The American Bar Association filed suit Thursday in the U.S. District Court for the District of Columbia against the Federal Trade Commission, seeking an injunction to block the application of the so-called "Red Flags Rule" to practicing lawyers.
As the BLT previously reported, the bar association has been lobbying for months to exempt lawyers from the regulations, which require businesses and organizations that act as "creditors" to establish a program for preventing identity theft. According to a Federal Trade Commission guide, the program must identify potential areas of vulnerability within a business and include policies for detecting and responding to red flags.
The FTC has included lawyers, doctors and many other professionals in its definition of "creditors" because they bill customers only after providing services. The bar association disagrees with the interpretation.
The ABA's 20-page complaint (pdf), filed by a team from Proskauer Rose, says that applying the rule to 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 [Fair and Accurate Credit Transaction Act]; or any legally supportable basis for application of the Red Flag Rule to lawyers engaged in the practice of law."
FTC officials announced in a July 29 statement that they would not begin enforcement of what they call the "Red Flag Rule" until Nov. 1, marking the agency's third postponement of enforcing the regulations. In the meantime, the statement said, the agency plans to add more information to its Web site.
In a statement, Carolyn Lamm, president of the ABA and a White & Case partner, said "Congress did not intend to cover lawyers under the Rule. 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. The Rule requires extensive reporting and bureaucratic compliance that would unnecessarily increase the cost of legal services. This kind of unauthorized and unjustified federal regulation of law practice threatens the independence of the profession and the lawyer's role as client confidante and advocate."
Frank Dorman, a spokesman for the FTC, said the agency had no comment on the lawsuit filed Thursday. He referred back to a July 22 statement given to the BLT by Betsy Broder, assistant director of the FTC's Division of Privacy and Identity Protection. In that statment, Broder said the commission believes that it cannot exempt any professions without specific authority to do so. "When Congress says to cover creditors, we look to see what that means under the law," she said.
First reported in The BLT: The Blog of Legal Times.