Congress exempts lawyers from FTC's Red Flags Rules

Michigan lawyers will recall the so-called "Red Flags Rules," promulgated by the Federal Trade Commission as part of the Fair and Accurate Credit Transactions Act of 2003 and intended to combat identity theft. The Rules, first scheduled to take effect May 1, 2009, but delayed many times since then, require ''creditors'' and ''financial institutions'' to develop and implement written programs to identify, detect, and respond to the warning signs (red flags) of identity theft

Lawyers and other professionals were dragged into the fray when the FTC belatedly determined they were creditors under the Act. The Rules imposed potentially onerous and time consuming record requirements for lawyers that seemingly provide little benefit to most clients but would increase the cost of law office administration and legal services.

The State Bar of Michigan joined the ABA and others in seeking to convince the FTC the Rules should not apply to lawyers. When that effort failed, the ABA filed a lawsuit in the DC district Court, where it prevailed. The FTC appealed and the matter has since been briefed, argued, and is awaiting a decision. However, the lawsuit has been rendered moot by action of Congress, which recently passed legislation exempting lawyers from the Rules.

The Senate voted unanimously on November 30 that lawyers and certain other professionals are not ''creditors'' for the purpose of the Rules, and on December 7, the House of Representatives followed suit, resolving the issue once and for all. The appeal of the ABA's lawsuit is expected to be dismissed when the legislation is signed.

ABA President Steve Zack, commenting on the successful conclusion of the issue, stated, ''At last, the American legal profession has clear and final relief from attempts to solve a non-existent problem that would have created paper-pushing and raised legal costs.''

Published: Thu, Dec 23, 2010