Administrative Law

FTC Suspends 'Red Flags Rule' Requiring Law Firms to Create ID Theft Policies

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Citing uncertainty among small businesses about their compliance obligations, the Federal Trade Commission has suspended until Nov. 1 implementation of its controversial “Red Flags Rule.”

The new regulations, which require businesses, including law firms, to develop policies to combat identity theft, have drawn fire from the ABA, notes the Daily Record. They implement the Fair and Accurate Credit Transactions Act and had been scheduled to take effect on Aug. 1.

Although the FTC contends that law firms fall within the definition of creditor covered by the FACT statute, the ABA says Congress did not intend law firms to be regulated in this manner.

In a written statement, ABA President H. Thomas Wells Jr. called the FTC move a “very vital step” and commended the agency for responding to concerns expressed by bar associations and others in this manner.

However, he also said that “the FTC’s continued assertion that it can, as it sees fit, regulate lawyers under the ‘red flags’ provisions is troubling, and unacceptable to the ABA,” citing a long history of state regulation of the bar and clients’ need for independent legal advice.

More details are provided in an FTC press release.

Additional coverage: “Is FTC Hedging on Plans to Apply ID Theft Rule to Law Firms?” “ABA to Sue if FTC Won’t Exempt Lawyers from ID Theft Rules”

Blog of Legal Times: “FTC Delays Enforcement That Would Affect Lawyers”

Business Insurance: “FTC’s Red Flags may color some surprised”

Updated at 3:30 p.m. to include information from Wells statement and link to Blog of Legal Times coverage.

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