Are you complying with the Red Flags Rule?

The Red Flags Rule requires many businesses and organizations to implement a written Identity Theft Prevention Program designed to detect the warning signs – or “red flags” – of identity theft in their day-to-day operations. Are you covered by the Red Flags Rule? Read Fighting Fraud with the Red Flags Rule: A How-To Guide for Business to:

* Find out if the rule applies to your business or organization;
* Get practical tips on spotting the red flags of identity theft, taking steps to prevent the crime, and mitigating the damage it inflicts; and
* Learn how to put in place your written Identity Theft Prevention Program.

http://www.ftc.gov/redflagsrule

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FTC Extends Enforcement Deadline for Identity Theft Red Flags Rule

At the request of Members of Congress, the Federal Trade Commission is delaying enforcement of the “Red Flags” Rule until June 1, 2010, for financial institutions and creditors subject to enforcement by the FTC.

CAR DEALERS WILL HAVE UNTIL JUNE 1, 2010 TO MEET RED FLAG RULES COMPLIANCE

The Rule was promulgated under the Fair and Accurate Credit Transactions Act, in which Congress directed the Commission and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft. The resulting Red Flags Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect, and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.

The Commission previously delayed the enforcement of the Rule for entities under its jurisdiction until November 1, 2009. The Commission staff has continued to provide guidance to entities within its jurisdiction, both through materials posted on the dedicated Red Flags Rule Web site (www.ftc.gov/redflagsrule), and in speeches and participation in seminars, conferences and other training events to numerous groups. The Commission also published a compliance guide for business, and created a template that enables low risk entities to create an identity theft program with an easy-to-use online form. FTC staff has published numerous general and industry-specific articles, released a video explaining the Rule, and continues to respond to inquiries from the public. To assist further with compliance, FTC staff has worked with a number of trade associations that have chosen to develop model policies or specialized guidance for their members.

On October 30, 2009, the U.S. District Court for the District of Columbia ruled that the FTC may not apply the Red Flags Rule to attorneys. Today’s announcement that the Commission will delay enforcement of the Rule until June 1, 2010, does not affect the separate timeline of that proceeding and any possible appeals. Nor does it affect other federal agencies’ ongoing enforcement for financial institutions and creditors subject to their oversight.

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So, what is a red flag ?

A red flag is any specific activity, practice or pattern which indicates the possible existence of fraud or identity theft.

A red flag does not always indicate fraud or identity theft. In most instances a customer will have a legitimate reason for the discrepancy.

Some examples of red flags, a suspicious drivers license, an out of state address, multiple credit applications with the same address, multiple accounts opened by the same customer.

The red flag rules apply to all businesses who originate and/or maintain “covered accounts “. These covered accounts include all installment sales and lease transactions, whether they are in house or sold to an outside vendor.

By offering these “covered accounts” to your customer you are required to meet and obey the red flag rules. A procedural audit of all business procedures will determine what red flag rules you will have to address.

The red flag rules have penalties for non-compliance which are severe. Failure to build and analyze your dealer transactions with an Identity Theft Detection Program could result in a civil penalty of $ 2500. per customer.

If you are warned by the FTC and still do not comply the penalty increases to $ 11,000 per customer. This could in a very short time bankrupt any dealership.

The Identity Theft Detection Program must prevent, detect and mitigate all potential identity theft issues in regards to “ covered accounts”.

IF YOU ARE A BUSINESS HANDLING NON – PUBLIC INFORMATION

RED FLAG COMPLIANCE IS MANDATORY BEFORE JUNE 1, 2010

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Occupational Licensing Industry News

OLIN 2009–13a

Red Flags Rule Enforcement Delayed

Revised Red Flag Rules Enforcement Date

This memo supersedes OLIN 2009-13.

Enforcement of the Red Flags Rule has been delayed by the Federal Trade Commission (FTC) until June 1, 2010.

Reference OLIN 2009-11

Red Flags Rule Compliance

Distribution Notification that this memo is available online at www.dmv.ca.gov/pubs/olin/olin.htm

was made via E-Mail Alert in November 2009 to: •

Dealers

Contact

Questions should be directed to the FTC at,

RedFlags@ftc.gov
MARY GARCIA,

California DMV

Chief Occupational Licensing

BEWARE OF SPOT DELIVERY!
DON’T BE PUT “ON THE SPOT.”

