Red Flags at Half Mast: FTC Delays Red Flags Deadline Again; Federal Court Determines Lawyers Are Not Creditors

02 November 2009 Publication

Legal News Alert: Privacy, Security & Information Management

The FTC announced on October 30, 2009 that it would delay enforcement of its Red Flags Rule until June 1, 2010 at the request of members of the U.S. Congress. The deadline has been extended several times already and it remains unclear what the ultimate resolution of this issue will be.

Moreover, on October 29, 2009 the U.S. District Court for the District of Columbia granted summary judgment to the American Bar Association (ABA) to set aside an extended enforcement policy of the controversial Red Flags Rule in the Fair and Accurate Credit Transactions Act (FACTA) as it would have pertained to working lawyers. (American Bar Association v. Federal Trade Commission, case number 09-cv-1636).

The proposed Red Flags Rule is an extension of FACTA, which amended the Fair Credit Reporting Act, and requires creditors to develop and implement steps to detect, prevent, and mitigate identity theft in connection with the opening or maintenance of accounts. The covered accounts include those with multiple payments or transactions such as credit card accounts, checking or savings accounts, or any other account with a reasonably foreseeable risk to customers from identity theft. The FTC adopted its Red Flags Rule in an attempt to enforce FACTA, and the Red Flags Rule swept within its coverage all “creditors,” which the FTC asserted includes lawyers engaged in the practice of law who bill for their services after those services are rendered.

The ABA argued that the FTC was overreaching in its interpretation of FACTA and that application of the Red Flags Rule to attorneys based upon their billing practices was unreasonable. The ABA further argued that the FTC’s assertion that lawyers engaged in the practice of law are creditors as defined under FACTA is “patently incorrect.” Judge Reggie B. Walton of the U.S. District Court for the District of Columbia granted the ABA’s motion for summary judgment to set aside the FTC’s enforcement policy as it applies to working lawyers. Accordingly, lawyers will not need to meet the requirements of the Red Flags Rule at this time.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Andrew B. Serwin
San Diego, California