Stranger Danger: Why Identity Verification is Important for Compliance

In 2022 alone, the Federal Trade Commission received more than 1.1 million reports of identity theft and more than 2.3 million reports of fraud. Legislators and consumer protection agencies are well aware of the risks, which is why there are so many regulations that require verification of customer identity.

Making sure a customer is who they say they are is not only important for legal compliance, but it also helps protect your dealership from the financial and legal costs of fraud. One of the most proactive compliance processes your dealership should undertake is to develop and assign a Program Manager to implement a written Identity Theft Prevention Program (ITPP) to comply with the FTC Red Flags Rule1.

Saving Consumers and Your Dealership from Identity Theft

According to the FTC, your ITPP should be customized for your dealership’s size, location and activities to identify and address the “red flags” that you are most likely to encounter. The verification activities an ITPP may establish could include:

  • Closely examining photo IDs
  • Reviewing a customer’s recent credit bureau activity
  • Using an electronic identity verification service to compare customer information against databases of fraudulent activity and to assess the Social Security number that a customer has provided
  • “Out-of-wallet” questions, which are authentication questions about someone’s identity that go beyond the information that could be found in a stolen wallet

Use the ITPP with every customer and every document. In cases of problematic customers who resist requests for identity verification, you could escalate to your Program Manager and continue to seek additional information or ask more out-of-wallet questions. The Program Manager should persist until they are satisfied that they have verified the customer’s identity or that they need to decline to do business with the customer.

It’s important to document your ITPP activities for each credit customer and do ongoing training and testing to make sure your staff stays up to date on the process. Consult your legal counsel on developing and updating your ITPP as needed.

Making Sure Your Customers Are Legally Allowed to Buy in the U.S.

Another important identity check requirement centers around the OFAC SDN list. The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury maintains a list of Specially Designated Nationals (SDN) who are prohibited from doing business in the United States, which includes buying a vehicle. Dealerships are required to run each customer’s name against the list and – if they get a “hit” – follow steps to find out whether a possible match is a false positive. There are substantial civil and criminal penalties for doing business with someone on the list, so it’s vital to make sure that customers are not on the SDN list and to keep records of your OFAC checks.

To learn more about customer identity verification and compliance, sign up to download the free 2024 Dealertrack Compliance Guide.

1Please check with legal counsel for further details.


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