IADA - The Idaho Automobile Dealers Association, Inc.

RED FLAGS RULE REMINDER

IADA was recently advised by a large captive finance company that several of their dealer clients are refusing to implement the upcoming FTC Red Flags Rule (enforcement of which has been delayed an unprecedented four times, and which is set to begin June 1, 2010).

The dealers refusing to implement the law each gave one of two equally mistaken reasons:

Myth #1: The Red Flags Rule does not apply to new car dealers.

Myth Busted: The Red Flags Rule applies to “Creditors” and their “Covered Accounts.” Creditors are defined to specifically include automobile dealers, and “Covered Accounts” specifically include automobile loans. While FTC enforcement of the Red Flags Rule has been stayed until June 1, 2010, the rule is currently in effect.

Myth #2: Compliance with the Red Flags Rule by a finance company “trickles down” to the dealership—requiring no further action by the dealership to comply.

Myth Busted: The duties under the Red Flags Rule specifically apply to all entities subject to the Red Flags Rule—including dealers. You are specifically required to create and implement a comprehensive Identity Theft Prevention Plan, as are the financial institutions with which you do business. Plans created and implemented by these financial institutions do not extend to cover your dealership. Furthermore, federally-backed banks and credit unions are regulated by the FDIC and NCUA, which have not followed the FTC in delaying enforcement. Just as the Red Flags Rule requires that you ensure that auto brokers and other service providers implement policies and procedures to detect, prevent, and mitigate the risk of identity theft, these banks and credit unions will be required to ensure you do the same before doing business with you. In practical terms, banks and credit unions will contractually require your dealership to implement an identity theft prevention program as a condition of buying your contracts.

For more information on your responsibilities under the Red Flags and Address Discrepancy Rules, consult NADA’s A Dealer Guide to the FTC Red Flags and Address Discrepancy Rules: Protecting Against Identity Theft.