Dealers Red-Flag ID Thieves

LAS VEGAS – Some car dealers remain edgy about their part in complying with federal “Red Flag” regulations to fight identity thieves.

Dealerships, banks and lending institutions get a reprieve now, however, as the Federal Trade Commission recently pushed back the Nov. 1 implementation to May 1, 2009.

Fewer auto retailers fret, as they once did, that the new measures will force them into an uneasy role of quasi-investigator.

If dealers can forego the magnifying glasses, rumpled overcoats and other sleuth items, they still must set up government-ordered procedures intended to thwart criminals from driving away in vehicles “purchased” by using swiped identities.

The new rules formalize what good dealerships do already to stop big-ticket rip offs, says attorney Michael Benoit, who specializes in dealer compliance issues.

He says he’s talked to hundreds of dealers, trying to allay their fears and bring them up to speed on what’s required of them under the Red Flag rules mandated by Congress and developed by various agencies, including the Federal Trade Commission.

The regulations require creditors to be on the lookout for and report identity-fraud suspicions. Because of their indirect auto-financing activities, the FTC considers dealers creditors of sorts.

Dealers think it’s a stretch to equate their stores to financial institutions. “They are outside their comfort zone there,” Benoit tells Ward’s.

But the government position is that much auto lending starts with dealers, putting them face to face with customers and on the front line to spot fraud.

The National Automobile Dealers Assn. originally opposed many of the red-flag requirements and sought to limit dealer involvement.

NADA had contended some of the proposed requirements – such as spotting unusual activity on a credit report – were beyond the crime-detection skills of dealership personnel.

Acknowledging some of those concerns, regulators agreed to limit dealer involvement. Dealers aren’t expected to abide by all 26 red flags, just the ones applicable to them, Benoit says.

“Dealers are not so upset once they realize what this is all about,” he tells Ward’s at the 2008 Auto Finance Summit here. “Yes, there are certain things they must do. But for most of them, it is putting down in writing down what they’ve been doing all along.”

That ranges from running credit checks to becoming suspicious if a 6-ft. 3-in. person proffers a driver’s license for someone who’s 5 ft. 2ins.

Dealers are reacting to the impending regulations in different ways, Benoit says. “Some are diligently beefing up their compliance, some are muddling through and some are sticking their heads in the sand.

“Most of them understand what they need to do. Virtually all of them want to do the right thing.”

Dealership compliance boils down to three questions: What am I looking for? How do I find it? What do I do if I find it? “There’s your training program,” Benoit says.

Dealers are expected to establish reasonable policies and procedures. Those include spotting address discrepancies, doing fraud-alert checks and becoming suspicious if a would-be borrower has suddenly opened up several credit-card accounts.

Dealers should know what to do when possible fraud is detected.

“I tell dealers who are worried about properly responding that, if there are red flags, have an escalation process,” he says. “If something appears suspicious, get other people involved.”

Dealers are required to update their fraud-fighting efforts. “ID thieves always try to get better,” Benoit says. “There are new ways to commit crimes, so there should be new ways to detect them.”

Some attendees of the Auto Finance Summit tell horror stories about ID thievery affecting dealerships.

For example, Dean Charlton, a vice president at Cost Central Credit Union in San Antonio, tells of a case where someone took delivery of a new vehicle. Later, it was discovered a forged name on the purchase agreement was that of an elderly woman confined to a nursing home.