Nov. 6, 2009 – The Federal Trade Commission announced on Oct. 30 that it will once more postpone enforcement of its anti-identity theft “red flags” rules until June 1, 2010.
In a series of postponements made since May 1 when the rules were initially scheduled to go into effect, the FTC had last announced it would postpone its enforcement of the controversial rules until Nov.1.
The “red flags rule” is part of the Fair and Accurate Credit Transactions Act of 2003 (FACTA), a congressional response to spikes in reported identity theft. Those subject to the rule are expected to implement a written policy specifying how they will watch for the warning signs that indicate an identity theft may be occurring and how they will respond to prevent or mitigate the crime if uncovered.
As the law currently stands, the “red flag rule” reaches “creditors” and financial institutions who maintain consumer-type accounts or other accounts at reasonable risk of identity theft. The American Bar Association has filed a challenge to the FTC’s interpretation of the term “creditors” to encompass professionals such as lawyers and doctors who defer payment of a client’s bill.
Last month, the U.S. District Court for the District of Columbia issued an order enjoining the Federal Trade Commission (FTC) from applying the rules. In a statement, the FTC said this decision to postpone was prompted by concerned members of Congress and is separate from considerations of the ongoing litigation.
“On October 30, 2009, the U.S. District Court for the District of Columbia ruled that the FTC may not apply the Red Flags Rule to attorneys,” the FTC said. “Today’s announcement that the Commission will delay enforcement of the Rule until June 1, 2010, does not affect the separate timeline of that proceeding and any possible appeals. Nor does it affect other federal agencies’ ongoing enforcement for financial institutions and creditors subject to their oversight.”
Commenting on the latest postponement announcement, ABA President Carolyn B. Lamm said, “Last week, justice prevailed in the courts. The US District Court granted Summary Judgment in favor of the ABA and suspended application of the Red Flags Rule to lawyers. The FTC announced it will comply with the ruling and suspend the application of the rule until June 1, 2010.
“While many of the next steps can only be taken by the FTC, Congress, or the courts, the ABA is heartened that that a federal judge has examined the government's strongest arguments for applying the Red Flags Rule to lawyers, and found them wanting. The ABA will stay vigilant on this issue and work with all parties to prevent unreasonable application of the FACTA to the legal profession,” she said.
The ABA has pressed Congress for a legislative response. The U.S. House of Representatives unanimously passed H.R. 3763 on Oct. 20 to exempt some lawyers from the regulation.
Alex De Grand is the legal writer for the State Bar of Wisconsin.