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ABA Raises Red Flag Over New Rules on Identity Theft

By Brian Kumnick on September 01, 2009 | Last updated on March 21, 2019
The Federal Trade Commission is on a mission to control identity theft. But the American Bar Association says that it is overreaching and bringing new and unwarranted federal regulation down upon lawyers, and it has filed a suit to try to stop the enforcement of new FTC rules.

The FTC has been planning for some time to implement the so-called "Red Flags Rule," which will require covered businesses to put in place certain safeguards against the theft of their customers' identities. The underlying legislation, and therefore the FTC rules, mandate that "creditors" be subject to the rules.
However, the ABA has a problem with the FTC's characterization of professional like doctors and lawyers as "creditors." The FTC says that anyone who provides a service, and then later gets paid, is by definition a creditor, and that law firms are therefore subject to the Red Flags Rule. The suit filed this week seeks declaratory and injunctive relief declaring that lawyers are not required to comply with the rule.

According to Legal Times, the FTC's position is that it has no choice but to include lawyers within the scope of the rule, and that only Congress could exempt them.

The ABA also expressed concern that regulation of attorneys has always been largely a matter under state control, and that increased federal presence in this area should be avoided. It does not appear that this contention is part of the lawsuit, however.

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