The Electronic Red Flags

by Gil Van Over

So far in my discussion of the Red Flags Rule, I listed the potential red flags that the Feds suggest you should address in your final policy, as well as delineated the potential red flags that require a manual process. Today, I will discuss the potential red flags of identity theft that will require an electronic, or software, solution.

The red flags that will require an electronic solution are:

1. A consumer report indicates a pattern of activity that is inconsistent with the history and usual pattern of activity of an applicant or customer, such as:
a. A recent and significant increase in the volume of inquiries.
b. An unusual number of recently established credit relationships.
c. A material change in the use of credit, especially with respect to recently established credit relationships.
d. An account was closed for cause or identified for abuse of account privileges by a financial institution or creditor.
2. The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration’s Death Master File.
3. Personal information provided is associated with known fraudulent activity. For example:
a. The address on an application is the same as the address provided on a fraudulent application.
b. The phone number on an application is the same as the number provided on a fraudulent application.
4. Personal information provided is of a type commonly associated with fraudulent activity. For example:
a. The address on an application is fictitious, a mail drop, or prison.
b. The phone number is invalid, or is associated with a pager or answering service.
5. The address, SSN, or home or cell phone number provided is the same as that submitted by other persons opening an account or other customers.
6. Personal information provided is not consistent with information that is on file.
7. An employee has accessed or downloaded an unusually large number of customer account records.

Next, we will talk about solutions.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I and Sales compliance consulting and training firm (www.gvo3.com).

Back to blog homepage

Dealer Trak Red Flags Webinar TODAY 2:00 EST

Ok guys, I have been registered for this meeting for the last couple of weeks. Due the the fact that our store has been busy as of late (thank God), I haven't had time to remind anyone. The plans for this blog are to post a thorough Red Flag Rules practical application guide for your store, this can be done by using the information as it is released and using it to create your program. We will create it together with our combined input. Show your F&I Director, GM or Owner that you are on the ball and join the discussion. Send all emails to AutoFinanceInsider@yahoo.com

I'm not sure what you have to do on Dealer trak's site, so if you cannot register yourself try the link I was sent and go from there. Send a quick email after the webinar.

AFI

Link to webinar.


Red Flags Rule - Mandatory Compliance Is Coming. Are You Prepared?
Tuesday, January 22, 2008 2:00 PM - 3:00 PM EST

1. At the time above, click the Join Webinar button or this link to join the Webinar:
https://www1.gotomeeting.com/join/216795315/106088596

2. Audio: 1.877.720.7899, access code 29760484

Webinar ID: 216-795-315

Implementing an Effective Red Flags Program - Webinar Pt1

By: Michael Benoit – Hudson Cook
Robert Miller – Co-founder/Attorney Principal - Compli

Webinar, Jan 16, 2008

This is what I took from the webinar. These notes will document my dealership’s compliance with both the Safeguards Rule and the Red Flag Rule.

A Red Flag is a pattern, ……, or specific activity that indicates possible existence of identity theft.

The Federal “Red Flag Rules” requires automobile dealerships to implement an “Identity Theft Program” on January 1, 2008. Compliance is required on November 1, 2008. Hudson Cook recommends the program to be implemented on October 1st to give a margin to evaluate effectiveness.

“Dealers are Lending Institutions” states Michael Benoit of Hudson Cook. If a dealership enters into retail installment sale agreements with a customer, they are lenders under the FCRA and the FTC and subject to laws and regulations affecting lending institutions.

If you have successfully implemented a Safeguards program, you can implement a successful Red Flag program, Benoit states. The two programs are very similar. As the first step to comply with the Safeguards rule is to develop a written Information Security Program, the first step in implementing the Red Flag Rules would be to develop a Written Identity Theft Program.

Each dealership needs its own written “Identity Theft Program.” The implemented Program must:

• Identify the Red Flags
• Detect the Red Flags
• What the responses will be if a Red Flag is found
• Periodically audit the dealerships operations to insure compliance with the policies and procedures.

Benoit states that a more detailed webinar explaining the 26 Red Flags that the FTC has included in its guidelines will be available on Feb 27th 2008 from Compli’s website.

Again Benoit stresses: “Take a deep breath. If you have successfully implemented a Safeguards Program, you can implement a successful Red Flag Program. They are very similar.”

PENALTIES for violating the Red Flag Rule could be a combination of multiple avenues of enforcement:

• $2500.00 per violation for violating the FCRA Act.
• $11,000.00 per violation of the FTC Act.
• Possible violations of state unfair and deceptive practices laws.

