Lawyers Cleared From Accountability for Identity Theft
By Patricia Sallen, Senior Ethics Counsel
December 21, 2010
Lawyers will not have to comply with the so-called Red Flags
Rule, which would have imposed potentially burdensome requirements
on them to develop programs to protect consumers against identity
theft.
President Obama on Saturday, Dec. 18, signed S. 3987, the "Red
Flag Program Clarification Act of 2010," which narrows the
definition of "creditor" in the Fair and Accurate Credit
Transactions Act of 2003 (FACTA). To implement FACTA, the Federal
Trade Commission (FTC) developed guidelines that required financial
institutions and creditors to establish policies and procedures to
mitigate identity theft risks. The FTC had interpreted "creditor"
to include lawyers who bill clients after having provided them
services.
"Identity theft is clearly a problem in our society, but the
attorney-client relationship does not present the type of harm that
Congress was seeking to remedy by enacting FACTA," John Phelps,
Chief Executive Officer at the State Bar of Arizona. "Lawyers do
not extend credit to clients by providing services before billing
the client for those services," he adds.
The Red Flags Rule took effect Jan. 1, 2008, with full
compliance for all covered entities, including lawyers, originally
required by Nov. 1, 2008. The FTC delayed enforcement several
times, most recently Jan. 1, 2011, at the request of several
members of Congress.
Under the leadership of past and current presidents Ed Novak
(2008-09), Ray Hanna (2009-10), Alan Bayham (2010-11), the State
Bar of Arizona was among many bar associations that urged the FTC
in the summer of 2009 to exempt lawyers from the proposed
regulations.
On Aug. 27, 2009, the American Bar Association (ABA) filed suit
against the FTC in federal court for declaratory and injunctive
relief. After the ABA won on summary judgment, the FTC
appealed. The State Bar of Arizona was among 54 state and
local bar associations that joined the New York State Bar
Association's amicus brief that supported the ABA's position
against the Red Flags Rule.
The matter had been briefed and argued in the U.S. District
Court for the District of Columbia. However, on Nov. 30 legislation
was introduced in and passed by the Senate to narrow the definition
of creditor to exclude professionals and other service providers.
The House of Representatives approved the legislation on Dec.
7.