“Throw away a credit report, and it could cost you $16,000!” (Not exactly true.) “Sell a car without checking the customer's driver license, and you could wind up in Guantanamo!” (Definitely not true, at least I hope not.)

You've seen the scare headlines. And I take a backseat to no lawyer in being able to dream up horrible things that can happen if you don't comply with the Federal Trade Commission's rules to prevent identity theft.

Problem is, scare tactics don't effectively convince dealership managers and employees to comply. It's easier when they know why compliance works for them. So let me give sound business reasons that may be more convincing.

Red Flags Rule: Know Your Customer

Who suffers the most when a dealership sells a vehicle to an identity thief?

The feds would say it is the person whose identity was stolen. That is the focus of protection in the new Red-Flags Rule. But is the dealer who sold the car any less a victim?

Every master agreement for retail installment sale contracts or for consumer leases makes the dealer a guarantor of the customer's identity. If the buyer is an identity thief, the finance or lease company will likely return that contract to the dealer and force the dealer to pay it off.

Even when a vehicle isn't financed or leased, its delivery is usually based on some financial instrument from the customer to pay for the vehicle, such as a check. Any financial instrument an identity thief uses to pay for the vehicle is likely a forgery or otherwise invalid.

When the dealership is not paid for the vehicle, or when it must repurchase the finance or lease instrument and the vehicle is unavailable to be retaken because it is chopped up in another state or country, the dealer winds up eating a loss for $30,000, $40,000 or $50,000.

The Red-Flags Rule mandates use of a “know-your-customer” system. It helps a dealership protect itself against loss. It is protection for sales and F&I people to help them avoid spending time selling vehicles to identity thieves for which they will never be paid commissions.

Info Safeguards Rule: It's Yours, Protect It

What happens to that customer information that “walks away” from a dealership. In my experience, it seldom is stolen by an identity thief. More often, it leaves in the briefcases and pockets of employees.

Another dealer may be paying a spiff to your sales people to forward leads. A vehicle sold by that dealer is a vehicle that you will not sell.

Often, sales people walk out with lists of your customers and go to work for someone else. The salesperson will use that list to sell vehicles for the new employer, vehicles you will not sell.

Your customer information is a valuable asset. It is your valuable asset. So protect it. Following the FTC Safeguards Rule will help you do that.

Privacy Rule

The FTC requires you to give a form to certain customers, telling them what you will do with personal information you collect.

What approach works better?: “This is some form the government says we have to give you.” Or, “This form explains how we handle the information you give us to protect you from identity theft.”

Your customers worry about identity theft. They are bombarded with consumer columns telling them they must protect their identity, news stories about hundreds of thousands of lost credit card files and ads touting the latest and greatest sure-fire identity-protection product.

Delivering the privacy notice correctly gives you a great opportunity to compete in a way that does not cost you money. It lets you sell your customers on your dealership's commitment to the protection of their identities.

Attorney Michael Charapp, with Charapp & Weiss, LLP, specializes in representing motor vehicle dealers. He can be reached at 703-564-0220 and mike.charapp@cwattorneys.com.