WHAT IS COVERED BY THE RULE?

• Retail Installment Sale Contract transactions only.
a. All consumer and business retail installment sale transactions whether or not you intend to hold the paper.

ADVICE FROM HUDSON COOK:

• For Red Flag, just treat all info for starters as if it is subject to the Safeguards Rule.

• Appoint a Joint ISP/ITD Program Coordinator. Include Patriot Act customer ID requirements.

MUST CONTAIN REASONABLE POLICIES AND PROCEDURES TO:

• Identify relevant Red Flags for your business and incorporate into a written program.

• Detect relevant Red Flags that have been incorporated into your written program.

• Respond.

• Periodically update ITP program.

KEY POINTS:

The Initial Identity Theft Program must be approved by the dealership’s Board of Directors or appropriate committee of the Board of Directors. If no Board, an authorized Principal must approve.

TRAINING – must train as necessary to effectively implement the ITP program.

SERVICE PROVIDERS – must exercise appropriate & effective oversight of service provider arrangements.

WHICH FLAGS TO INCLUDE? –

1. The ones that the corporation has experienced.

2. The ones that the FTC has included in its guidelines. All 26 of them.

*** Include in your ITP program those things that you already do to control reasonably feasible risks.

(You should already be doing this by complying with the Safeguards Rule).

RISK FACTORS:

• Types of accounts you offer or maintain.

• Methods used to open accounts.

• Methods through which you allow access to accounts.

• Previous experiences with Identity Theft.

SOURCES OF RED FLAGS:

• Dealership experience.

• New experiences of identity theft.

• Applicable Supervisory Guidance. See: www.FTC.gov.

DEVELOPING YOUR CORPORATE POLICY AND PROCEDURE MANUAL:

Bookmark: http://www.AutoFinanceInsider.blogspot.com. This site will become the authority on Automotive F&I policy procedure and compliance.

Back to blog homepage

Red Flag Rules: Your Webinar Invitation for tomorrow A.M.

All F&I Managers running a "Well-Run Automotive Finance Department" need to attend this webinar TOMORROW MORNING. It is hosted by attorney Michael Benoit of Hudson Cook. I have been reading his articles for several years and am excited to hear him speak. Everyone needs to attend tomorrow morning!

P.S. This blog is not affiliated with Michael Benoit, Hudson Cook or the sponsoring company Compli (actually our sponsor's slot is still open...). The point is - if you want to keep your F&I office ahead of the game, you need to absorb this info.

AFI


From: Jonica Smith jonica@compli.com

Subject: Red Flag Rules: Your Webinar Invitation

Implementing an Effective Red Flag Rules Program

Join Compli for a complimentary one hour webinar hosted by industry
expert attorney Michael Benoit of Hudson Cook.

Understand how the New Red Flag Rules and Regulations will affect your
dealership.

Learn how to implement an effective compliance program to help ensure
best practices and preclude costly errors.

Title: Implementing an Effective Red Flag Rules Program

Date: Wednesday, January 16, 2008

Time: 8:30 AM - 9:30 AM PST

System Requirements
PC-based attendees
Required:
Windows® 2000, XP Home, XP Pro, 2003 Server, Vista

Macintosh®-based attendees
Required: Mac OS® X 10.3.9
(Panther®) or newer

Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/802250591

Link to the Original FTC Red Flag Rule Text

Here is a link to the Original FTC Text of the proposed Identity Theft Red Flags and Address Discrepancies Under the Fair and Accurate Credit Transactions Act of 2003.

It will definitely put you to sleep. Do not read while driving.

The manual red flags

Following is an article that came out in the latest Dealer Magazine, hot off the presses today. It is written by Gil Van Over, one of my favorite authorities on automotive dealership compliance.

Because of reading and applying this man's articles, my dealership is compliant in all areas. This article is worth printing and putting in your procedure binder.

The information is directly relevant to achieving our immediate goal of building a compliant red flags program.


The manual red flags
by: Gil Van Over
Dealer Magazine

When last I addressed you, I gave you the list of the 31 red flags the Feds identified as potential indicators of identity theft. Some of these red flags, such as the address change and the anomalous use of the account categories, obviously do not apply to car dealers unless you are running a buy-here, pay-here operation. Other of the red flags will be caught using electronic methods. The remainder of the red flags will have to be observed manually.

