The American Bar Association 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.
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.
Asserting that 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 1, 2009.
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 suit, which was filed on Aug.
27, 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 their
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 said in its complaint.