Taking on the RED FLAG Rule
By Joe Bartolone
Recognizing the motivations behind this newest regulation will be key to understanding how the F&I department fits into this newest puzzle. F&I expert provides a road map to developing the required prevention program and tips on evaluating compliance vendors.
The days of just copying a driver’s license and taking a verbal social security number are over with the finalization of the Red Flag Rule last October. Credit reports will need to be thoroughly scrutinized. Dealers will also need to know how to react when a red flag is raised, and will have to document each situation.
Dealers will also need to consider an identity verification solution for their sales process, as well as re-evaluate their spot delivery process and sales desk functions.
One of the most important decisions you’ll need to make as a dealer is the approach you take to address the Red Flag Rule. You can take a minimalist approach and develop a program that meets the minimum requirements, or you can develop a program that addresses both the letter and the spirit of the rule.
The Red Flag Rule was born out of the Fair and Accurate Credit Transaction (FACT) Act. It was signed into law Dec. 4, 2003. It added several new provisions to the Fair Credit Reporting Act of 1970. Some of these requirements have already been enacted; some have already impacted your personal life as well as your business.
One provision the FACT Act is responsible for is the one that allows individuals to request a free credit report annually. Another requires past victims of identity theft and active military personnel to be contacted any time a request to extend credit comes under their name.
The FACT Act also requires businesses provide victims of identity theft with copies of credit applications or transaction records used in the fraudulent deal. Other rules the FACT Act initiated were the disposal rule, address discrepancy notification requirements for credit-reporting agencies, and the truncation requirements for credit card and debit card numbers. I hope all of this sounds familiar to you and your business.
I think you can see where regulators are going with all of this. Identity theft is a big problem, and regulators are doing all they can to protect consumers.
The finalization of the Red Flag Rule (section 114 of the FACT Act) represents one of the final steps regulators are taking to protect consumer credit information. It requires financial institutions and creditors to establish reasonable policies and procedures for implementing an identity theft prevention program.
Regulators also sought to provide guidance on how users of credit reports respond to address discrepancies received from consumer-reporting agencies. This second component, which was also finalized last year, falls under section 315 of the FACT Act.
So, instead of looking at the Red Flag Rule as another government compliance program, consider marketing your commitment to thwart identity theft. Customers will definitely appreciate your efforts. Just remember the clock is already ticking, as the new rules went into effect on Jan. 1. Dealers should now have their sites on Nov. 1, the enforcement date of this newest regulation.