Auto Dealers: Complying with The Red Flags Rule

        Red Flags Rule for Auto Dealers: Combating Identity Theft


To comply with the Red Flags Rule you are required to develop and implement a written identity theft prevention program. According to the FTC, the Rule allows dealers the flexibility to tailor their programs based on their unique risks. Compliance is then based on how reasonably these risks are assessed.

Therefore, the FTCs only direction is that your program must be appropriate to your organization’s size, complexity and nature of activities. Here are some important steps to include in your program:

     • Identify indicators of identity theft. The FTC has established a number of red
     flags that can be signs of identity theft. While these are a good place to start,
     for a program to truly be successful you will need to consider red flags that
     may be specific to your industry or even unique to your dealership itself.
     Draw on the experience of others in your industry along with your own experience
     to add additional red flags to your watch list.

     • Detecting and recognizing indicators of identity theft. Identity thieves don’t
     announce themselves as they walk through the door, so you and your staff
     need to be diligent in looking for possible red flags. Establish a procedure for
     verifying or authenticating both new and existing accounts. Look for alerts
     from credit reporting companies, suspicious documents or personal identification
     information, and suspicious account activity.

     • Create a response plan. A red flag does not guarantee a customer is an identity
     thief. Your program needs to cover the steps to be taken after a red flag is
     uncovered to help confirm a customer’s identity. It is possible that there is a simple
     explanation for the discrepancy. However, if an initial inquiry with the customer
     offers no explanation, proceed with caution until you can find an alternate
     method of verifying their identity.

     • Keep your program updated. Ensure that you re-evaluate the program at least
     annually and update it as needed. Also include in the program how you plan
     to train the appropriate staff to identify, detect, respond to and prevent red flags
     and identity theft.

Each year, more than 9 million Americans fall victim to identity theft. Often, there are red flags—or potential patterns, practices or activities indicating the possibility of identity theft—before it actually happens.

To protect consumers, the Federal Trade Commission’s (FTC) Red Flags Rule requires affected businesses to take an active role in recognizing and stopping identity theft. Specifically, this is accomplished through a mandatory, written identity theft prevention program coupled with employee training. Primarily of concern to financial institutions and creditors due to the leasing and loan options they offer, auto dealerships fall within the scope of this rule.