Auto Dealer Fraud
Did you know Auto Dealer Fraud is ranked as the number one consumer complaint throughout the nation? Dishonest car dealers are deceitfully swindling average consumers of thousands of dollars. You may be a victim and not know it. For an average consumer it is often difficult to determine whether or not they have been victimized. Since there are so many forms of Dealer Fraud, an average person can easily be defrauded. Auto Dealer Fraud categories include: misrepresentation of title, false advertisement, misrepresentation of vehicle history, financing fraud, packing payments, negative/trade-in equity, contract confusion, and selling prior rental, wrecked, or marked vehicles without disclosure or as new vehicles.

Contract Confusions
Contract fraud is perhaps the most discrete form of auto fraud. Since an average consumer is unaware of the many deceptive tactics that dealers use, they could be bound into paying hundreds of dollars. An average consumer is manipulated through various tricks, including rewriting/backdating contracts; signing more than “one” document in an attempt to charge a higher down payment, higher APR (Annual Percentage Rate), etc.; forging customers’ signatures; failing to provide translations of the completed lease or purchase contract in the applicable language; packing the contract with add-ons such as a service contract, warranty options, and accessories including alarms, GAP insurance, paint/fabric protection, window etching or low jack, items the customers don’t need.

Rewritten Contracts/Backdating: This occurs when a customer does not qualify for financing under initial contract terms. Therefore, the customer may have to consent to increase in down payment, higher APR, etc. in order to qualify for a loan. The dealership deceitfully has the customer sign a second contract with different terms and backdates the second contract with the date of the initial contract, thereby, charging interest for a time period in which the contract is not yet in effect. Not only is the act of backdating illegal, it is also a violation of the Automobile Sales Finance Act (ASFA), which requires that all parties sign one document.

Financing Fraud
Consumers are routinely billed hundreds and sometimes thousands of dollars by fraudulent car dealers. These schemes are designed to extort the highest possible profit from each sale. Dealers use many tactics, including negative equity/trade-ins which a transaction where the consumer is falsely led to believe that the dealership is valuing the trade-in vehicle at the same amount as what is owed. However, in reality the actual cash value of the vehicle in trade-in is less than the amount owed. This difference is added to the cash price of the new vehicle and as a result consumers ends up paying more in taxes and registration. The consumer is also duped when they are told they do not qualify for a loan under the original contract terms and therefore must pay a higher down payment or APR. Often customers end up paying for add-ons (such as alarms, service contracts, GAP insurance, paint/fabric protection, window etching, lo-jack, etc.) that they don’t necessarily need.

Used Car Fraud
Used Car Fraud occurs when the seller fails to disclose prior vehicle history (such as prior accidents, or rentals, etc); misrepresents title (often by selling a “salvage” title); or odometer fraud, where an odometer is illegally rolled back, replaced, or started over.

Negotiating in a Foreign language
California law provides that if a customer negotiates a lease/purchase of a vehicle primarily in Spanish, Chinese, Korean, Tagalog or Vietnamese, the dealer must give consumer a translation of the final contract in the applicable language before the contract is signed.

Odometer Fraud
Odometer fraud is the most prevalent form of auto fraud, resulting in costs of thousands of dollars. Odometer fraud occurs when illegal changes are made to the mileage shown on a used vehicle’s title and odometer. Examples of odometer fraud include roll back, replacement, or having an odometer rolled through all digits and started over.

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AICPA Sues FTC

over Identity Theft Rule

The American Institute of CPAs has filed a lawsuit against the Federal Trade Commission challenging the applicability of the so-called “Red Flags Rule” to CPAs.

The lawsuit follows on the heels of the FTC’s recent decision to delay enforcement of the rule for the fourth time (see FTC Extends Deadline for ‘Red Flags’ ID Theft Rule). The rule, promulgated by the FTC in November 2007 to comply with the Fair and Accurate Credit Transactions Act of 2003, requires financial institutions and creditors to develop and implement written identity theft programs to help identify, detect and respond to patterns, practices or specific activities — known as “red flags” — that could indicate identity theft. It was originally set to take effect on Nov. 1, 2008, but after the latest extension, it is now set to become effective June 1, 2010.

Barry Melancon

 

The AICPA filed suit in the U.S. District Court for the District of Columbia seeking an injunction barring the FTC from applying the Red Flags Rule to CPAs, claiming the rule would impose onerous and unnecessary requirements on AICPA members. Its application to lawyers and law firms has already been blocked after a similar lawsuit was filed by the American Bar Association.

“We do not believe that there is any reasonably foreseeable risk of identity theft when CPA clients are billed for services rendered,” said AICPA president and CEO Barry Melancon in a statement. “As trusted advisors, CPAs are personally acquainted with their clients and already adhere to strict privacy requirements governing identifying information.”

The Red Flags Rule was mainly intended to apply to financial institutions and credit card companies, requiring them to develop and implement programs to detect and respond to activity that may signal identity theft. Under the FTC’s interpretation, the rule would apply to public accountants only because CPA firms typically bill clients for services rendered, thus technically qualifying them as a “creditor.”  However, the AICPA contends that public accountants do not provide financial services that would typically create identity theft risks for clients.

