The Florida Bar News - March 15, 2010

FTC to appeal ruling that ‘Red Flags’ do not apply to lawyers
The Federal Trade Commission is appealing a federal judge’s ruling that the FTC exceeded its authority by applying its “Red Flags Rule” to practicing lawyers.

In October 2009 — acting at the request of the ABA — U.S. Judge Reggie B. Walton of the District of Columbia granted a motion for partial summary judgment finding that Congress did not intend lawyers to be considered “creditors” under the Fair and Accurate Credit Transactions Act.

“We are disappointed that the Federal Trade Commission has decided to appeal its loss of the Red Flags litigation in the district court,” ABA President Carolyn B. Lamm said. “The D.C. Circuit Court of Appeals resoundingly upheld the American Bar Association’s lower-court victory in 2005 against the commission in the Gramm-Leach-Bliley lawsuit, and we are anticipating no less a victory in this case.”

The ABA complaint, prepared on a pro bono basis by Proskauer Rose, argued that the application of the rule to practicing lawyers was “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 Florida Bar Board of Governors last year also adopted as a Bar legislative position the ABA’s position to oppose having lawyers and law offices covered under FACTA (see “Bar objects to including lawyers under FTC’s new Red Flags Rule” in the August 1, 2009, News).

The rule requires creditors to develop and implement plans to detect and respond to activity signaling possible identity theft. The FTC’s original enforcement policy in October 2008, and subsequent updates, provided no indication that lawyers engaged in the practice of law fell within the definition of “creditor.” Only after implementation of the rule was delayed again in April 2009 — just one day before the expiration of an initial six-month extension — did the FTC publicly announce its position that lawyers were subject to the rule.