|This is an archive. Substantive information, including information about ABA policy, as well as contact information and links to other Web pages, may not be current. For the most recent ABA news, contact the Division for Media Relations & Communication Services.|
|Media Contact:||Stephanie Ortbals-Tibbs|
Federal Trade Commission's "Red Flags Rule" Leads American Bar Association to File Suit
Rule Burdens Lawyers with No Client Benefit and Invades State Regulation of Lawyers
WASHINGTON, D.C. Aug. 27, 2009 —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 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 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.
ABA President Carolyn Lamm said, upon the filing of the lawsuit, “Congress did not intend to cover lawyers under the Rule. The FTC’s decision to apply the Rule to lawyers is contrary to an unbroken history of state regulation of lawyers and intrudes on traditional state responsibilities. The Rule requires extensive reporting and bureaucratic compliance that would unnecessarily increase the cost of legal services. This kind of unauthorized and unjustified federal regulation of law practice threatens the independence of the profession and the lawyer’s role as client confidante and advocate.”
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 their opposition. President Lamm stated that “the ABA and its counterparts at the state and local levels will continue to work with Congress to obtain clarification that the Rule should not be applied to these lawyers.”
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. President Lamm praised the work of the ABA’s Task Force on the Red Flags Rule for its work assessing these legislative developments and preserving continued protection of clients under existing ethical rules.
A copy of the complaint is available at http://www.abanet.org/media/nosearch/1_1_Complaint.pdf
With nearly 400,000 members, the American Bar Association is the largest voluntary professional membership organization in the world. As the national voice of the legal profession, the ABA works to improve the administration of justice, promotes programs that assist lawyers and judges in their work, accredits law schools, provides continuing legal education, and works to build public understanding around the world of the importance of the rule of law.