Bar Associations

ABA Sues FTC Over Red Flags Rule

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As the Nov. 1 deadline nears for enforcing the Federal Trade Commission’s controversial new Red Flags Rule, the American Bar Association has filed suit over the agency’s inclusion of practicing lawyers in its definition of creditors required to take measures to prevent identity theft.

The lawsuit, which was filed in federal court in Washington, D.C., seeks declaratory and injunctive relief making clear that lawyers are not creditors required to comply with the Red Flags Rule, explains an ABA press release.

The complaint (PDF) describes the FTC’s decision to define lawyers as creditors as “arbitrary, capricious and contrary to law.” It contends that the FTC has failed to demonstrate either a rational connection between the practice of law and identity theft or how lawyers billing clients in a standard manner could be considered to be providing clients with credit. The complaint was filed by Proskauer Rose, which is representing the ABA on a pro bono basis.

An FTC spokesman declined to comment on the suit when contacted by the Blog of Legal Times, but pointed the BLT to a July 22 statement by assistant director Betsy Broder of the FTC’s Division of Privacy and Identity Protection. In it, she says the commission can’t exempt any profession from the FTC’s regulatory oversight without specific authority to do so.

“When Congress says to cover creditors, we look to see what that means under the law,” Broder continues.

ABA President Carolyn Lamm says in the press release that Congress didn’t intend for the Red Flags Rule to be applied to lawyers, and that requiring attorneys to comply will be expensive not only for them but for their clients.

She also says that the FTC’s attempted regulation of lawyers “is contrary to an unbroken history of state regulation of lawyers and intrudes on traditional state responsibilities.” What she describes as “unauthorized and unjustified federal regulation of law practice” is, Lamm says, a threat to the independence of the legal profession and a lawyer’s job to serve as a client confidante and advocate.

Earlier coverage:

ABA Journal: “Wells: FTC Delay on ‘Red Flag Rule’ Aids ABA Effort”

ABA Daily Journal: “Is FTC Hedging on Plans to Apply ID Theft Rule to Law Firms? #ABA Chicago” “FTC Suspends ‘Red Flags Rule’ Requiring Law Firms to Create ID Theft Policies” “ABA to Sue if FTC Won’t Exempt Lawyers from ID Theft Rules”

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