Oct. 29, 2009 – The American Bar Association today welcomed a ruling by the U.S. District Court for the District of Columbia barring the Federal Trade Commission (FTC) from applying its Red Flags Rule.
“This ruling is an important victory for American lawyers and the clients we serve,” ABA President Carolyn B. Lamm said in a written statement. “The court recognized that the Federal Trade Commission’s interpretation of the Fair and Accurate Credit Transactions Act (FACTA) over-reaches and its application to lawyers is unreasonable. By voiding the FTC’s interpretation of a statue that was clearly not intended to apply to the legal profession, the court has ensured that lawyers stay focused on the mission of their work: providing aid and counsel to the individuals and organizations that need us.”
The FTC is charged with promulgating a Red Flags Rule under FACTA. The Rule, originally set to go into effect May 1, 2009, requires “creditors” to develop programs identifying, detecting and responding to the warning signs ("red flags") of identity theft. The FTC had considered lawyers, among other professionals, to be creditors and thus subject to the Rule.
The ABA filed its suit on Aug. 20, 2009, as part of a three-pronged effort to block the rule’s application to the legal profession; other efforts include a request to the FTC that it delay enforcement (on July 29, 2009, the FTC responded by delaying enforcement of the Rule until Nov. 1, 2009) and pending legislation (H.R. 3763 was unanimously passed by the House of Representatives on Oct. 20 and is awaiting Senate action).
The ABA complaint, prepared on a pro bono basis by Proskauer Rose, states that the application of the Rule to practicing lawyers is “arbitrary, capricious and contrary to law,” and that the FTC has failed “to articulate, among other things: a rational connection between the practice of law and identity theft; an explanation of how the manner in which lawyers bill their clients can be considered an extension of credit under the FACTA; or any legally supportable basis for application of the Red Flags Rule to lawyers engaged in the practice of law.”
The pending legislation excludes from the meaning of “creditor” any health care practice, accounting practice, or legal practice with 20 or fewer employees. The bill also excludes any other business that the FTC determines: (1) knows all its customers or clients individually; (2) only performs services in or around the residences of its customers; or (3) has not experienced incidents of identity theft, and identity theft is rare for businesses of that type.
The State Bar of Wisconsin joined nearly 30 state and local bars and the ABA in registering opposition to the application of the Rule to the legal profession.
Tom Solberg is the Public Relations coordinator for the State Bar of Wisconsin.
Related: Lawyers required to protect personal information under new federal rule (April 1, 2009)
Related: FTC delays enforcement of ‘Red Flags Rule’ requiring creditors and financial institutions to identity theft prevention programs (May 1, 2009)
Related: State Bar of Wisconsin and ABA continue to push for exclusion from pending FTC identity theft 'Red Flags Rule' (July 8, 2009)
Related: Help needed with efforts to delay “Red Flags Rule” implementation on August 1 (July 28, 2009)
Related: Bill shielding some lawyers from FTC ‘red flag rule’ headed to Senate (Oct. 26, 2009)
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