The manual red flags which will require manual observation and action include:

1. A fraud or active duty alert is included with a consumer report.

2. A notice of address discrepancy is provided by a consumer reporting agency.

3. Documents provided for identification appear to have been altered.

4. The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification.

5. Other information on the identification is not consistent with information provided by the person opening a new account or customer presenting the identification.

6. Other information on the identification is not consistent with information that is on file, such as a signature card.

7. Personal information provided is inconsistent when compared against external information sources. For example:
a. The address does not match any address in the consumer report.

b. The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration’s Death Master File.

8. Personal information provided is internally inconsistent. For example, there is a lack of correlation between the SSN range and date of birth.

9. The person opening the account or the customer fails to provide all required information on an application.

10. Personal information provided is not consistent with information that is on file.

11. The person opening the account or the customer cannot provide authenticating information beyond that which generally would be available from a wallet or consumer report.

12. The financial institution or creditor detects or is informed of unauthorized access to a customer’s personal information.

13. The person opening an account or the customer is unable to lift a credit freeze placed on his or her consumer report.

Gil Van Over is the President and founder of gvo3 & Associates, a nationally recognized F&I and Sales compliance consulting and training firm (www.gvo3.com).

Section 114 of the FACT act

Following is a summary of the Red Flag Categories and Examples taken from the the Fair and Accurate Credit Transactions Act of 2003, Appendix J Section IIb and Supplement A to Appendix J. These will form the basis of our Compliance Management program.

Categories of Red Flags:


I. Alerts, Notifications, or other warnings received from consumer reporting agencies or service providers, such as fraud detection services;


a. A fraud or active duty alert is included with a consumer report.

b. A consumer reporting agency provides a notice of credit freeze in response to a request for a consumer report.

c. A consumer reporting agency provides a notice of address discrepancy, as defined in § 334.82(b) of the interagency guidelines.

d. A consumer report indicates a pattern of activity that is inconsistent with the history and usual pattern of activity of an applicant or customer, such as:

i. A recent and significant increase in the volume of inquiries;

ii. An unusual number of recently established credit relationships;

iii.A material change in the use of credit, especially with respect to recently established credit relationships;

iv. An account that was closed for cause or identified for abuse of account privileges by a financial institution or creditor.


II. The Presentation of Suspicious Documents


a. Documents provided for identification appear to have been altered or forged.

b. The photograph or physical description on the identification is not consistent with the appearance of the applicant or customer presenting the identification.

c. Other information on the identification is not consistent with information provided by the person opening a new covered account or customer presenting the identification.

d. Other information on the identification is not consistent with readily accessible information that is on file with the financial institution or creditor, such as a signature card or a recent check.

e. An application appears to have been altered or forged, or gives the appearance of having been destroyed and reassembled.


III. Suspicious Personal Identifying Information


a. Personal identifying information provided is inconsistent when compared against external information sources used by the financial institution or creditor. For example:

i. The address does not match any address in the consumer report; or

ii. The Social Security Number (SSN) has not been issued, or is listed on the Social Security Administration’s Death Master File.

iii. Personal identifying information provided by the customer is not consistent with other personal identifying information provided by the customer. For example, there is a lack of correlation between the SSN range and date of birth.

b. Personal identifying information provided is associated with known fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:

i. The address on an application is the same as the address provided on a fraudulent application; or
ii. The phone number on an application is the same as the number provided on a fraudulent application.

c. Personal identifying information provided is of a type commonly associated with fraudulent activity as indicated by internal or third-party sources used by the financial institution or creditor. For example:

i. The address on an application is fictitious, a mail drop, or prison; or

ii. The phone number is invalid, or is associated with a pager or answering service.

d. The SSN provided is the same as that submitted by other persons opening an account or other customers.

e. The address or telephone number provided is the same as or similar to the account number or telephone number submitted by an unusually large number of other persons opening accounts or other customers.

f. The person opening the covered account or the customer fails to provide all required personal identifying information on an application or in response to notification that the application is incomplete.

g. Personal identifying information provided is not consistent with personal identifying information that is on file with the financial institution or creditor.

h. For financial institutions and creditors that use challenge questions, the person opening the covered account or the customer cannot provide authenticating information beyond that which generally would be available from a wallet or consumer report.


