Winding Road

Sales Compliance and the Red Flags Rut – by Gil Van Over

The latest statistics from the Federales suggest that at least one-quarter of Americans have been a victim of identity theft. That percentage would likely be higher if more victims were aware of it.

Under the Federal Trade Commission’s Red Flags Rule, dealerships are obligated to have a program in place to help diminish the likelihood that an identity thief can use a victim’s information to purchase or lease a vehicle.

We all get into ruts. One of the most frequent I see in sales managers is the Red Flags rut. It’s also among the most perilous.

Red Flags War Story

An attorney once called to ask me to represent a dealer who was being sued by a victim of identity theft. As you know, I always work for the good guys, never the Dark Side.

The fact pattern was that an identity thief drove over four hours on back roads to the dealership, intending to purchase a vehicle using a victim’s identity. The dealer’s vendor identified at least nine potential Red Flags, which the dealer ignored. Unfortunately, the dealer’s finance source also ignored them and financed the contract.

Three months later, the victim became aware his identity had been stolen and filed the requisite police report. The finance source successfully repossessed the vehicle (a rarity), and recoursed the paper back to the dealer at a loss.

Fast-forward another three months. The identity thief is now in the recycling-the-victim’s-identity rut. He makes the same drive to the same dealership (asking for the same salesperson) to purchase and finance another vehicle using the victim’s identity. This time the dealer’s vendor identified 13 potential issues and even issued an alert.

The dealer spot-delivered the vehicle and financed it with a different source who also ignored the glaring red flags. Of course, three months later, the victim found out, filed another police report, then sued the dealer for six figures.

The lawsuit could have been avoided had the dealer followed just a very basic Red Flags process or paid attention to the many warnings.

Your Red Flags Process

Common discrepancies identified by Red Flags vendors include address, Social Security number, a consumer-initiated credit bureau alert, a security freeze, or the vendor’s inability to satisfactorily confirm the consumer’s identity against their 500 or so databases.

To properly clear the address discrepancy, the manager should obtain valid proof of residence from the customer. Acceptable proof of roof does not include license, registration, or insurance card. These are among the first documents an identity thief forges.

The same process applies for Socials. Obtain a copy of the Social Security card or a letter from the Social Security Administration. Watch out for forgeries! A quick internet search will provide examples of legitimate cards to compare with the issue date. They change and morph over time.

And no, successfully answering out-of-wallet questions clears neither the address nor the Social Security discrepancy. Out-of-wallet questions can clear other potential Red Flags, including an unconfirmed last name or a bureau fraud alert.

The ‘Manage the Report’ Rut

Most of the vendors have a mechanism to document that the Red Flag was cleared and retain that documentation in its archives. Unfortunately, it can be as simple as the manager clicking on a button in the software.

The correct approach to documenting that the dealership conducted its due diligence and properly vetted the transaction is to treat a Red Flags like you treat a subprime stip.

Many dealers use a structured approach to clearing and submitting subprime stips, and with good reason. If a deal defaults, it can become subject to recourse from some subprime finance sources because the stips were falsified or bogus. If you do not obtain, vet, copy, and submit the stips, you do not have the documentation to fight the claim.

Same goes for documenting the clearance of potential Red Flags: Obtain the clearing documentation, vet it for legitimacy and authenticity, copy it for your file, and then document the clearing action in your Red Flags vendor’s system.

You now have proof that, to the best of your knowledge, you properly cleared the Red Flags and can proceed with the sale.

And yes, good luck and good selling!

Author

Gil Van Over
Gil Van Over

Columnist

Gil Van Over is the executive director of Automotive Compliance Education (ACE), the founder and president of gvo3 & Associates, and author of “Automotive Compliance in a Digital World.” Email him at gvo@bobit.com. View Bio

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