The American Bar Association is seeking to bar the Federal Trade Commission from applying its Red Flags Rule, designed to prevent identity theft, to practicing lawyers.
An ABA suit filed in the U.S. District Court for the District of Columbia claims that the FTC is exceeding the powers delegated to it by Congress and misinterpreting the rule. It seeks declaratory and injunctive relief in advance of pending FTC rule enforcement on Nov .1, 2009.
The rule requires creditors to 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,” according to the ABA. 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.
The ABA complaint alleges 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.”
“Congress did not intend to cover lawyers under the rule,” said ABA President Carolyn Lamm. “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.”
Lamm said the rule requires “extensive reporting and bureaucratic compliance” that would increase the cost of legal services.
According to the ABA, nearly 30 state and local bar associations also have officially registered their opposition.
The ABA is seeking to have the Red Flags Rule’s application to lawyers engaged in the practice of law declared unlawful and void.
A copy of the complaint is available online.
The ABA has almost 400,000 members of the legal profession.
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