News and Information
October 30, 2009

Judge Holds Red Flags Rule Over-Reaches

A federal judge has called the Federal Trade Commission’s Red Flags Rule over-reaching in its application to lawyers, and granted partial summary judgment to the American Bar Association.

Judge Reggie B. Walton of the U.S. District Court for the District of Columbia entered an order granting summary judgment as to Count I of the ABA’s complaint alleging that the commission's application of the Red Flags Rule to attorneys violates 5 U.S.C. § 706(2)(C) as it is "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right." A memorandum opinion with points and authorities will issue within thirty days.

Counsel for the ABA says it has won all the relief it sought in its challenge to the regulation, including injunctive relief. The order in ABA v. FTC was handed down October 30, 2009 — two days before the Red Flags Rule is scheduled to go into effect.

The Red Flags Rule is an identity-theft prevention measure. It requires creditors who defer payments for goods and services to develop and implement written protocols to identify, detect, and respond to warning signs of identity theft. In spring 2009, the FTC concluded that lawyers are considered creditors under the rule.

The ABA filed suit against the FTC on August 27, 2009, seeking an injunction to block the application of the "Red Flags Rule" to practicing lawyers.

After the October 29, 2009 hearing, ABA President Carolyn B. Lamm issued a statement:

“This ruling is an important victory for American lawyers and the clients we serve. The court recognized that the Federal Trade Commission’s interpretation of the Fair and Accurate Credit Transactions Act over-reaches and its application to lawyers is unreasonable. By voiding the FTC’s interpretation of a statue that was clearly not intended to apply to the legal profession, the court has ensured that lawyers stay focused on the mission of their work: providing aid and counsel to the individuals and organizations that need us.”

An account of the hearing quotes Walton as saying, “I have a real problem with concluding that Congress intended to regulate lawyers when these statutes were enacted.”

Updated: Oct 30, 2009