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A federal judge on Thursday voided the Federal Trade Commission's enforcement interpretation of the controversial Red Flags Rule in the Fair and Accurate Credit Transactions Act, which the American Bar Association claimed would have jeopardized lawyers' time-honored methods of billing clients. The ruling, issued by Judge Reggie B. Walton in the U.S. District Court for the District of Columbia, granted the 400,000-member ABA summary judgment in its attempt to set aside an extended enforcement policy as it would have pertained to working lawyers. Lawyers will not need to meet the Nov. 1 enforcement deadline, the association said in a statement Thursday. "This ruling is an important victory for American lawyers and the clients we serve," ABA President Carolyn B. Lamm said. "The court recognized that the Federal Trade Commission’s interpretation of the Fair and Accurate Credit Transactions Act overreaches and its application to lawyers is unreasonable." On Sept. 23, the ABA filed its summary judgment motion, urging Judge Walton to deliver a prompt and favorable ruling. “The FTC has once again sought to regulate the legal profession in the absence of an unmistakably clear congressional authorization,” the ABA said at the time. The motion came less than a month after the ABA filed its suit against the FTC, seeking an injunction prohibiting the agency from extending the rule to the legal profession. The ABA, the largest professional organization for lawyers in the U.S., has loudly opposed the inclusion of attorneys under the regulation since lawyers were first included in a footnote of an April revision to the rule. The proposed rule is an outgrowth of the FACT Act, which amended the Fair Credit Reporting Act and required 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. Such accounts 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 FTC first enacted the Red Flags Rule in October 2008. The FTC's assertion that lawyers engaged in the practice of law are creditors as defined under the FACT Act is “patently incorrect” and at odds with decisions by the U.S. Court of Appeals for the District of Columbia Circuit, the ABA argued. According to the group, Congress intended the act to apply to financial institutions and other businesses that extend credit, not to lawyers who merely bill for services after they are performed. A lawyer must regularly extend, renew or continue credit in order to be included under the Red Flags Rule's coverage, but the only situation in which a lawyer could possibly extend credit would be as part of the billing process, and most states already have restrictions against lawyers receiving compensation before services are rendered, the ABA contended. “The FTC is improperly attempting to sweep the entire legal profession within the ambit of the Red Flags Rule based on the way in which clients pay for legal services,” it said. Earlier in October, the U.S. House of Representatives passed a bill that would exclude small health care, legal and accounting practices from the rule. A call to the FTC seeking comment was not immediately returned Thursday. The ABA is represented by Proskauer Rose LLP. The case is American Bar Association v. Federal Trade Commission, case number 09-cv-1636, in the U.S. District Court for the District of Columbia. --Additional reporting by Christine Caulfield, Melissa Lipman and Evan Weinberger

131375 0 0 2009/11/29 00:00 Judge Hands ABA Win In Fight Over Red Flags Rule Thursday, Oct 29, 2009 2009/10/29 2009/10/29 50 2009/10/29 1