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CREATING AN ID THEFT PREVENTION PROGRAM
By Joe Bartolone
Before you start searching for the
finalized document on the Red
Flag Rule, understand that it's 256
pages. Below is an outline to help you get
started with your identity theft program.
Just remember, there is a lot to consider
with this newest regulation. That's why it's
highly recommended that you seek legal
advice. You should also seek out industry
associations, as well as your lender
partners.
1. Developing a Written Program
What might be the biggest headache
for dealers is developing a written
program to combat identity theft. Just
remember the program must contain
"reasonable policies and procedures
for detecting, preventing and mitigating
identity theft." The first step under this
heading is to identify areas that pose
a risk to the business. So when it comes
to F&I, dealers will need to identify the
following:
- The types of accounts offered
or maintained
- The methods it provides to open its
covered accounts
- The methods it provides to access
its covered accounts
- Previous experiences with identity
theft
Dealerships will also have to determine
sources of red flags relevant to
their operation. Much of this can come
from past experiences the dealership
has had with identity theft. Dealer associations
and legal advisors can also
help identify other sources of red flags.
Dealerships will also need to identify
when a red flag should be raised. This includes
alerts, notifications or other warnings
received from a consumer-reporting
agency or a service provider, such as a
fraud detection service. This also refers to
suspicious documents (i.e., suspicious
address change notice or personal
identification documents) the dealership
receives from a customer.
Notices from customers, identity theft
victims or law enforcement are also
indicators of a red flag.
2. Detecting Red Flags
Dealerships will also have to formulate
policies and procedures F&I
managers must adhere to on every
transaction, which basically means an
F&I manager doing his or her due diligence
to verify the customer's identity.
This will include such steps as collecting
identifying information or verifying the
validity of an address change notice.
3. Prevent and Mitigate
Identity Theft
The program policies and procedures
should also provide appropriate
responses based on the risk posed
when a red flag is raised. Responses
could include contacting the customer,
not completing a transaction and notifying
law enforcement.
4. Program Updates
Dealerships will need to periodically
update their program to reflect any new sources, trends or methods of identity
theft. This means dealers will need to
note how their program held up each
time the dealership faced a red flag.
Dealers will also need to update
their program to reflect any new procedures
instituted at the dealership.
And again, it's a good idea for dealers
to remain in constant contact with
their legal counsel, as well as state
and local dealer associations to stay
updated with any new developments
related to identity theft.
5. Methods for Administering
the Program
Aside from implementing the written
program, dealerships will also need
to designate an individual (typically
someone at the senior management
level) to oversee the program's development,
implementation and administration.
In fact, this could be the first thing
a dealership does.
This individual is who dealership personnel
will refer to whenever a situation
related to the program arises. This is the
person who will make the final call. He
or she will also collect reports from staff
about all matters related to the dealership's
identity-theft program.
This person will also be required to
collect reports from employees on the
effectiveness of the program. This could
include how the program addresses the risk of identity theft, service provider
arrangements, significant incidents
involving identity theft and management
responses. This person will also
be responsible for recommending and
implementing changes to the program.
6. Other Legal Requirements
A dealership's written program will
also need to include requirements for
extending credit to a customer despite
the detection of a fraud or active
duty alert. This is important for dealers
operating in areas housing military
personnel. Dealerships will also need to
implement any requirements for sending
consumer reporting agencies corrected
or updated information about a
customer