A recent law that clarifies the range of creditors who face new regulations to detect and prevent identity theft does not give a blanket exception for all lawyers, Federal Trade Commission lawyers said in court papers filed this week in Washington.
FTC attorneys said in the papers [.pdf] in the U.S. Court of Appeals for the D.C. Circuit that the legislation, which President Barack Obama signed into law in December, does not moot the litigation in which the American Bar Association sued the FTC over the so-called Red Flags Rule.
In August 2009, the ABA sued the federal trade agency in the U.S. District Court for the District of Columbia, saying that the government was improperly seeking to regulate attorneys as financial institutions. FTC lawyers said in court papers that lawyers are creditors because payment often occurs after legal services have been performed.
A federal district judge, Reggie Walton, ruled for the ABA, granting an exception from the Red Flags Rule to all attorneys engaged in the practice of law. In the D.C. Circuit, the FTC is challenging the decision. Earlier this month, the appeals court said it wanted to hear from both sides about the effect of the legislation on resolving the dispute.
In the court papers filed yesterday, an FTC attorney, Michael Bergman, said the Red Flags Rule clarification act that recently was signed into law significantly revised the definition of “creditors” who must follow the FTC identity theft regulation.
“However, nothing in the language of the Clarification Act suggests that lawyers—or members of any other profession or industry—are categorically exempt,” Bergman wrote.
Attorneys, Bergman said, are still subject to the identity theft regulation if the lawyer meets two conditions. First, the attorney must be deemed a “creditor” under the revised law. Bergman wrote about the second condition: “The attorney must either regularly obtain consumer reports in connection with credit transactions, or furnish information to consumer reporting agencies in connection with credit transactions, or lend money to or on behalf of a person (unless that loan is for expenses that are incidental to the services provided by that attorney).”
The ABA’s lawyers at Proskauer Rose are expected to file court papers by Feb. 3 addressing the extent to which the Red Flags Rule clarification measure ends the appeal.