So you purchased a beautiful new car, signed all the necessary paperwork and drove it right off the lot with a big smile on your face. The dealer got you approved on the “spot”. Or so you thought.

A few days or weeks later, the dealer calls and asks you to return to “sign a few more papers”. “Mr. Smith”, they say, “we couldn’t get the car financed and you need to sign a new loan with another bank” or “you need someone to co-sign”, or “give us another $1000 and we can do the deal”, or “Mr Smith, we need to increase your monthly payment to get this done”. The dealer may even have delayed paying off a traded vehicle loan or refused to mail registration papers, all to place additional pressure on the consumer to do as they are instructed or to face dire consequences to their credit.

Sound familiar? It gets worse.

If you refuse, the dealer may threaten to repossess the car, tell you that you have no legal entitlement to keep it or even make you wait for hours at the dealership under some excuse, to wear you down. This situation is most common involving consumers with bad credit, since dealers perceive that such people are vulnerable and easy to take advantage of.

Most consumers assume the dealer is telling the truth and will do whatever the dealer says, resulting in higher payments, additional money being spent over the life of the loan and/or thousands of dollars in increased “hidden” costs. Those who refuse, see their cars repossessed.

What is happening here? It’s a Scam. Dealer Fraud. Unlawful. Illegal. Call it what you will. The industry has given it a name: Spot Delivery, a description which refers to the dealer placing a consumer in a car “on the spot”, to get the sale, only to “yo-yo” them back at a later date for additional funds. Played to perfection, a dealer can reap thousands of dollars in unearned fraudulent gain.

What to know about Spot Delivery: If you signed purchase documents and registration applications and if you obtained insurance for the vehicle, had a new license plate put on the car and/or had your old plate transferred, the car belongs to you.

Spot Delivery happens to unsuspecting consumers throughout the United States. It is very popular with dealers in Pennsylvania, New Jersey and Delaware. If you find yourself in this situation, the chances are good that you have legal remedies available to right this wrong.
Tools to Protect Yourself from Spot Delivery or Dealer Fraud:

* Remember that if you have signed papers, you own the car, regardless of whether the vehicle has been financed.
* Your credit was good or the dealer would not have delivered the car to you at the price you agreed to pay
* A finance document showing payments, deposit, interest rate and other financial items is a binding contract, giving you specific legal rights.
* You own the car subject to making payments only. The dealer cannot change that once you take possession.
* Keep all copies of your paperwork and anything else associated with the sale (including calendars, photographs, advertisements). If the finance manager asks for your papers at any time for any reason, refuse! Keep these documents in a safe place, not the car.
* If you are called back to the dealership to sign additional papers, either do not go or do so in a different car than the one you bought.
* Have a friend or spouse drive you and witness whatever is being told to you. This will prevent the dealer from taking your car as hostage, an all too common happening.
* If a dispute arises with the dealer over the contract and the dealer demands the car is returned, park it in a garage or remote location until the matter is resolved, to prevent it from being taken against your wishes.
* Put together a complete timeline of everything that happened from the time you thought of purchasing the car until the car was taken away. Try to remember specific names of dealership personnel and any statements that were made to you during conversations with the sales and finance staff.
* Keep track of all monies you had invested into the purchase, including registration, insurance, down payment and trade. Never pay cash and always get a receipt!

If you believe you are a victim of a Spot Delivery scam and wish to discuss it with a consumer attorney, call 1-800-LEMON-LAW (1-800-536-6652) or contact us by e-mail. Remember to leave a daytime telephone number where you can be reached. Based on the information you provide us, an attorney will meet with you to discuss your claim. If we do decide to represent you, the process will be cost-free.

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Auto Dealer Fraud FAQ

Q: What is “auto dealer fraud”?

A: “Auto dealer fraud” is a term that describes deceptive and unlawful practices used by automobile dealers, at almost any stage of the vehicle purchase process — from advertising, to negotiation of vehicle pricing and financing terms. Examples of auto dealer fraud include “bait and switch” advertising practices, deceptive inflation of vehicle prices, and failure to disclose information about a vehicle.

Q: How does a “bait and switch” occur?

A: “Bait and switch” sales tactics are a form of false or deceptive advertising, in which a car dealer lures potential buyers to the dealership by advertising one vehicle at a certain price, then tells the customer that the particular vehicle is no longer available before using aggressive tactics to sell a different, more expensive vehicle (or the advertised vehicle at a price higher than the advertised price).

