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Is the FTC Seeing Red?

April 28, 2009

I’m not sure if I should apologize or not. See, like many of our industry’s legal experts have professed, the magazine has put out warnings all year long about the vigor with which the Federal Trade Commission (FTC) would go after violators of the Red Flags Rule (RFR). However, after talking to an attorney with the commission last Friday, I’m not so sure the FTC is hell-bent on punishing dealers.

See, I was playing catch up last week when F&I e-Weekly reported that the FTC raised the stakes for repeat offenders of the FTC ACT. A competing automotive news publication (I hope that was obvious enough) reported on the penalty hike when it was announced in February. The article sourced our legal columnist Michael Benoit, an attorney for Hudson Cook LLP.

Now, Benoit never said the penalty hike was a sign of the FTC’s intentions come May 1, the enforcement deadline for the RFR. In fact, he corrected me when I suggested the hike may be directed at Red Flags violators. Instead, he told me the FTC increased the maximum civil penalty for unfair and deceptive acts and practices from $11,000 to $16,000 per violation. He added that the hike does not get automatically applied to rules governed by the FTC, such as the Red Flags Rule.

“In general, where trade rule violations are involved, the FTC must first determine that the rule was violated, issue a cease-and-desist order to the offender, and then determine that the offender has subsequently violated the cease-and-desist order,” he said. “I would only expect that they would take that route in the case of an egregious and knowing violation of the rule, but they have the option in any case.”

I guess I should have known by those statements that the hike wasn’t a sign of the intensity with which the FTC would go after RFR violators. Now, I had put a call out to the FTC before last Tuesday’s edition of F&I e-Weekly. Unfortunately, I didn’t get a call back until last Friday. And let me tell you, I wish I had waited.

I’ll admit; I was feeling pretty good about last Tuesday’s stories receiving more than 2,000 hits in a four-day span. It was obvious to me that readers of our e-newsletter were thirsty for any information related to the RFR. Then Friday rolled around and my phone rang. On the other line was Tiffany George, an attorney with the FTC’s privacy and identity division.

“The penalties under the FCRA (Fair Credit Reporting Act) were adjusted for inflation in February,” George said.

I was amazed. Inflation?

According to George, federal law makes it so that civil penalties can be adjusted for inflation. 

“We weren’t doing anything specific in terms of penalties [for Red Flags violations],” she said. “We understand entities are still finalizing their program. All we’re looking for is a good-faith effort.”

“Good-faith effort? Come on,” I thought. However, this wasn’t the first time I heard an FTC rep say that. Like our industry’s legal experts have said, I really thought the FTC was gearing up to go after dealers when it delayed the enforcement date from Nov. 1, 2008, to May 1, 2009.

“No, we’ve never issued any statement to that effect,” she said. “As I said, we understand that entities are still finalizing their program. We’re just looking for a good-faith effort.”

I then told her that the FTC really needs to speak directly with automotive dealers. With the amount of uncertainties hanging over the industry, I told her, dealers deserve it. George said the FTC does realize that there are a lot of questions out there regarding the RFR. She said the agency receives e-mails on a daily basis from businesses concerned about RFR compliance.

She then asked me who our readers are. I explained to her what the F&I industry is, telling her we write to the guys and gals on the frontlines of the battle against ID thieves. This is the department, I told her, that’s responsible for investigating address discrepancies, checking IDs and Social Security numbers.

She then pointed me to the FTC’s how-to guide on “Fighting Fraud with the Red Flags Rule,” which can found at www.ftc.gov/redflagsrule. The FTC also has a RFR microsite, which can be found at www.ftc.gov/bcp/edu/microsites/idtheft/index.html.

Listen, I don’t think this blog should deter you from getting compliant with the RFR. Heck, I’m only quoting a FTC attorney here. The people you should really be concerned with are plaintiffs’ attorneys. Rather, I'm telling you this story because maybe we've taken the wrong approach to the RFR.

Think about this, according to the Consumer Sentinel Network, an online database of consumer complaints used by law enforcement, the No. 1 complaint logged last year was identity theft.

I know you’ve read more stats on identity theft than you know what to do with, but my point is this, maybe we need to stop viewing the RFR as another way for the FTC to stick it to us. Maybe we should view it as another weapon against a kind of theft that is more harmful to our business than to our customers. In other words, maybe it’s time we embrace this rule, and use it to our advantage.

As many compliance experts have said, let’s tell anyone who will listen that our industry is RFR compliant. Remember, all it takes is a good-faith effort.

Comments

  1. 1. Julie [ April 28, 2009 @ 04:10PM ]

    hmmm, inflation. well, I'll go with it. I'll also accept the fact that if I work with personal and confidential consumer information that allows me to write and sell financing at a fair profit, then I, acting as a creditor, must abide by all the rules, flags, laws, and practices that any creditor must abide by. There are good tools a plenty, yes at a cost, but they work great at keeping us in full compliance. We have even gone as far to have our dealer group advertising dept to create a brochure explaining what RFR are to the consumer and why as a dealer we must abide by them. So far so good. I feel RFR is a fair trade off to keep the freedom and right to sell retail installment financing to car buying comsumers. I think transparency and consistency with every transaction will serve the F&I industry well.

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