Business of Law

Congress Votes to Exempt Lawyers from 'Red Flags Rule'

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With a vote of the House of Representatives today, Congress has exempted lawyers from the so-called Red Flags Rule. Last month, the U.S. Senate also voted to protect attorneys and other professionals from having to comply with its record-keeping and safeguarding requirements.

Hard-fought by the American Bar Association, the rule, if applied, would have required lawyers to comply with the potentially onerous consumer-protection legislation intended to protect individuals from identity theft that would have increased the cost of law office administration and legal services for clients. But attorneys, the ABA argued, and Congress agreed, weren’t an appropriate target of the rule.

Adopted by the Federal Trade Commission to enforce the Fair and Accurate Credit Transactions Act, the Red Flags Rule, like FACTA, applies to creditors. Although the FTC contended lawyers and law firms are creditors, because they extend credit by performing work now that will be billed later, this wasn’t what the FACTA statute intended, Congress agreed in enacting the Red Flag Program Clarification Act of 2010.

In a written statement, ABA President Stephen N. Zack thanked those responsible for defending the legal profession against what he called unnecessary and unintended regulation.

“Congress acted decisively in passing legislation that clarifies how the Federal Trade Commission should apply the Red Flags Rule. We applaud the leaders of today’s House vote, Reps. John Adler, Paul Broun and Mike Simpson, and welcome President Obama signing this bill into law,” he stated.

“We also thank the countless ABA members and state and local bar leaders who advocated on this issue, and the pro bono team of lawyers at Proskauer Rose who led our successful court fight. Together, we all made a difference for the profession.”

The ABA also successfully challenged the Red Flags Rule in federal court, apparently encouraging other professional organizations to do so, too. An appeal by the Federal Trade Commission of a district court’s bench ruling in the ABA’s favor is now pending in the U.S. Court of Appeals for the District of Columbia Circuit, but that case is expected to be dismissed after the enactment of the clarification statute.

Additional and related coverage:

ABA Journal: “ABA and Other Bar Groups Work to Limit Federal Regulation of Lawyers” “ABA Battles FTC in DC Appeals Court: Does Red Flags Rule Apply to Lawyers?” “After ABA Wins ‘Red Flags’ Suit Over ID Theft Rules, Accountants Sue, Too”

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