Red Flag - Compliance

IADA is receiving calls inquiring about the FTC's new "Red Flags" requirements – what they are and when these new regulations are effective.

These rules are intended to prevent fraud and identity theft and become mandatory effective June 1, 2010. NADA has prepared a RED FLAGS Management Guide that was published in the summer of 2008 which provides detailed guidance on the steps necessary to comply with the new requirements. Additionally, NADA is planning to conduct a series of training webinar's on this topic as we aproach the Junw 1 2010 deadline.

Generally, the new regulations will require creditors and financial institutions (including automobile dealers) to do the following:

Implement a written Identity Theft Protection Program with procedures designed to detect and respond to "red flags" indicating the potential of identity theft.
Periodically review and update the written program to reflect changing risks.
Train responsible staff members to follow the program.
Responsibly oversee service providers and third party vendors.
Involve senior management or owner in approving the written program and its administration.
Preparation of annual report to ownership by responsible staff listing compliance activities.

CLICK HERE for a highlight of the new rules.


Red Flags 101

What is a Red Flag?

A Red Flag is a pattern, practice or specific activity that indicates the possible existence of identity theft.

The Laws

The identity theft program requirement is triggered by two sections in the FACT Act. Section 315 deals with the address match requirement. Section 114 deals with the “Red Flag” alert requirement.

Effective Date: January 1, 2008
Compliance Deadline: June 1, 2010

Address Match Requirement

This section applies to users of credit reports who get a notice of address discrepancy from a consumer reporting agency. A notice of address discrepancy is a notice that the address included in the user’s request for a consumer report and the address or addresses in the consumer reporting agency’s files are substantially different. Inconsistencies could result from a harmless typo by the dealer, or attempted fraud by the applicant. This section requires dealers to implement policies, training and procedures for handling a notice of address discrepancy.

"Red Flag" Alert Requirement

"Red Flag" fraud alerts provide a vital service by issuing a warning about information that appears to be genuine on the customer’s application, but may be questionable. These warning messages focus on high-risk applicants. The final rule also states: "While an institution or creditor may determine that particular guidelines are not appropriate to incorporate into its program, the program must nonetheless contain reasonable policies and procedures to meet the specific requirements of the final rules."