If you are of a certain age and from a certain neighborhood, you likely saw small betting slips with football teams listed in columns (home on one side and away on the other) along with point spreads and an area on the bottom of the slip to make your winning team selections. Printed on the bottom of the betting slip in small letters were the words “for entertainment purposes only.” Today, sports betting is legal in several states, including Delaware, New Jersey, Nevada, and West Virginia, with many other states not far behind. Prior to May of 2018, sports betting was purely for “entertainment purposes” only.

The phrase for “entertainment purposes” only recently reared its figurative head in the compliance space. Several individuals and their affiliated companies in California, Oregon, and Texas operated websites selling fake documents. These sites offered fake documents of many different types, including pay stubs, income tax forms, medical statements, bank statements, auto insurance cards, utility and cable bills. 

The websites were named FakePayStubOnline.com, NoveltyExcuses.com, and PayStubDirect.com. They promised that the documents were fake but looked authentic. As was the case with betting slips, the sites claimed that the fake documents being sold were for “entertainment” purposes or were merely “novelty” items. The Federal Trade Commission disagreed. 

Shut It Down

The FTC found that the fake documents sold by these sites would easily be used to commit identity theft and loan fraud. In addition, in the event of identity theft, the victim’s credit rating would be significantly damaged. Needless to say, the FTC took a dim view of these enterprises and filed stipulated orders permanently prohibiting the owners from making any misrepresentations about identity, finances, residence addresses, taxes, or employment. In other words, the “entertainment purposes” disclaimer did not hold water.

So how can your client dealers protect themselves from such fraudulent and deceptive practices? Best practices would, of course, be to cover issues such as identity theft and fraud as part of a comprehensive compliance management system, to include policies and procedures, training, audit, and complaint management. More specifically, financial documents should be reviewed by each store’s compliance officer as part of their supervision of the dealership and as part of quality control audits. 

Finally, sales staff should be on the lookout for discrepancies between credit reports and pay stubs. If someone with a 450 FICO score shows a six-figure pay stub, alarm bells should be ringing loudly.

Trust But Verify

In 2017, the FTC noted that identity theft was the second largest category of reported consumer complaints. While a robust Red Flags program is a good start in combating identity theft, cases such as these demonstrate that fraud prevention needs to be exercised throughout the sales process. 

A dealership’s financial sources will likely require any loan procured by fraud to be repurchased by the dealership, which will likely cost the dealership significant lost time and money. In addition, by writing such a fraudulent loan, the dealership may trigger termination of its future financing from such financial source. 

In short, the old adage “trust but verify” should be shortened in the compliance space to “verify, verify and verify” — and that is a safe bet.

DISCLAIMER: Content provided in this article is intended for informational purposes only and should not be construed as legal advice and should not be relied upon or acted upon without retaining counsel to provide specific legal advice based upon your particular situation, jurisdiction and circumstances. No duties are assumed, intended or created by this communication. No attorney- client relationship is being created by your review or use of this material.

© 2018 Robert J. Wilson, All Rights Reserved

Robert J. Wilson, Esquire (Bob) is a Philadelphia lawyer and is General Counsel for ARMD Resource Group. Bob is the principal of Wilson Law Firm and has over 30 years of experience both as a counselor and as a litigator in State and Federal Courts. Risk management, problem solving and dispute resolution are his core competencies. Bob’s practice is largely in the consumer finance space and he regularly consults with Lenders and contributes articles on various compliance related issues.