IV. Unusual Use of, or Suspicious Activity Related to, the Covered Account


a. Shortly following the notice of a change of address for a covered account, theinstitution or creditor receives a request for new, additional, or replacement cards or a cell phone, or for the addition of authorized users on the account.

b. A new revolving credit account is used in a manner commonly associated with known patterns of fraud patterns. For example:

i. The majority of available credit is used for cash advances or merchandise that is easily convertible to cash (e.g., electronics equipment or jewelry); or

ii. The customer fails to make the first payment or makes an initial payment but no subsequent payments.

c. A covered account is used in a manner that is not consistent with established patternsof activity on the account. There is, for example:

i. Nonpayment when there is no history of late or missed payments

ii. A material increase in the use of available credit;

iii. A material change in purchasing or spending patterns;

iv. A material change in electronic fund transfer patterns in connection with a deposit account.


v. A material change in telephone call patterns in connection with a cellular phone account.


d. A covered account that has been inactive for a reasonably lengthy period of time is used (taking into consideration the type of account, the expected pattern of usage and other relevant factors).

e. Mail sent to the customer is returned repeatedly as undeliverable although transactions continue to be conducted in connection with the customer’s covered account.

f. The financial institution or creditor is notified that the customer is not receiving paper account statements.

g. The financial institution or creditor is notified of unauthorized charges or

transactions in connection with a customer’s covered account.


VI. Notice from Customers, Victims of Identity Theft, Law Enforcement Authorities, or Other Persons Regarding Possible Identity Theft in Connection with Covered Accounts Held by the Financial Institution or Creditor


a. The financial institution or creditor is notified by a customer, a victim of identity theft, a law enforcement authority, or any other person that it has opened a fraudulent account for a person engaged in identity theft.

Back to blog homepage

$50,000 Fine for Tossing Borrowers' Credit Reports in Dumpster

A mortgage company that left loan documents with consumers’ sensitive personal and financial information in and around an unsecured dumpster has agreed to settle Federal Trade Commission charges that it violated federal regulations.

The FTC’s complaint alleges that Northbrook, Illinois-based American United Mortgage Company violated the Disposal, Safeguards, and Privacy rules by failing to properly dispose of credit reports or information taken from credit reports, failing to develop or implement reasonable safeguards to protect customer information, and not providing customers with privacy notices.

“Every business, whether large or small, must take reasonable and appropriate measures to protect sensitive consumer information, from acquisition to disposal,” FTC Chairman Deborah Platt Majoras said. “This agency will continue to prosecute companies that fail to fulfill their legal responsibility to protect consumers’ personal information.”

According to the FTC’s complaint, American United collects personal information about consumers, including Social Security numbers, bank and credit card account numbers, income and credit histories, and consumer reports. Since at least December 2005, the company engaged in a number of practices that, taken together, failed to provide reasonable and appropriate security for consumers’ personal information.

Among other things, the company allegedly failed to implement reasonable policies and procedures requiring the proper disposal of consumers’ personal information, including consumer reports; to take reasonable actions in disposing of such information; and to identify reasonably foreseeable internal and external risks to consumer information. The company also allegedly failed to develop, implement, or maintain a comprehensive written information security program.

As a result of the company’s failures, the complaint alleges, on multiple occasions American United documents containing consumers’ personal information were found in and around a dumpster, near its office, that was unsecured and easily accessible to the public. In February 2006, for example, hundreds of such documents were found, many in open trash bags, including consumer reports for 36 consumers.

In March 2006, FTC staff notified the company in writing about this situation, and on at least two occasions afterward, more such documents were found in and around the same dumpster.

The complaint charges American United Mortgage Company with violating the FTC’s
Disposal Rule, which requires companies to dispose of credit reports and information from credit reports in a safe and appropriate manner, and the FTC’s Safeguards Rule, which requires financial institutions to take appropriate measures to protect customer information.

The complaint also alleges that from July 1, 2001 until March 2006, the company failed to provide its customers with a privacy notice describing its information collection and sharing practices with respect to affiliated and non-affiliated third parties, as required by the FTC’s Privacy Rule.

The stipulated judgment and final order requires American United to pay a $50,000 civil penalty for violations of the Disposal Rule and prohibits the company from further violations of the Disposal, Safeguards, and Privacy rules. The settlement also requires American United to obtain, every two years for the next 10 years, an audit from a qualified, independent, third-party professional to ensure that its security program meets the standards of the order.

This is the FTC’s first Disposal Rule case and its 15th case challenging faulty data security practices by companies that handle sensitive consumer information.

link to source article

WOW, I really wonder how much more of this is really going on !!!

Back to blog homepage