FTC Safeguards Rule Arrives – Are You

By Jeffrey Bellant

The long-awaited revision of the Safeguards Rule became official on June 9.

The auto industry got some reprieve last year when the Federal Trade Commission extended the deadline for compliance from January to this month.

Dealers who aren’t in compliance must play catch-up.

The Safeguards Rule requires nonbanking financial institutions, such as mortgage brokers, motor vehicle dealers, and payday lenders, to develop, implement, and maintain a comprehensive security program to keep their customers’ information safe.

One change is that dealers must have a written risk assessment that identifies security risks – internal and external – confidentiality, and integrity of customer information.

Dealers need to look at their systems for handling consumer information along with paper and physical records. Dealers must identify risks to the systems, evaluate the adequacy of existing controls for addressing risks and identify how these risks can be mitigated.

Dealers must name an individual who is qualified to head up your information security program. Qualifications will depend on the size and complexity of a dealer’s information system. The individual must have some level of information security training and knowledge. It could be practical knowledge, a degree or some certification, such as an IT provider. The individual must report in writing, at least annually, to the dealer’s board of directors or equivalent concerning the businesses’ Safeguards program and effectiveness.

Also, all customer data must be en- crypted at all times.

Several other requirements are also part of the revised Safeguards Rule and dealers should consult with their attorney or a compliance company for complete information.

“I can see the FTC holding a dealer, or two or three, accountable for not complying with that new rule,” said Eric Johnson, a partner at the Hudson Cook law firm, when the

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Auto Theft Bill Approved

By Jeffrey Bellant

Colorado Gov. Jared Polis signed bipartisan legislation into law to help prevent auto theft and ensure that offenders are held accountable.

The bills were signed June 2 and the laws go into effect July 1.

State lawmakers overwhelmingly passed two bills; SB23097 on Motor Vehicle Theft and Unauthorized Use, along with SB23257, the Auto Theft Prevention Cash Fund.

The Colorado Independent Automobile Dealers Association (CIADA) supported the bills, said David Cardella, the group’s chief executive officer.

The signing of SB23-097 into law will make car theft a felony.

The current law criminalizes auto theft as “aggravated motor vehicle theft in the first degree” and “aggravated motor vehicle theft in the second degree”.

The penalties for both aggravated motor vehicle thefts are based on the value of the vehicle or vehicles stolen.

The new law changes the term of the offense “aggravated motor vehicle theft” to “motor vehicle theft”.

The elements for motor vehicle theft in the first degree and second degree are changed and motor vehicle theft in the third degree is created.

The penalties for motor vehicle theft are no longer based on the value of the vehicle or vehicles stolen.

For example, under the new law, stealing a $2,000 car or a $20,000 car will be treated the same,.

Motor vehicle theft in the first degree is a class 3 felony, motor vehicle theft in the second degree is a class 4 felony, and motor vehicle theft in the third degree is a class 5 felony.

The bill creates the offense “unauthorized use of a motor vehicle” and makes it a class 1 misdemeanor, or a class 5 felony for a second or subsequent offense.

This provision in the new law lessens the penalty for unauthorized use of a vehicle, for cases like youth joyriding.

But the law will make it easier to prosecute someone who is caught knowingly driving a stolen car.

Cardella explained that previously, police had to prove that the suspect had actually stolen the car.

In some cases, the car could have had evidence of a tampered ignition but unless the suspect was caught in the act, they might avoid being charged.

The other bill will appropriate $5 million to the Colorado Auto Theft Prevention Authority (CATPA).

The group’s mission is to deter and reduce vehicle theft and insurance fraud through a statewide cooperative effort of generating funds to support law enforcement, prosecution and public awareness through a partnership between industry and state government.

Cardella, who is a member of CATPA, acknowledged the work of CATPA’s Program Director Robert Force and its lobbyist Michael Honn.

“It was really a pretty big deal,” he said.

Although this wasn’t CIADA’s bill, Cardella also credited the work of the group’s lobbyist, Edie Busam for her efforts behind the scenes.

Auto theft has declined in Colorado by more than 20% since last year, and Polis said these laws will help continue that trend.

“Every Coloradan deserves to feel safe in their homes and their communities, which is why one of my top goals is to make Colorado one of the 10 safest states in the country,” Polis stated in a release announcing the signing of the bills.

“Today’s action is part of our ongoing work to improve public safety and make sure Coloradans can thrive in safe and healthy communities.”

Overall dealer sentiment in the U.S. improved slightly in Q2 2023, according to the quarterly Cox Automotive Dealer Sentiment Index released June 7.

The current market index is now at 45, up from 43 in Q1 but still below the threshold of 50, indicating that more dealers see the current auto market as weak than see the market as strong. The Q2 report is the fourth consecutive with dealer sentiment below the 50 threshold. Both franchised and independent dealers feel the market in Q2 is stronger than in Q1.

The forward-looking market outlook index declined in Q2, falling from 52 to 47, suggesting a majority of auto dealers now feel the market in the next three months will be weak, not strong. Independent dealers, who sell only used vehicles, have a more negative view of the market for the months ahead.

“Our latest dealer sentiment index clearly illustrates how the market has shifted in the past year,” said Cox Automotive Chief Economist Jonathan Smoke. “The new-vehicle market’s most acute inventory issues are in the rearview mirror now. Dealers are now facing an uncertain economy and high loan rates that are keeping many would-be buyers on the sidelines.”

Auto dealers continue to view, not only the market as weak, but also the economy. One year ago, the current U.S. economy index score was 50, indicating dealers were mostly neutral in their views. Now, a majority of dealers view the economy as weak. The survey indicates that most dealers feel the costs of running their dealerships continue to be an issue, and high interest rates continue to be a drag on business.

According to the latest survey, dealership profits continue to slide after peaking in 2021. In Q2, the profit index dropped to 41, marking the seventh straight quarterly decline. On the upside, dealers indicate customer traffic was stronger in Q2 than in Q1.

Inflation, interest rates, costs of operation and the economy continue to weigh on dealers. Both groups also are feeling more pressure to lower prices to stimulate sales. The price pressure index declined slightly in Q2 to 58 but is up from 41 a year ago when interest rates were lower, inventory was tighter, and most dealers felt less pressure to lower prices. The used-vehicle sales environment, conversely, is viewed as poor by most automobile dealers in the U.S. At 42, the index score is down from 47 a year ago and near an all-time low. Only Q2 2020 was lower. Independent dealers view the used-vehicle market as particularly weak; franchised dealers are more positive about the market. Both groups describe used-vehicle inventory levels as declining quarterover-quarter.

When asked about factors holding back business, the Economy (55%) and Interest Rates (53%) are the top two factors cited by both franchised and independent dealers. The Economy and Interest Rates were also the top two in Q1, although the order has switched, with the Economy now in the top spot. Limited Inventory was the leading factor one year ago and has now fallen to the third most-often mentioned factor, with 44% of dealers noting Limited Inventory as a top factor.

In Q2, Credit Availability for Consumers increased significantly quarter over quarter and year over year as a factor holding back business. Thirty percent of dealers indicated Credit Availability is a challenge in the Q2 survey, up from 26% in Q1.