Q: What kinds of things must used car dealers disclose about a used vehicle that is being offered for sale?

A: In most states, car dealers must disclose whether a used vehicle has incurred significant damage in an accident, has been designated “salvaged”, or has been flood-damaged.

Q: What is a mileage “rollback”?

A: A form of auto dealer fraud, a “mileage rollback” or “odometer rollback” occurs when the odometer of a used vehicle (which indicates the total miles the vehicle has been driven) is altered (or “rolled back”) to display a number that is lower than the vehicle’s actual mileage.

Q: How do auto dealer fraud cases differ from Lemon Law cases?

A: Although both involve motor vehicles, auto dealer fraud cases are very different from Lemon Law cases. In auto dealer fraud cases, improper tactics used by a car dealer during the vehicle sale process are the focus, while lemon law cases arise from problems or defects with the vehicle itself.

Q: Should I contact the dealer if I feel that a car salesman committed fraud when I bought a car?

A: You may be required to do so. In many states, you (or your attorney) must contact the auto dealer and give them an opportunity to correct the problem to your satisfaction, before taking any legal action for possible auto dealer fraud. This contact should be in writing, and should clearly illustrate both the problem (i.e. the dealer’s failure to disclose certain financing charges), and what steps you would like the dealer to take to resolve the problem (i.e. a partial refund of the vehicle purchase price).

Q: Can I file a lawsuit for auto dealer fraud?

A: In most cases, yes. If you recently purchased a vehicle and you suspect that the dealer may have committed fraud in the sales process, you may want to speak with an experienced Auto Dealer Fraud Attorney. An Auto Dealer Fraud attorney will evaluate all aspects of your case and explain all options available to you — including filing a lawsuit for your damages — and will work with you to ensure the best possible outcome for your case. Remember that in some states, you are required to contact the dealer and give them an opportunity to correct the problem before you take any legal action.

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Occupational Licensing Industry News OLIN 2009–11

Red Flags Rule Compliance

New Information

Effective June 1, 2010, the Federal Trade Commission (FTC) will begin enforcement of the Red Flags Rule, a regulation issued under the Fair and Accurate Credit Transactions Act (FACTA), which is a federal law designed to enhance protection against identity theft.

Questions and Answers

Q. What is a red flag?

A. A red flag is a warning sign that identifies a suspicious pattern, practice, or activity that indicates the possible existence of identity theft.

Q. Does the Red Flags Rule list the identity theft warning signs?

A. The Red Flags Rule lists the following identity theft warning signs:

1. Alerts and notifications received from credit reporting agencies and third-party providers.

2. The submission of suspicious documents or suspicious identifying information.

3. Unusual or suspicious account activity.

4. A concern shared by a customer, identify theft victim, or law enforcement.

Q. Who must comply with the Red Flags Rule?

A. The FTC requires all creditors who have covered accounts to comply with the Red Flags Rule. A creditor is an entity that regularly grants loans, arranges for loans or the extension of credit, or makes credit decisions. Covered accounts are primarily personal, family, or household accounts requiring multiple payments or transactions, such as an automobile loan or an account which has a foreseeable risk of identity theft.

Q. Does the Red Flags Rule apply to vehicle dealers?

A. If a dealer extends auto credit to consumers or arranges auto credit for consumers, the rule will most likely apply.

Q. What is required?

A. The Red Flags Rule requires the development and maintenance of a written Identity Theft Prevention Program (ITPP) to detect, prevent, and reduce the possibility of identity theft. The ITPP must include the following four elements:

1. Reasonable policies and procedures to address the “red flags” of identity theft you may encounter in the day-to-day operation of your business.

2. A plan to detect the red flags you’ve identified. For example: if you’ve identified fake IDs as a red flag, then you must have procedures in place to detect possible fake, forged, or altered identification, such as training staff.

3. Appropriate actions to take when red flags are detected.

4. Identify the persons responsible for implementing and administering the program and approval of the program by your board of directors. If you don’t have a board, approval of the ITPP is up to an appropriate senior-level employee. Your ITPP must also include plans for training staff and periodic re-evaluation to reflect new identity theft risks.

Q. Will all ITPPs be the same?

A. While some businesses and organizations may need a comprehensive program that addresses a high risk of identity theft, others with a low risk of identity theft could create a more streamlined program.