The AICPA’s complaint, filed by the law firm Fried, Frank, Harris, Shriver & Jacobson LLP, alleges that the FTC is exceeding its congressionally granted powers under the 2003 law by interpreting its Red Flags Rule to apply to accountants. The complaint alleges that the FTC has acted arbitrarily, capriciously, and contrary to law by failing to articulate a rational connection between the profession of public accounting and identity theft. The FTC failed to explain how the manner in which public accountants bill their clients in the normal course of business constitutes an extension of credit, according to the AICPA, adding that the FTC further failed to identify any legally supportable basis for applying the rule to accountants.

The AICPA’s lawsuit follows an Oct. 30 order by U.S. District Court Judge Reggie B. Walton in response to the American Bar Association’s lawsuit seeking to enjoin the FTC from applying its Red Flags Rule to practicing attorneys. Judge Walton granted the ABA’s motion in a partial summary judgment, holding that the FTC had exceeded its authority by interpreting the term “creditor” to include attorneys engaged in the practice of law. That same day, the FTC issued a press release announcing that it was delaying enforcement of the rule until June 1, 2010, a decision welcomed by the AICPA.

“The FTC made the right move in delaying implementation of the Red Flags Rule and we certainly still appreciate the commission’s continuing consideration of our request for a CPA exemption,” Melancon said.

A copy of the complaint filed by Fried Frank is available at http://www.aicpa.org/download/news/2009/AICPA-Complaint.pdf.

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Federal Judge Rules:

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Identity Theft Laws

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Fair and Accurate

Credit Transactions Act

From Wikipedia, the free encyclopedia

The Fair and Accurate Credit Transactions Act of 2003 (FACT Act or FACTA, Pub.L. 108-159) is a United States federal law, passed by the United States Congress on November 22, 2003,^[1] and signed by President George W. Bush on December 4, 2003,^[2] as an amendment to the Fair Credit Reporting Act. The act allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies (Equifax, Experian and TransUnion). In cooperation with the Federal Trade Commission, the three major credit reporting agencies set up the website, annualcreditreport.com, to provide free access to annual credit reports.^[3]

The act also contains provisions to help reduce identity theft, such as the ability for individuals to place alerts on their credit histories if identity theft is suspected, or if deploying overseas in the military, thereby making fraudulent applications for credit more difficult. Further, it requires secure disposal of consumer information.

//

Provisions

The FACT Act contains seven major titles: Identity Theft Prevention and Credit History Restoration, Improvements in Use of and Consumer Access to Credit Information, Enhancing the Accuracy of Consumer Report Information, Limiting the Use and Sharing of Medical Information in the Financial System, Financial Literacy and Education Improvement, Protecting Employee Misconduct Investigations, and Relation to State Laws.^[4]

Identity Theft Prevention and

Credit History Restoration

This title of the act contains provisions that deal mainly with the prevention of identity theft. In particular, it establishes new regulations concerning ‘fraud alerts’ and ‘active duty alerts’, establishes new limitations on the printing of customers’ credit card numbers on receipts, and prescribes that new regulations be established by certain government agencies regarding the detection of identity theft by financial institutions and creditors.

Fraud Alerts

The title requires that consumer reporting agencies, upon the request of a consumer who believes he is or about to be a victim of fraud or any other related crime, must place a fraud alert on that consumer’s file for at least 90 days, and notify all other consumer reporting agencies of the fraud alert. Furthermore, such consumer may request an extended fraud alert, in which case requires the reporting agency to disclose this fraud alert in any credit score that it issues for the consumer during a seven year period. An extended alert also requires the reporting agency to exclude the consumer from any list distributed to third parties for the purpose of extending credit or offering insurance to that consumer. The title also provides for any active duty member to request an active duty alert, which requires the reporting agency to disclose such alert with any credit report issued within 12 months of the request and to exclude the active duty member from any list distributed to third parties for the purpose of extending credit or offering insurance for two years from the request.^[5]

Truncation of Credit and Debit Card Numbers

The act also prohibits businesses from printing more than 5 digits of any customer’s card number or card expiration date on any receipt provided to the cardholder at the point of sale or transaction. The provision excludes receipts that are handwritten or imprinted, where the only method of recording the credit card number is by such means. The act did not become effective for three years after its enactment for any cash register manufactured before January 1, 2005 and did not become effective for one year after its enactment for any cash register manufactured after January 1, 2005.^[6]

Identification of Possible Instances of

Identity Theft (Red Flag Rules)

The act established so called Red Flag Rules, which required the Federal banking agencies, the National Credit Union Administration, and the Federal Trade Commission to jointly create regulations regarding identity theft prevention applicable to financial institutions and creditors. The Red Flag Rules also address how card issuers must respond to changes of address.^[7] Regulations that were established as a result include^{[citation needed]}:

• One that requires financial institutions or creditors to develop and implement an Identity Theft Prevention Program in connection with both new and existing accounts. The Program must include reasonable policies and procedures for detecting, preventing, and mitigating identity theft;

• Another that requires users of consumer reports to respond to Notices of Address Discrepancies that they receive; and

• A third that places special requirements on issuers of debit or credit cards to assess the validity of a change of address if they receive notification of a change of address for a consumer’s debit or credit card account and, within a short period of time afterward they receive a request for an additional or replacement card for the same account.

