Red Flags Compliance Options

It goes withouAlthough the August 1, 2009 enforcement date for the Red Flags Rule is upon dealers – provided the Federal Trade Commission (FTC) doesn’t delay it at the last minute again – many dealerships have yet to comply. For those who still need to put their Red Flags program in place, here’s a sampling of the products available on the market to help you become compliant.

In a nutshell, the Rule was enacted to help prevent and mitigate identity theft. While it’s important to understand the specifics of the Rule, that’s been covered in depth by articles, books and seminars; what dealers want and need now is a solution. For dealers who want to read up on the Rule, go to http://ftc.gov/redflagsrule (make sure the URL is in all lower-case letters). For dealers looking to comply, some of the major components of a solution to consider include:

• Does it include training?

• Does it include a policy/procedural manual?

• Does it help with updating the manual?

• Does it identify Red Flags?

• Does it help with annual reporting?

• How is it priced?

Here are brief descriptions of 10 Red Flags compliance solutions for dealers to consider. This isn’t meant to be an all-inclusive list, as there are other products for dealers on the market.

Red Flag Check – Automotive Compliance Consultants
Red Flag Check is a component of Automotive Compliance Consultants’ overall compliance solution, Compliance Solve. President Terry Dortch said most dealers opt for the complete package, but they can get Red Flag Check separate. He described it as an online product with in-house auditing. “We don't just provide the software … We spend an entire day there initially to set up the software and train the employees. Then, we go back and write the manual, which takes about 10 days to 2 weeks. Then, we come back with the manual and go over it with them.”

While the dealer’s individual manual is being written, the dealership can get acquainted with the software, which provides a couple of “out of wallet” questions for each transaction that an identity thief presumably couldn’t answer and identifies red flags. Dortch stated, “The problem with a lot of the products out there is they only kick back a question if there's a red flag, but if I stole your identity yesterday and I go into a dealership today, there's not going to be any red flags on a bureau.”

The company performs quarterly audits, which help when updating the manual. “We keep a record here on our server of all the reports that [dealers have] run … We can make notes and keep track of everything on a quarterly basis and actually update the manual on an annual [basis],” he said.

CompliancePal – ComplianceCoach
CompliancePal is a Web-based software program that walks dealers through Red Flags compliance. Sai Huda, CEO of ComplianceCoach, said, “[CompliancePal] guides the dealer in five easy steps to answer a series of questions, and based on the questions, the software generates the risk assessment, generates the written program and the procedures, and the training materials.”

The software has a database of red flags, including the 26 red flags suggested by the FTC and other flags from actual identity theft cases, that dealers choose from to include in their program. Huda said “the software … generates your written program and procedures” manual based on your answers to the initial questions and which red flags you choose to include in your program. He added, “There are detailed supporting documents that show the exact procedures, what red flags the dealer is looking for and what are they going to do [if a customer is flagged].”

The database of red flags is continually updated, and dealers receive e-mail updates when a new flag is added so they can add it to their internal list if necessary. The software also provides reporting tools. While CompliancePal includes training materials the dealer can distribute to employees, dealers can also opt for online training for an additional fee.

While the program has a database of red flags, it does not scan each customer’s identity for flags. Huda said CompliancePal is “a compliance policy and procedure tool,” adding there are other tools to which dealers can subscribe to help verify a person’s identity. Dealers pay an annual fee for CompliancePal ranging from $495 to $1,295, depending on a dealer’s annual sales. For more information, visit www.CompliancePal.com or call 866.355.5150.

Dealer-Shield – ComplyNet
Two levels of Dealer-Shield are available. The bronze version covers Red Flags compliance, and the silver covers Red Flags, OFAC and privacy safeguards. Sales Manager E.J. Shelby said the main difference between the two is that all the training is saved and documented with the silver version. Training is included in the bronze program, but it’s not online. The written policy and procedural manual is included, and Shelby said, “As long as you follow along with the software … the written plan reflects the software.”

Dealer-Shield also helps with reporting, and ComplyNet keeps up with changes and will reissue new written plans to dealers as needed to keep them up-to-date. The program helps verify customer identities and offers two levels of red flags searches—express and comprehensive. The express search function is included in both the bronze and silver programs, and the comprehensive searches are available for a per-search fee. Shelby said the comprehensive searches, which provide “out-of-wallet” questions, are seldom needed because most customers pass the express search with no flags.

The bronze Dealer-Shield program is $109 per month per location, and the silver program is $199 per month per location. The comprehensive searches are $1.28 per search. For more information, visit www.ComplyNetOnline.com or call 800.653.1869.

Red Flags – DealerTrack
Red Flags, a part of DealerTrack’s Compliance Solution, is a Web-based program. Strati Papageorge, director of credit and compliance solutions, said, “We train any and all users at the dealership who may need it – F&I managers, salespeople, sales managers, controllers – anybody who may be involved in Red Flags specifically or compliance generally in the dealership.” He added that it fits seamlessly into the deal workflow if the dealer is already using DealerTrack systems.

