Red Flag Rules And The Dealership
While dealerships have been given a small delay in the deadline for compliance, the lenders have not. In order for lenders to be compliant with the “Address Discrepancy Rule” part of the Fair and Accurate Credit Transaction Act (FACTA) of 2003 regulators may start to ask dealerships to supply a copy of their written policies and procedures. This situation creates many questions for dealers. How do you respond to the notices on the credit bureau about the consumer’s address being different from what is on the bureau? How do you verify that customers are who they claim to be? Do you report your actions and findings to the credit bureaus? Do you keep a written record of the action taken?
This part of the Red Flag Rule needs to be addressed and action implemented within the dealership. If senior management decides to wait until April or May 1st, 2009 to implement policies and procedures, you may very well experience funding delays and perhaps even lose lending resources due to non-compliance.
As with all policy and procedures, the dealership should conduct a risk assessment that addresses the 26 items the Red Flag Rules outline. After you review them, I am sure you will determine some of them do not apply to your dealership, while others will certainly fall into your purview. Keep in mind that the purpose is to detect and prevent the possibility of identity theft activity and to mitigate any losses incurred by the customer if identity theft does occur.
Your policies and procedures should include education plans for your employees who work with the credit bureaus, credit applications, and new accounts. For most dealerships, this will be a narrow field restricted to the sales and F&I managers. For those who have a buy here pay here operation, the policies and procedures have to be expanded.
The penalties for non-compliance are a $2500 administrative fine per incident, a fine of as much as $11,000 per violation by the FTC, and you could even end up in court defending yourself from lawsuits regarding ‘Unfair and Deceptive Practices.’ Being compliant with the federal regulations takes time and is it an ongoing effort. The longer you put off the task the more difficult it is to begin. This is not something you have to do alone, however, there is lots of assistance at hand. If you need assistance ask for it and yes you will need to pay for it; information is not free. As I have said many times before, education is expensive no matter how you get it.
For those of you who think you should wait to see if you make it through the winter, my words of counsel are this: Please make a decision to remain in the game and move forward. This industry requires 100 percent commitment, no half measures. Compliance is simply another element of remaining in business.
Please consult your own legal counsel regarding all legal matters.
Dealer Marketing, November 2008