Delays don’t mean you can ignore Red Flag Rule

Jan Kelly, president of Kelly Enterprises — This past week we received notice that the Red Flag Rule implementation date was delayed for the fifth time. Many of you reading this may think this is something to ignore, and those of us in education and compliance are feeling as if we have been living in the story of “Peter and the Wolf.” Rest assured the wolf will be knocking one day, and it is our hope that each dealership will be prepared.

What does this regulation do and what departments does it affect? The regulation is focused on those who take credit applications, processed credit applications, credit bureaus and personal non-published information on consumer credit. The financial institutions (dealerships included because we obtain credit information and pull credit bureaus) must establish policies and procedures designed to detect, respond to and mitigate the loss due to identity theft.

Four steps include doing a risk assessment, writing recommendations, creating policies and procedures and then conducting self-audits. You will need to have the board of directors approve the policies and procedures in addition to filing a written annual report with your board of directors about the results of the self-audits.

Do you have ongoing compliance education for your managers? If not, this is an excellent time to begin. Do you have written policies and procedures regarding the Safe Guard Rule?  If not, it is a great time to get current and to tie in the Red Flag Rule criteria with the Safe Guard policies and procedures.

Do you have a designated compliance officer for your facility?  If not, it is a great time to enlist all of your managers into your compliance team.  Many hands make light work.

The new deadline for compliance with the Red Flag Rule is Dec. 31, 2010.

What are the penalties? The federal government can fine the dealership $16,000 per violation plus a $3,500 a day administrative fine. Additionally, failing to become compliant can also open the dealership up to lawsuits under the states Unfair and Deceptive Business Practices statues.

As always these words are not meant as legal council as I am not attorney, nor a judge.  Please consult your own legal council for the exact legal opinions. These words are meant as education only, and as a nudge for you to take action.

If you need help in getting started, or are too busy with the daily business to sit and write, please telephone our office, we can help.


Jan Kelly, president of Kelly Enterprises, is an educator and consultant, convention speaker and writes frequently for industry publications. For information about educational venues or joining an F&I 20 Group, call 800.336.4275 or visit

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