The devastation caused by hurricane Sandy is overwhelming.  The loss of life, homes, personal property, businesses, utilities, public transportation and automobiles appear to make this the most destructive and possibly the most memorable storm in our nation’s history. The personal tragedies will be long remembered.   And while Sandy may be the worst we’ve encountered, it’s almost impossible not to compare Sandy with Katrina, the storm that decimated New Orleans and the Gulf Coast in 2005.

Post Katrina, I witnessed two major compliance issues that impacted both dealers and consumers.  The first is in regards to flood damaged vehicles and the second relates to identity theft and bank fraud.  Is it inevitable that we will experience the same issues post Sandy?  Not necessarily.  Let’s look at each issue and see what dealers can do to protect themselves.

Approximately, 200,000 vehicles were flood damaged during Katrina.  Automotive News reported up to 13,500 vehicles with titles branded as damaged were moved to other states and ended up with clean titles.  In addition, it was estimated that another 20,000 to 30,000 damaged vehicles were moved to other states.  At the time, 17 states did not record the “salvaged vehicle” title designations for out-of-state cars and trucks.

Some insurance companies were another part of the problem. When a vehicle was totaled as a result of a wreck or damaged in a flood or other catastrophic event, the insurance company would pay the claim and then sell the car at a salvage auction and may or may not brand the title as salvage and would split the profits from the vehicle’s sale.

To avoid the issues of post Katrina, effective March 2, 2009 the National Motor Vehicle Title Information System (NMVTIS) was established.  The primary purpose of NMVTIS is to prevent various types of theft and fraud by providing an electronic means for verifying and exchanging title, brand, theft, and other data among motor vehicle administrators, law enforcement officials, prospective and current purchasers, and insurance carriers.  Effective July 1, 2012, California required licensed dealers to obtain a NMVTIS report from an approved provider before a used vehicle is offered or displayed for sale.  The cost for a report is between $3 and $12 and varies by service provider.

The other post Katrina issue I experienced was with identity theft and bank fraud.  At the time, the Red Flag Rule was not passed although the credit consolidators had introduced potential Red Flags in their credit reporting systems.  Fraud alerts were already included in credit reports, but new Red Flags included social security number discrepancies, a check against the national data base of deceased persons, and address and name discrepancies.  Dealers were selling cars to dead people, people whose social security number was issued before they were born, etc., etc.

Today most dealers have implemented effective Red Flag Identity Theft Prevention Programs and have incorporated tools to detect and mitigate identity theft.  One of the most effective tools is the “Out of Wallet Questions” offered by most Red Flag providers.  The OOWQs are one of the most effective tools to protect your dealership.  Remember Red Flags are not only found in credit reports but can be detected through a customer’s behavior and or unusual circumstances.  In difficult times, desperate people will do desperate things.

 Use these tools effectively and you can avoid déjà vu.