Another key item was the requirement that mortgage lenders provide consumers with a Credit Disclosure Notice that included their credit scores, range of scores, credit bureaus, scoring models, and factors affecting their scores. This form is typically available from credit reporting agencies, and many will send this directly to the consumer on the lenders’ behalf.

Confusion with the Scope of the Red Flag Rules

Financial institutions faced a mandatory deadline of November 1, 2008, to comply with the Red Flag Rules,^[8] section 114 and 315 of the Fair and Accurate Credit Transactions (FACT) Act. However, due to widespread confusion over coverage under the act, specifically whether the term “creditor” applies to particular businesses, the FTC postposed the deadline for compliance with Section 315 to May 1, 2009.

According to a Business Alert issued by the Federal Trade Commission in June 2008,^[9] the Red Flag Rules apply to a very broad list of businesses including “financial institutions” and “creditors” with “covered accounts”. A “creditor” is defined to include “lenders such as banks, finance companies, automobile dealers, mortgage brokers, utility companies and telecommunications companies”. However, this is not an all-inclusive list.

The regulations apply to all businesses that have “covered accounts”. A “covered account” includes any account for which there is a foreseeable risk of identity theft. For example, credit cards, monthly billed accounts like utility bills or cell phone bills, social security numbers, drivers license numbers, medical insurance accounts, and many others. This significantly expands the definition to include all companies, regardless of size that maintain, or otherwise possess, consumer information for a business purpose. Because of the broad definitions in these regulations, few businesses will be able to escape these requirements.^{[citation needed]}

Protection and Restoration of

Identity Theft Victim Credit History

Summary of Rights of Identity Theft Victims

Provisions in this title require that the Federal Trade Commission, in consultation with the Federal banking agencies and the National Credit Union Agency, “prepare a model summary of the rights of consumers … with respect to the procedures for remedying the effects of fraud or identity theft…”. Beginning sixty days after the summary of these rights were established, all reporting agencies are required to provide a copy of this summary to any consumer that contacts an agency and states that he believes he has been a victim of fraud or identity theft.^[10]

Blocking of Information Resulting from

Identity Theft

The Act also allows requires any reporting agency to block the reporting of any information in a consumer’s file that the consumer identifies as information that originated from an alleged identity theft. Such agency must block the information within four days of receiving proof, a copy of an identity theft report, the identification of the information by the consumer, and a statement from the consumer that the information is not a result of any transaction he participated in.

Agencies are not required to block any information (and may rescind any existing blocks) in the case that the block was found to be made in error or based on erroneous information as provided by the consumer, or that the consumer “obtained possession of goods, services, or money as a result of the blocked transaction or transactions.^[11]

Coordination of Identity Theft Complaint Investigations

This section requires that all consumer reporting agencies develop a means of communicating to each other consumer complaints regarding fraud or identity theft, or requests for fraud alerts or blocks. Furthermore, the section requires that each consumer reporting agency release a report each year to the Federal Trade Commission of fraud alert requests and complaints involving fraud or identity theft received by the reporting agency. Finally, the section requires the Federal Trade Commission to set-up a means by which consumers can contact the reporting agencies and creditors with a complaint involving identity theft or fraud.^[12]

Criticism

After its enactment, some consumer advocacy groups criticised the FACT Act claiming that it preempts some stricter and already-existing state regulations, and provides exceptions that are ‘far too generous’ to new regulations regarding disclosure of personal information by banks as found in the act.^[13] Furthermore, an article in the Washington Post criticised the difficulty in retrieiving the credit reports in some of the states that were first eligible under the act.^[14].

Preemption of State Laws

According to U.S. Pirg, a U.S. public advocacy group, Vermont, Colorado, Georgia, Maine, Maryland, Massachuseets, New Jersey, and California had all established laws by 1994 requiring credit bureaus to provide a free credit report on demand. However, according to U.S. Pirg, “[w]ith the FACT Act, the financial industry won its primary goal: permanent preemption of stronger state credit and privacy laws.”^[15].

Difficulty in Obtaining Credit Reports

An article dated March 13, 2005 and published in the Washington Post stated that while “[r]esidents of six East Coast states — Maryland, Georgia, Maine, Massachusetts, New Jersey and Vermont — are already eligible for free reports from all three agencies as a result of state laws”, the phone numbers provided to request these reports connected to automated systems that the article described as “maddening in their complexity and unforgiving if your circumstances vary from the system’s programming.”. Furthermore, the article criticised the fact that the automated systems forced consumers to “navigate a thicket of recorded information — including sales pitches for their products, such as a credit ’score’ (an evaluation of your creditworthiness) or a ‘monitoring’ service to help guard against identity theft”.^[14]

References

See also

• Fair Credit Reporting Act
• Political and Economic Research Council — think tank that did much of the research on FACTA

External links

• White House press release
• Full text of the “Fair and Accurate Credit Transactions Act of 2003″

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