Because they deal with credit to arrange car loans and leases, your local car dealers are now considered “financial institutions.” As such, they are subject to the “Red Flags Rule” that was set to become effective on May 1, 2009.
At the last minute, the deadline for compliance was once again extended to August 1,
to give financial institutions time to put new practices in place. It was originally scheduled for compliance in November 2008.
This rule, which stems from the 2003 Fair and Accurate Credit Transactions Act, is an attempt to catch and stop identity theft when used to gain new credit.
This rule requires all financial institutions to use due diligence in making sure that the person asking for the loan is the person whose credit is being used for that loan. In fact, they must document the steps they take to perform that due diligence. If they fail in that respect, they’ll be subject to fines.
The list of 26 red flags includes:
• Credit card account activity inconsistent with past use
• An increased number of new accounts or inquiries
• An address on your driver’s license that’s different from the address on your credit report.
• An out of state address on your driver’s license and a local address on your application
• Photo ID that doesn’t really look like you
• A desire to complete the entire transaction on line
Not all financial institutions are pleased about these changes, citing the additional expense of record keeping and research. They say smaller banks and car dealerships will face financial hardship in order to remain in compliance.
For instance, some of the red flags revolve around Social Security numbers – Vendors must check to see that the social security number used is consistent with the applicant’s age, that it is a valid, issued number, and that it is not listed on the Social Security Administration’s Death Master File.
You can raise red flags on your own valid application, if you fail to inform all account issuers and the driver’s license bureau of a change of address; if you fail to get a new driver’s license when moving to a new state; or if your photo ID doesn’t really look like you.
If that happens, your car dealer is required to ask questions that you may feel are beyond a stranger’s right to know. For instance, the dealer may ask if you use or have used different forms of your name – such as Mary Smith, Mary D. Smith, M. Darlene Smith, Mary Darlene Smith, etc.
The FTC admits that use of stolen identity is rare at car dealerships. However, since the new definition of “financial institution” includes car dealerships, they must now come into compliance.
