July 11, 2011 – Dealers fall victim to credit card fraud

Alysan Azman admits there were some suspicious signs in the transactions that led to Schiets Motorsports being bilked out of $1,000 and nearly more. The customer on the phone sounded fishy, he didn’t have a solid reason for picking the Freemont, Ohio, dealership, and he gave different billing and shipping addresses.

She can see that in hindsight, but the signals weren’t so obvious when her parts department was taking the fraudulent orders and shipping out the products.

Schiets was one of at least four dealerships that were swindled in the same credit card scheme. Originally, the losses totaled $12,000 for all four, however some merchandise has been returned, and Schiets was lucky to recover $2,700 worth of the $3,700 in merchandise originally sent out. At least one other dealership reported some of its products were returned as well.

But the businesses are still feeling the pain of the monetary loss and the fear of what could have happened if the scheme continued. Azman, general manager of Schiets, has already placed new procedures in her store, and she’s hopeful that other dealers will learn from her mistakes and prevent the same from happening at their stores.

Dealerships victimized
Azman first learned she had been defrauded when a fellow dealer called to report that Sheits had been listed on a chargeback report from Merchant Services.

A customer had ordered parts and accessories from at least four dealerships using a stolen credit card and similar names. The products were shipped to a drop-off site, and the dealers weren’t paid, which left Azman surprised and “sick.”

“Frankly, we haven’t had any credit card problems in a long, long time,” she said.

By the time she was alerted to the situation, the dealership had shipped three or four packages of parts, totaling nearly $4,000, to the customer.

“We had another package ready to ship the same day, so the call from the other dealer saved us from losing another $700,” Azman said.

She called the Schiets’ credit card processing company, and company personnel said they had nothing to do with theft and that she would have to contact the bank that issued the credit card. The bank said it would notify the cardholder. Azman then contacted the police department in Medicine Lodge, Kan., where the orders were shipped, and was told they couldn’t help without a report from the cardholder. She called the bank back and asked them to have the cardholder report the fraud to the Medicine Lodge police, but never heard if that happened.

Luckily, though, the fraud was caught before it became too serious.

“We had some packages come back,” Azman explained. “We were amazed and happy! They were marked ‘refused.’ The expensive exhausts came back, so instead of a $3,700 loss, we had a $1,000 loss.”


It wasn’t until after the credit card fraud had happened that Azman discovered the issue could have been prevented.

As Jan Kelly, an F&I expert and president of Kelly Enterprises explains, any dealership with proper accounting policies in place should be safe from fraud and possible fines from the Federal Trade Commission and Internal Revenue Service.

“Every, every dealer needs to have a Red Flag ID theft safeguard policy and process in writing and in place, and I’ve been preaching that for years,” she said.

Policies explain in writing to each document- and money-handling employee how to process such transactions. Free templates can be found on FTC.gov, or dealers can hire an attorney or consultant to complete one for them. Once a policy is in place, staff should be trained, and it should be updated as needed.

“Education is expensive no matter how you get it,” Kelly explained. “Either you can do it and be prepared, or you can wait until you get a fine, or in this case, be a victim of credit card theft. There is a cost, no matter what. It’s just what costs you the least, and I think being proactive costs you the least.”

The first thing she suggests dealers do is bring in new credit card terminals. The new terminals erase credit card information as soon as the transaction is processed, bringing them up to Red Flag Rule standards.

“The old terminals just don’t meet the standards, and if you don’t have the new terminals, then you are liable for the loss. You’re not in compliance,” she said, adding some banks, lenders and credit card processing companies will soon stop processing transactions from the old machines.

Each dealership should also have a group dedicated to financial compliance. One person should be the primary compliance officer, but others should be capable of handling the duties when the officer is out for the day, on vacation or sick.

Though she suggests the compliance officer not be the dealer principal, owners should be fully involved in the implementation and approval of compliance policies.

“Just get it done and keep up with it. Once you do it, it’s really easy to update, but you have to sit down and get it done; there is no substitution,” Kelly advised. “I cannot say enough words about being proactive and having the dealer get off the dime and buck up and get it done. Their business is at stake.”

When a customer makes a credit card transaction, it’s important that the person processing the sale asks for identification of the customer and verifies it with the customer’s face.

“This is common sense stuff. You just can’t look at a photo ID without looking at a person. But believe it our not, you have to spell that out in your procedures,” Kelly said.

When processing orders over the phone, Kelly suggests staff ask for the three-digit security code on the back of the credit card, require a signature at delivery and ask for a faxed copy of the card and identification if the order exceeds a couple hundred dollars.

If the correct procedures aren’t in place and policies aren’t being followed, dealers might not only be liable for the loss of merchandise, but they might also have to indemnify the costs charged to the credit card with the person whose card was stolen. Also, if not in compliance, the FTC and IRS can fine dealerships, with fees starting at $16,000 per incident and $35 per day in administration charges.

Learning a lesson
Since Shiets was victimized, Azman has researched and incorporated new policies at the dealership. Each staff member has been retrained to watch for signs of a suspicious transaction and to report any issues.

“I think they’re just going to be more careful and realize that paying attention to credit cards is going to be important,” Azman said. “I know this would never happen again. They all felt really bad about it.”

The dealership’s credit card processing company also reprogrammed Shiets’ credit card machines to ask for the three-digit number automatically. If the code and the address are declined, Shiets will not process the card.

“You’re very disappointed because you work very hard to make money,” Azman said. Her advice to other dealers would be to “make sure you have procedures in place to prevent credit card theft and that every employee understands the red flags. Also, too many credit card holders don’t monitor their accounts, so they have no idea their card has been stolen until they receive the statement — giving the thief ample time to steal our products.”

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