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Red Flags compliance becomes mandatory June 1. yes, really.

November 10, 2010

As compliance deadlines go, the one for the Red Flags Rule has turned into something of a running gag. But circle June 1 as the next important date for the new regulation.

The Federal Trade Commission, which will enforce the rule, prepared a free how-to guide, "Fighting Fraud with the Red Flags Rule," that is on the commission’s Web site,, and questions can be directed to 

The Red Flags Rule requires auto dealers and other businesses involved in finance and insurance to develop and follow a written program to prevent customers from being victimized by identity theft. Examples of possible red flags include a credit report with a fraud alert, a notice of a freeze on a credit file, or an ID that appears to have been altered. The term "Red Flags" means a pattern, practice or specific activity that could indicate identity theft.

"If you work with a lot of credit applications, you may have seen multiple applications with the same or similar address," said Michael Benoit, a dealer attorney who wrote a guide on complying with the rule.

"It may mean the dealership is doing a good job selling to the whole family. Or," he said, "it might be that particular address is appealing to an identity thief."

The most critical component of Red Flags compliance is the creation of a formal, written Identity Theft Prevention Plan, which must set forth the policies and procedures the dealership will use to prevent and respond to incidents of identity theft.

Documenting all steps and actions taken is vital. From the initial evaluation to the consideration of sources of information, from the adoption of a formal ID theft prevention plan to employee training, every step must be documented.

The June 1 compliance deadline follows several false starts dating to 2008.