Q. What if our company outsources or subcontracts some of our work?

A. If you outsource or subcontract parts of your operation that would be covered by the Red Flags Rule, your ITPP must address how you’ll monitor your contractors’ compliance.

Q. When is the deadline for implementation of the Red Flags Rule?

A. The implementation deadline was November 1, 2008, but the FTC is delaying enforcement of the Red Flags Rule until June 1, 2010, to give creditors and financial institutions additional time to develop and implement written identity theft prevention programs. However, this delay does not prevent other federal agencies from enforcing the Red Flags Rule after November 1, 2008, for institutions subject to their oversight.

Q. Who enforces the Red Flags Rule?

A. The FTC, the federal bank regulatory agencies, and the National Credit Union Administration enforce the Red Flags Rule.

Q. Are there any non-compliance consequences?

A. 1. Federal Administrative Action: The FTC can enact penalties up to $2,500 per violation (15 United States Code §1681 (a)(2)(A)).

2. State Enforcement: States can impose up to $1,000 per violation, plus attorneys’ fees.

3. Civil Liability: Customers can also file civil suits to recover actual damages sustained due to a violation.

Q. Where can I obtain a copy of the FTC guidelines?

A. A copy of the guidelines may be obtained at:

http://ftc.gov/bcp/edu/microsites/redflagsrule/more-about-red-flags.shtm

NOTE: This is only a summary of the Red Flags Rule. Please refer to the FTC guidelines for more comprehensive information.

Background The Fair and Accurate Credit Transactions Act of 2003 (FACTA) amended the Fair Credit Reporting Act of 1970 to combat identity theft and requires joint federal agencies to develop and implement regulations. The regulations are intended to protect consumers by requiring businesses to develop a written ITPP plan. These businesses include those that extend credit or maintain consumer accounts allowing multiple payments or transactions or maintain accounts that have a reasonably foreseeable risk of customer identity theft.

Distribution

Notification that this memo is available online at:

dmv.ca.gov/pubs/olin/olin.htm

was made via e-mail alert in June 2009 to the following:

• All E-mail Alert subscribers. Contact For Red Flags Rule concerns or questions contact the FTC, at:

RedFlags@ftc.gov
MARY GARCIA,

California DMV

Chief

Occupational Licensing

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FTC Extends Enforcement Deadline for Identity Theft Red Flags Rule

At the request of Members of Congress, the Federal Trade Commission is delaying enforcement of the “Red Flags” Rule until June 1, 2010, for financial institutions and creditors subject to enforcement by the FTC.

CAR DEALERS WILL HAVE UNTIL JUNE 1, 2010 TO MEET RED FLAG RULES COMPLIANCE

The Rule was promulgated under the Fair and Accurate Credit Transactions Act, in which Congress directed the Commission and other agencies to develop regulations requiring “creditors” and “financial institutions” to address the risk of identity theft. The resulting Red Flags Rule requires all such entities that have “covered accounts” to develop and implement written identity theft prevention programs to help identify, detect, and respond to patterns, practices, or specific activities – known as “red flags” – that could indicate identity theft.

The Commission previously delayed the enforcement of the Rule for entities under its jurisdiction until November 1, 2009. The Commission staff has continued to provide guidance to entities within its jurisdiction, both through materials posted on the dedicated Red Flags Rule Web site (www.ftc.gov/redflagsrule), and in speeches and participation in seminars, conferences and other training events to numerous groups. The Commission also published a compliance guide for business, and created a template that enables low risk entities to create an identity theft program with an easy-to-use online form. FTC staff has published numerous general and industry-specific articles, released a video explaining the Rule, and continues to respond to inquiries from the public. To assist further with compliance, FTC staff has worked with a number of trade associations that have chosen to develop model policies or specialized guidance for their members.

On October 30, 2009, the U.S. District Court for the District of Columbia ruled that the FTC may not apply the Red Flags Rule to attorneys. Today’s announcement that the Commission will delay enforcement of the Rule until June 1, 2010, does not affect the separate timeline of that proceeding and any possible appeals. Nor does it affect other federal agencies’ ongoing enforcement for financial institutions and creditors subject to their oversight.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,700 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

MEDIA CONTACT:
Office of Public Affairs
202-326-2180

http://www.ftc.gov/opa/2009/10/redflags.shtm

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