Enjoying what you’re reading? Sign up now.


Protect Your Dealership Against Identity Theft

Article Highlights:

  • Are you in compliance with the FTC Red Flags Rule?
  • Securing customer data is important in reducing identity theft.

Picture this: you wake up tomorrow morning and discover your credit score has dropped significantly due to multiple hard inquiries from lenders you don’t remember authorizing. You also notice a new account has been added to your report because (surprise!) you’re the confused owner of a brand new vehicle you obviously didn’t buy.

According to the Federal Trade Commission (FTC), an estimated 9 million people experience identity fraud every year, and if you think that only involves small credit card transactions or fake IRS calls, think again.

Last year, two men were arrested in New York after they purchased five luxury vehicles (valued between $500,000 and $1 million) from different dealerships using stolen social security numbers and forged drivers licenses. They were eventually caught at the sixth dealership and their scam came to an end, but for the dealerships who allowed the fraudulent car sales to go through, the consequences had only begun.

Did you know in cases of identity theft or fraud through the sale of a vehicle, the law holds the dealer accountable?

How you identify a customer and handle their personal information is more important than you think. In January 2011, the Federal Trade Commission began enforcing the Red Flags Rule, seeking to ensure dealers who originate or maintain retail installment sales and lease transactions implement a written identity theft prevention program.

The program must:

  • Identify relevant red flags.
  • Include processes on how to detect red flags.
  • Outline actions on how to respond to red flags.
  • Be updated periodically to reflect changes in risk.

In addition, dealers are also required to demonstrate they’ve complied with the rule requirements by preparing regular reports on the effectiveness of their program.

So what does this mean for you? It means you should already have an effective program in place to guard against identity theft and fraud. If you don’t, the penalties for non-compliance could cost you a pretty penny.

Address discrepancies, multiple recent inquiries, or multiple new accounts recently opened are just a few of the activities considered to be identity theft “red flags”. If you’re not checking every customer’s credit report for these, the FTC can enforce two penalties:

  • $3,500 in civil penalties per violation.
  • $16,000 in administrative penalties per violation.

Yikes! Make sure you’re compliant with the Red Flags Rule, able to evaluate risk, and protect your dealership against the damage of identity theft by investing in a program that provides identification verification services. Your customers and bank account will thank you for it.

Share this Article

Product Planning, Reynolds and Reynolds

Austin Love is the Product Planning Manager over Credit Bureau Inquiry. He came to Reynolds after holding various positions at dealerships in Sales and F&I and general sales for nine years.

Related Articles:

Online retailing surged in 2020, no surprises there. It’s now a huge part of every sales conversation, as more consumers want pieces of the typical

Seven years ago, I told the unpleasant story of my first “real” vehicle purchase. But, I learned the warning signs to watch for. Here's a

If you ask any GSM “What is your sales process?”, they will likely respond with 20 steps each salesperson is trained to complete every single

Nobody saw 2020 coming. It flipped our world upside down in a matter of days, and some of us are still trying to put our