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The American Bar Association is threatening to sue the Federal Trade Commission if the agency does not exempt lawyers from the so-called Red Flags Rule, a new regulation to protect against identity theft that is scheduled to take effect Aug. 1. As the deadline for compliance approaches, the ABA is exploring “all options” to convince the FTC to exclude lawyers from the new regulations, ABA President H. Thomas Wells Jr. confirmed Thursday. “The litigation option is also on the table, and we are ready to go if we have to employ that option,” Wells said. Additionally, the ABA has met with FTC commissioners and staff and is lobbying on Capitol Hill to have lawyers exempt from the regulations, he said. For months, the association has staunchly opposed the Red Flags Rule, which imposes requirements on creditors to detect the warning signs of identity theft in their day-to-day operations. The association argues that the FTC's application of the rule to lawyers is unnecessary and not supported by law. “Lawyers are not engaged in the type of commercial activity that Congress was attempting to regulate with the [Fair and Accurate Credit Transactions] Act and should not be considered creditors under the Red Flags Rule,” the ABA said in a statement in June. The Red Flags Rule stems from the FACT Act of 2003, which amended the Fair Credit Reporting Act and requires creditors and financial institutions to develop and implement a program to detect, prevent and mitigate identity theft in connection with the opening or maintenance of “covered accounts.” These include consumer accounts that permit multiple payments or transactions, such as a retail brokerage account, credit card account, margin account, checking or savings account, or any other account with a reasonably foreseeable risk to customers or a firm from identity theft. The law's definition of “creditor” applies to any entity that regularly extends or renews credit, or arranges for others to do so, and includes all entities that regularly permit deferred payments for goods. Examples of creditors include finance companies, auto dealers that provide or arrange financing, mortgage brokers, utility companies, telecommunications companies, nonprofit and government entities that defer payment for goods or services and businesses that provide services and bill later. According to the ABA, Congress intended the FACT Act to apply to financial institutions and other businesses that extend credit, not to lawyers who merely bill for services after they are performed. The association claims that treating lawyers as creditors would impose an undue burden on law firms, particularly solo practitioners. The Red Flags Rule was slated to take effect in May, but the FTC suspended enforcement to give creditors and financial institutions more time to develop and implement identity theft prevention programs. The three-month extension to Aug. 1 was supposed to allow industries and associations to share guidance with their members and give Congress more time to consider whether the rule is too broad, the FTC Chairman Jon Leibowitz said in May. The agency had extended the original Nov. 1, 2008, deadline in order to conduct outreach efforts, including hosting seminars and creating a dedicated Web site, to help explain what types of entities are covered under the law. But many entities subject to the Red Flags Rule were still unsure of their coverage as the May deadline approached, the FTC said at the time. Betsy Broder, an FTC spokeswoman, said that the agency is considering a request from a U.S. House of Representatives panel for an additional delay of the rule's enforcement deadline, but she declined to disclose the status or details of the FTC's deliberations. As for the possibility of an ABA suit against the FTC, Broder said the suit was “one way for them to approach” the issue.

112791 0 0 2009/08/23 00:00 ABA Up In Arms Over FTC Red Flags Rule Thursday, Jul 23, 2009 2009/07/23 2009/07/23 74 2009/07/23 1