Metropolitan News-Enterprise


Thursday, July 30, 2009


Page 1


LACBA Urges Lawyer Exemption From Anti-Fraud Rule


By a MetNews Staff Writer


The Los Angeles County Bar Association yesterday joined the American Bar Association and more than two dozen state and local bar associations in calling on the Federal Trade Commission to exempt attorneys from an anti-fraud regulation that would require them to establish identity theft detection programs in their day-to-day operations.

Enforcement of the “Red Flags Rule” was slated to begin Saturday, but the FTC yesterday announced a 90-day reprieve in order to ease compliance for covered entities.

Promulgated by the FTC pursuant to the Fair and Accurate Credit Transactions Act of 2003, which directed several federal agencies to issue guidelines for the detection, prevention and response to identity theft, the rule mandates that “creditors” implement programs to identify, detect and respond to the warning signs, or “red flags,” that could indicate identity theft.

FACTA’s definition of “creditor” includes any entity that regularly extends or renews credit—or arranges for others to do so—and includes all entities that regularly permit deferred payments for goods or services, according to the FTC, but accepting credit cards as a form of payment does not, by itself, make an entity a creditor.

Lawyers as ‘Creditors’

In April, ABA officials said the organization learned that lawyers and law firms were considered creditors and were bound to establish Red Flags programs before the original enforcement date of May 1.

ABA President H. Thomas Wells Jr. then sent a letter to FTC Chairman Jonathan D. Leibowitz, requesting that the implementation and enforcement of the rule be postponed six months, but the commission at the time agreed to delay enforcement only until Aug. 1.

Both LACBA and the ABA contended that Congress did not intend to consider lawyers as creditors or to regulate lawyers under FACTA, asserting that attorneys do not extend credit to their clients and are ethically barred from billing clients until services are performed.

LACBA President Don Mike Anthony insisted the provision of services before billing does not constitute an extension of credit in his letter to the FTC. Also, for LACBA members, the majority of whom are solo or small firm practitioners, Anthony insisted, the burden of compliance with the Red Flags Rule “far outweighs” any perceived benefit to clients.

ABA officials maintained that developing a Red Flags program would be a prohibitively resource-intensive task which has taken firms 10 to upwards of 120 hours to complete, but according to FTC estimates, program implementation for “low-risk entities” like law firms should only take about an hour.

No Examples Given

Anthony also noted that the FTC had not provided any examples of identity theft arising from a law practice and emphasized that client information pertaining to legal matters must be kept in strict confidence due to ethical guidelines for attorneys.

Additionally, ABA officials noted that the Second Circuit Court of Appeals has ruled attorney fees are not credit transactions and that the D.C. Court of Appeals has held “that the regulation of the practice of law is traditionally the province of the states” and that federal law “may not be interpreted to reach into areas of State sovereignty unless the language of the federal law compels the intrusion.”

As no language in FACTA specifically references lawyers, the association asserted that the rule was both “unnecessary” and “not supported by law,” in a June 22 statement.

Redirection of Efforts

In a statement yesterday, the ABA said that it “applauds the federal government’s efforts to protect American consumers from the devastation of identity theft, but strongly urges the FTC to direct its efforts at the problems Congress intended to address.”

The organization said that the FTC’s assertion that it could regulate attorneys under the Red Flags Rule was “troubling, and unacceptable to the ABA,” maintaining:

“It undercuts an unbroken history of strong regulation by state bars and supreme courts. It threatens the independence of the profession from federal controls, independence that is fundamental to the lawyer’s role as client confidante and advocate. And it is goes against Congress’ intent when the law was passed.”

The ABA pledged itself to working with Congress and the FTC to “clarify that this rule should not apply to lawyers,” and warned that it would take up the issue in litigation if the need should arise.


Copyright 2009, Metropolitan News Company