ABA Contests FTC’s Application of Identity Theft Rules to Attorneys

ABA Contests FTC’s Application of Identity Theft Rules to Attorneys

An FTC rule scheduled to go into effect November 1st could have serious implications for law firms’ fee and billing practices. The American Bar Association is trying to stop the Federal Trade Commission from applying the “Red Flag Rule” to lawyers.   The “Red Flag Rule, 72 Fed. Reg. 63.718 (Nov. 9, 2007) will require banks and other financial institutions to adopt procedures that will identify and address warning signs of possible identify theft.    It is part of the FTC’s implementation of the Fair and Accurate Credit Transactions Act of 2003 (FACTA), 15 U.S.C.S. §§ 1681-1681x (Supp. I 2007). FACTA was intended to curb identity theft and improve the accuracy of credit transactions.
Earlier this year the FTC determined that the rule applies to lawyers who accept payment for fees over time. The Commission’s definition of a creditor encompasses all businesses that regularly permit deferred payments for goods and services, including attorneys.
The ABA is seeking an injunction blocking the application of the rule’s provisions, contending that the FTC is attempting to exceed its statutory authority.  The complaint  asks the US District Court for the District of Columbia to set aside the “Red Flag Rule,” as it applies to lawyers, pointing out that attorneys are subject to strict confidentiality and privacy requirements set forth by statute, rules of professional conduct and disciplinary rules.
The ABA points out that the practice of billing for legal fees as they are incurred is not an extension of credit. Further, the FTC is not able to show any instances of identity theft arising from the fee and billing practices used by lawyers. The “Red Flag Rule” is scheduled to go into effect November 1st, and will require creditors to create written identity theft prevention programs tailored specifically to a creditor’s business. The ABA estimates that implementation of the proposed rule could cost law firms up to $3.8 billion dollars in billable time.
By Lori Webster Sieron, Lexis Hub Staff