How to Comply with Red Flags Rules in Your Dealership?

Harish Makam

12 Oct 2022 2 months ago


If you’re a car dealership owner, then you know that compliance with red flags rules is essential for safeguarding your business. But what are red flags rules, and how can you ensure compliance in your dealership? In this blog post, we’ll give you an overview of red flags rules and provide tips for ensuring compliance in your business office. Stay safe and protect your customers with our helpful advice!

What is the Red Flags Rule?

Red flag rules

The Red Flags Rule is a regulation created by the Federal Trade Commission (FTC) in order to protect consumers from identity theft. The Rule requires businesses that are considered “creditors” to put into place programs to detect, prevent, and mitigate instances of identity theft. Businesses that are considered creditors under the Rule include those that regularly  extend, renew, or arrange for the extension of credit. While the Red Flags Rule initially applied only to financial institutions and creditors, in 2013 the FTC amended the Rule to include businesses of all types that offer goods or services on credit, including car dealerships. This means that if your dealership offers to finance vehicle purchases, you must have a Red Flags Rule compliance program in place. So what does this mean for your dealership? Let’s take a look at some tips for ensuring compliance with the Red Flags Rule in your business office.

Tips for Ensuring Red Flags Rule Compliance

1. Know the warning signs of identity theft.

In order to prevent identity theft, you first need to know what to look for. The FTC has identified several red flags that may indicate that someone is attempting to commit identity theft, and your dealership should be on the lookout for these warning signs. Some common red flags include:

  • Applications or other documents that appear to be forged or altered
  • Customers who are reluctant to provide information or who provide inconsistent information
  • Customers who attempt to rush the credit application process

2. Put a compliance program in place.

Once you’re aware of the warning signs of identity theft, you need to put a compliance program in place at your dealership. This program should be designed to detect, prevent, and mitigate instances of identity theft. There is no one way that will work for every business when compliance comes into play, so it is important to make a program that works best for you and your team. This takes into account the size of both your dealership and company as well as what type of scope works best for you. At a minimum, your compliance program should include:

  • A written policy that includes procedures for detecting, preventing, and mitigating identity theft
  • The designation of someone at your dealership who is responsible for overseeing the compliance program
  • Regular training for employees on how to detect and prevent identity theft

3. Keep an eye out for red flags.

Once you have a compliance program in place, it’s important to keep an eye out for any red flags that may indicate identity theft. If you see any of the warning signs we mentioned above, or if something just doesn’t seem right, don’t hesitate to take action. You may need to contact the customer to verify their identity, or you may need to report the incident to the proper authorities.

4. Protect your customers’ personal information.

One of the best ways to prevent identity theft is to protect your customers’ personal information. Make sure that all sensitive data is stored securely, and that only authorized employees have access to it. Be sure to encrypt all data that is transmitted electronically, and consider shredding any documents that contain personal information before disposing of them.

5. Stay up-to-date on changes to the Red Flags Rule.

The FTC periodically reviews the Red Flags Rule and may make changes as necessary. Be sure to stay up-to-date on any changes to the Rule so that you can make sure your compliance program is up-to-date as well. By following these tips, you can help to ensure compliance with the Red Flags Rule in your business office and protect your customers from identity theft.

Employee training for Red Flags Rule Compliance

As a car dealership, it is important to train your employees on how to comply with the Red Flags Rule. The Fair and Accurate Credit Transactions Act (FACT) requires businesses to create and implement an organized Identity Theft Prevention Program (IDP). The Rule, which is a part of the Act, stipulates that organizations must have in place and be implementing a written IDP dedicated to detecting, preventing, and mitigating identity fraud. The first step in complying with the Red Flags Rule is to designate a staff member or group of employees who are responsible for overseeing your dealership’s IDP. This individual or team should be familiar with the types of red flags that may indicate identity theft and be able to spot them in day-to-day operations. They should also be knowledgeable about the steps that need to be taken to prevent and mitigate identity theft. Once you have designated a staff member or team to oversee your dealership’s IDP, you should provide them with training on the Red Flags Rule and how to implement it at your dealership. This training should cover the types of red flags that may indicate identity theft, how to spot them, and what steps to take to prevent and mitigate identity theft. Employees should be given the opportunity to ask questions and get clarification on any points that are unclear. By providing employees with training on the Red Flags Rule and how to comply with it, you can help protect your dealership from potentially costly identity theft incidents. In addition, you will be taking an important step in protecting your customers’ personal information.

Penalties for non-compliance

If your dealership fails to comply with the Red Flags Rule, you could be subject to a number of penalties. These include fines, penalties, and/or damages that may be imposed by the FTC, state attorneys general, or private plaintiffs. In addition, your dealership could be subject to civil or criminal liability under other laws, such as the federal False Claims Act or state consumer protection statutes. To avoid these penalties, it is important to ensure that your dealership has a compliance program in place and that all employees are trained on how to detect and prevent identity theft. By taking these steps, you can help protect your business from the costly consequences of non-compliance.

The Bottom Line

As a business owner, you are responsible for ensuring Red Flags Rule compliance in your office. Use the tips above to create and implement a plan that works for your business. Be sure to train your employees on the Red Flags Rule and what they need to do to help comply with the regulations. By being proactive and taking steps to ensure compliance, you can avoid costly penalties and keep your business running smoothly. Have you implemented any of these tips in your own business? Let us know in the comments below!


Harish Makam