Thursday, Aug. 27, 2009
American Bar Association files suit against Federal Trade Commission's "Red Flags Rule"
Rule burdens lawyers with no client benefit and invades state regulation of lawyers
The American Bar Association today
asked the U.S. District Court for the District of Columbia to bar
the Federal Trade Commission from applying its Red Flags Rule,
designed to prevent identity theft, to practicing lawyers. Because
the FTC is exceeding the powers delegated to it by Congress and
misinterpreting the Rule, the ABA is seeking declaratory and
injunctive relief in advance of pending FTC Rule enforcement on Nov
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 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.
Today's suit follows months of outspoken concern by the ABA
regarding the unintended consequences of the Red Flags Rule. Nearly
30 state and local bar associations also have officially registered
The ABA is seeking to have the Red
Flags Rule's application to lawyers engaged in the practice of law
declared unlawful and void. The Rule "imposes significant burdens
upon lawyers, particularly sole practitioners and those practicing
in small firms, who comprise the majority of the lawyers in the
United States," the association noted in its complaint.
Click here for a copy of the