s only option. The key is for the dealer to think about the incident at issue to gauge the risk of identity theft associated with the red flag, and to respond accordingly based on the risk.”

A good starting point is the 26 rules, which are broken up into five sections of identity theft patterns. Henrick says there are at least five or six rules that don’t pertain to dealerships.

Goodman adds that dealers shouldn’t forget about the other component regulators passed under the FACT Act, which is a completely separate requirement from the Red Flag Rules. It focuses on how users of consumer reports respond to address discrepancies. Both Goodman and Henrick say this is a big concern with regulators, especially since multiple addresses can be recorded under one Social Security Number.

Dealers will also have to wrestle with how to handle transactions done over the phone or via the Internet. They will probably need to do a little more investigation and ask more questions, and not accept photocopied documents and identification cards. Legal advisors warn against relying on credit reports to verify a customer’s identity, as the potential ID thief might already have the credit report with him or her.

“Ask things you can’t get from a stolen wallet,” recommended Henrick. “There will be services where they’ll be able to tell you who sold the person’s last house, which is a perfect question to ask. Just be prepared to verify things not on the credit report.”

Compliance Creates Industries

While the road to compliance is simple to map out, the costs associated are still unknown. Training and retraining will definitely be part of the added costs, especially when it comes to employee turnover. Legal fees will also have to be considered. Another cost to factor in is technology.

“There will be electronic solutions, but the regulations specifically say you can’t outsource your entire program,” said DealerTrack’s Henrick, whose company expects to introduce its solution at the National Automobile Dealers Association (NADA)’s February show.

Many compliance software and technology providers have been monitoring the movement of the Red Flags since they were first proposed. Some, like First Advantage CREDCO, have been prepping dealers for the regulation since early last year. Its product will integrate Red Flag alerts into a credit report a dealer orders through its service.

“This past summer, we ran a promotion between June 1 and Sept. 18 where we gave away our BuyerID Index free to dealers nationwide,” said David Woodruff, company spokesperson. “It was an awareness program to help dealers understand and prepare for the proposed Red Flag Ruling. Our position was, ‘Hey, this is coming. You may not be taking this seriously, but we are.’”

Other companies looking to help dealers comply are PatriotDealer, 700Credit, Firewall Dealer Solutions and Compli, which will be working with the attorneys at Hudson Cook on a program that will be integrated into its Dealership Compliance Management System. Expect several more companies to announce technology and software solutions at NADA.

“Undoubtedly, the new Red Flag regulation will result in many different compliance offerings from various providers,” said J.R. Wilson, president of PatriotDealer, Alpharetta, Ga. “And as with any solution, whether CRM, inventory control or F&I delivery, it will take a combination of process, people and technology to become compliant. And this is what dealers need to keep in mind.”

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