Dealers receive a templated procedural manual, or written identity theft prevention program (ITPP), which is in Microsoft Word format, making it easy to customize and edit as necessary. Papageorge said, “[The written ITPP] conforms well to the DealerTrack Red Flags solution process, but if they're doing something outside that process, they're welcome to add to that.” The program offers tools that help with the required annual reports, as well as ongoing updates, and includes unlimited Red Flag and OFAC checks.

The Red Flags program automatically alerts dealers of discrepancies consistent with identity theft, assigns each customer a score to help dealers weigh the risks of conducting business and includes out-of-wallet questions. Also, DealerTrack is in the process of enhancing the reporting available through the program. Most dealers pay a monthly subscription fee between $299 and $399 for DealerTrack Compliance. The overall solution also includes document management to securely store dealership documents online, tracking and reporting to monitor dealership deal activity, menu selling to consistently present aftermarket products, and credit transactions and ID verification to submit credit apps and check customer identity. For more information, go to www.DealerTrack.com/Compliance or call 877.357.8725.

Red Flag Solution – First Advantage CREDCO
CREDCO’s solution encompasses credit reporting services to identify red flags, OFAC screening, BuyerID Index (which calculates fraud risk for customers) and Red Flag Manager (which is powered by Compli). The Red Flag Manager aspect of the solution helps dealers set up and monitor their Red Flags programs, including the written program manual. CREDCO trains dealership employees remotely on the process, the systems and interpreting the reporting.

The templated written manual is available through the Red Flag Manager portion of the solution. To customize the template to the dealership, Kevin Clements, senior vice president of corporate development at CREDCO, said, “We spend on average about an hour with them actually documenting what those procedures are going to be, helping them work through the process of putting down in a documented form how their operations function.”

The solution also helps with the required annual report and updates dealers’ internal programs to help maintain compliance. Plus, it records the updates so dealers have proof they’re complying with the Red Flags Rule. The solution costs $139 per month plus per-transaction charges for the use of the BuyerID Index portion of the solution. Clements said that charge averages about 25 cents per transaction. For more information, visit www.CREDCOServices.com/RedFlagSolution/ or call 800.694.1414.

Dealer Compliance Management System – RUCompliant
The Red Flags Rule is one compliance aspect covered by RUCompliant’s Web-based, front-end compliance solution. The solution includes the mandatory written policies and procedural manual and training for Red Flags compliance. John Dooley, president of RUCompliant, said every employee trained on compliance issues must pass the tests available through RUCompliant with a perfect score. Dealers can view each employee’s training progress and test scores. He added, “It helps dealers know their employees know how to handle themselves in these particular situations.”

Once the system is implemented, it breaks down the Red Flags Rule process into a checklist. If a red flag pops up when screening a customer (customer screening not included in RUCompliant’s system) the manager goes down the checklist and documents how they handled that particular red flag. The documented flags provide a starting place when it’s time for a dealer’s mandatory annual report and when updating the written manual.

The entire compliance management system costs $1,895 annually per dealership. For more information, visit www.RUCompliant.com or call 866.826.0338.

Red Flags Toolkit – Wolters Kluwer Financial Services (WKFS)
The Red Flags Toolkit is installed on dealership systems via CD-ROM, which the company mails to dealerships. Kevin Kopp, director of market management of the WKFS Indirect Lending group, said the Red Flags Toolkit is easy to use and includes a comprehensive user guide that walks dealers through the process of complying. It includes a training manual and a training record, so dealers can have documented proof they trained their staff.

The Toolkit also includes a policy and procedural manual template and a reporting form that allows dealers to record their annual program assessments. To help dealers maintain compliance, Kopp said, “We suggest to them what the red flags are, and we also give them alternatives to the course of action.” The Red Flags Toolkit does not identify red flags, but when coupled with WKFS’s AppOne (a separate product), dealers have a comprehensive program. AppOne has a system to identify red flags and a function that helps the dealer verify a customer’s identity.

Dealers receive free updates to their program via the Web, so the CD-ROM product is comparable to Web-based options. The one-time fee for the Red Flags Toolkit is $169 plus shipping costs. For more information, visit www.WoltersKluwerFS.com/info/RedFlagRC/ToolKit-AL2.html or call 800.552.9410.

Implement a Solution Now
If you’re not in compliance with the Red Flags Rule yet, the enforcement date is here (if there are no further delays). That means now is the time to comply because dealers will soon be vulnerable to the long arm of the FTC. Begin implementing your plan now. There are other Red Flags solutions available in the market; the inclusion of any product in this publication is not an endorsement of that product by Auto Dealer Monthly.

Vol. 6 Issue 8