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Red Flag Rules for Auto Dealers

By Ellen Topness, eHow Contributor



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An auto dealer must follow the Federal Trade Commission’s Red Flags Rule.

The Federal Trade Commission drafted the Red Flags Rule to protect consumers and businesses from identity theft. Auto dealers are included in the group of businesses that are required to comply with this rule. It is designed to ensure that auto dealers can verify the identity of an individual who enters into a business relationship with them.

  1. Written Plan

    • An auto dealer must have a written plan to combat identity theft. This plan should include an employee training process to ensure all employees understand the Red Flags Rule and the company’s specific ID theft prevention plan.

    Red Flags

    • The auto dealer should list all possible warning signs that suggest identity theft. For help in this area, the Federal Trade Commission’s website offers lists of possible identity theft indicators. Examples of red flags include customers who present suspicious documents or personal information when purchasing a car. In the prevention plan, the dealer should include the methods that will be used to identify these flags and the procedure to follow when one is detected.


    • All red flags and responses to them must be documented in a client’s file.The type of documentation the dealer chooses to use for this purpose belongs in the prevention plan. The Red Flags Rule also requires auto dealers to update the prevention program to include new risks to consumers and dealers as they are identified.


    • An auto dealer should have its board of directors or a senior employee approve the plan and appoint an administrator of the program. The administrator will ensure compliance to avoid FTC fines and potential claims under the state’s unfair and deceptive practices laws.


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