A post made on Oct. 2 on the magazine’s F&I Forum made me think, “What a great story of a dealer doing it right.” But that was before I talked to Mark O’Neil, CEO of DealerTrack, about something he discussed during his keynote address at the magazine’s September F&I Conference and Expo.

I’ll get to what he said in a minute. First, I’d like to share the post from Tim Cottom, an F&I professional at Hirning Pontiac Cadillac Buick GMC in
Pocatello, Idaho. He’s been a forum member since July 21, 2006.

A 27-year-old man entered Cottom’s dealership looking to finance two vehicles worth $63,000. He claimed to have owned a cell phone company that was purchased by a major carrier, which kept him on as CEO. He said he earned a combined annual salary of $365,000.

After the customer filled out the credit application, Cottom pulled a credit report, and up popped a “red flag.” The guy had a low 600 score and approximately 150 inquiries in a 30- day period. There was another “red flag,” a fraud alert on the bureau.

Knowing better than to send this guy to his lenders because they’d “stip” him, Cottom asked his salesperson to get other items to verify the customer’s identity.

The customer left and returned 30 minutes later with an original pay stub containing his company’s logo. Still feeling uneasy, Cottom also verified the customer’s Social Security Number. Aside from the inquiries and fraud alert, everything checked out. So Cottom submitted the credit application to see what the lenders would say. As expected, the inquiries stopped the process.

Cottom then verified the insurance card the customer provided, which listed four vehicles. That checked out, too. He also checked the business address the customer listed, which turned out to be a mailbox at a UPS store. He then checked the home address on the driver’s license, which was strangely issued just last August. Familiar with the upscale neighborhood where the customer claimed to live, Cottom drove by the home and noticed it was for sale. The customer later said he was in the process of purchasing the home.

“Then the clouds opened,” Cottom wrote in his post. One of his salespeople noticed the customer’s name in the local newspaper’s cop blotter, which said a felony warrant was issued for grand theft. Cottom called the police, which sent a detective to the dealership.

The warrant was related to an incident between the customer and a rent-a-car company. However, because the guy was living in another county and the rent-a-car company got its vehicle back, he was not charged. Cottom later learned that the fraud alert was related to a bad check the customer wrote to a neighboring dealership for an ‘07 Jaguar.

Detectives advised Cottom not to pursue the matter any further. The warning came more as a precaution to Cottom not to get mixed up with the guy. However, the customer was still calling and returned to the dealership with two years of tax returns. Cottom told the customer that he’d try, but said he doubted the forms would do much to change his lenders’ minds. In a following post, Cottom wrote down nine “red flags” the customer raised:

1. The customer said: “I don’t care what the payments are; just keep both under a grand.”

2. He picked out two highline vehicles.

3. The sale was too good to be true ($17,000 potential profit on two vehicles).

4. Most people who make $365,000 a year don’t file a 1040-EZ form.

5. The customer’s driver’s license was issued three weeks earlier, and stated an address where he didn’t live.

6. The work phone number went straight to voicemail.

7. The customer was carrying a Blackberry and two other cell phones. Later, he couldn’t remember which

phone number he listed in his application.

8. There were about 150 inquiries in a 30-day period.

9. The customer had a fraud alert on his credit bureau.

Cottom, who has experienced five similar incidents in his 15-year career, posted one last comment: “Listen to your gut instinct … It’s usually right.”

Unfortunately, the industry is going to be using its gut a lot more once the Red Flag rules, which fall under the Fair and Accurate Credit Transactions Act of 2003, are released. DealerTrack’s O’Neil said that could happen as soon as January (For more details on the Red Flag Rules, check out this month’s special show supplement). One of the points he stressed was the responsibility the Federal Trade Commission (FTC) is placing on dealers to determine when one of the 31 Red Flags should be raised.

I don’t understand the thinking here. Aren’t regulations supposed to make the F&I office as transparent as possible. Yet, here we are, waiting for a new set of rules that will be left open to interpretation. Boy, that’s a formula for disaster.

“I work for the dealership and my ultimate responsibility is to protect the dealership,” Cottom said. “The other people I work for are the lenders and insurance companies that insure the building. Even if I go to another dealership, I’m still going to deal with the same banks, which is why I have to protect them.”

Shouldn’t that be enough?