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The old photocopying, barcode-scanning and verification calling is powerless against the fake ID epidemic
ID theft is a raging American epidemic: According to the FBI, it has overtaken the drug trade as the most costly U.S. crime. Just consider: more than 267 million consumer records were exposed - and a record 60 million pieces of personal ID - wound up in the hands of identity thieves last year.
And every week, it seems, I hear or read about another case of identity theft or fraud at dealerships. More dealers than ever are reporting that more impeccable-looking criminals are presenting impeccable-looking (fake) IDs for test-drives, and then driving off…or even successfully purchasing vehicles with them (with their associated, impeccable-looking fake checks, credit apps, insurance cards, etc.)
The huge problem is that today’s ID thieves and fake-ID-producers use cutting-edge technology, while the average dealer’s standard verification processes remain in the Dark Ages. So dealers are increasingly powerless against this fast-growing, very costly problem.
The government, of course, mandates that dealerships put in place processes that can help flag identity fraud. About a dozen years ago the FTC launched the Safeguard Rule, and then in 2011 they followed up with the Red Flags Rule. The latter requires that financial institutions and businesses that function as “creditors,” i.e. those that “regularly grant loans, arrange for loans or make credit decisions” – including car dealerships – must implement a written Identity Theft Prevention Program to detect the warning signs of identity theft in their day-to-day operations.
While the FTC doesn’t spell out specific required procedures, they can seek both “monetary civil penalties and injunctive relief for violations” – with the former running to $3,500 per violation.
So, many dealers, with their eye mainly on compliance, set up a Red Flags Program that creates a “look, I tried” paper trail. But the real cost when someone drives away with a vehicle is to the dealer. And what might possibly prove adequate processes to the FTC, isn’t adequate to actually protect against today’s ID scammers at dealerships.
And the cost to dealers is becoming an increasingly expensive, scary problem. More lenders are now requiring dealers to buy back ID-theft-related deals. (More lender contracts include verbiage stating the dealer is responsible for establishing the identity of the buyer, and that they’re responsible for the damages when a car is stolen or bought fraudulently.) So, think about the real cost of just one car obtained with false IDs/documents: with the cost of the vehicle, re-buying the contract and the lawyers fees, it can easily go north of $100,000.
Eyeballing & Endless Calls Don’t Cut It Anymore:
Most dealers’ processes are, as I’ve said, powerless against sophisticated ID-fakers. Every dealer knows the drill: all that cumbersome scrutinizing and photocopying of IDs – all those endless verification calls. Dealers still use barcode scanners, but they can only verify that data is present on a card, not that it’s valid.
Yes, there is a ton of good advice out there from the FTC and in the dealer trades. Dealers are told to do everything from requiring only US IDs – to verifying every license with the DMV, and credit report with the reporting services, and insurance card with the insurance company – to comparing licenses from people out of state with the examples in NADA’s titling guidebook – to taking thumbprints of all customers not personally known – and using identity verification services to spot red flags and to obtain “out of wallet” questions to trip people up.
An article on flagging ID fraud will be called, “30 Things To Do to Spot Identity Fraud.” It’s insanely complex and time-consuming. And with most cars sold on weekends, many of these steps (like calling the DMV and other verifying organizations) happen when those organizations are closed.
And if many of these cumbersome processes may successfully raise flags in an F& I department – what about at the point of test-drive? How many dealerships have I been in on a busy weekend, where there are 100 cars out and photocopied IDs are flung about the dealership…and the whole situation is chaos?
Fight the Criminals’ Technology – With Technology:
Of all the advice I have seen given to dealers, the best is from the FTC, who states: “Businesses with a high risk for identity theft need more robust procedures…like incorporating fraud detection software.”
The technology is here. For instance, a company like AssureTec Technologies, which is the ID scanner technology that’s chosen by hardcore organizations like the Department of Homeland Security, the Department of State, the NYPD and DMVs nationwide, can do things that no dealer eyeballs and due diligence staff ever could:
With a swipe of a license, this technology can:
This is the type of potent ID authentication technology that dealers desperately need. And it’s why we recently partnered with AssureTec to create an ID scanner product that powerful for auto dealers – it’s called ID Drive.
But whatever hardware/software solution a dealer uses, the fact is they need to adopt technology – and extreme technology - to fight the fake ID wave. If dealerships made every test-driver – and every person that walks into their store – simply swipe their license/ID at such a state-of-the-art scanner, ID fraud would be radically reduced.
 Open Security Foundation data, 2013