Special Law Alert: Red Flag Rules Update: Court's Opinion May Open The Door To Additional Challenges

The FTC's Red Flag Rules (which are now set to be enforced on June 1, 2010) require that "creditors" with covered accounts implement a written identity theft prevention program. In clarifying the meaning of "creditor", the FTC had stated that the definition is broad and includes health care providers, lawyers and other professionals. The American Bar Association disagreed with the FTC's assertion that the Rules could be applied to lawyers and filed a complaint against the FTC in the U.S. District Court for the District of Columbia. At a hearing held on October 29th, the judge ruled from the bench that the FTC exceeded its authority in attempting to apply the Red Flag Rules to lawyers.

The court's written opinion has now been released. In its opinion, the court stated that the federal statutes relied on by the FTC for the definition of "creditor" were "created to apply to entities involved in banking, lending, or financial related business." Moreover, those statutes were created as a means "to eliminate a specific kind of identity theft: identity theft in the credit industry." Further, the court held that no record was developed that showed that identity theft was a problem for attorneys. Finally, the court found that that the FTC "arbitrarily selects monthly invoice billing as the activity it seeks to regulate."

Although the court's ruling only exempts lawyers, based on the broad language in the opinion other professionals may now be encouraged to seek a similar ruling. As we recently reported, accountants are also challenging the FTC. Will certain medical professionals be next?

A copy of the court's opinion can be found here: http://legaltimes.typepad.com/files/walton_red_flags_rule.pdf

If you have any questions about the Red Flag Rules, or your Red Flags program, please give us a call.

Theodore J. Kobus III, Esquire
Marshall, Dennehey, Warner, Coleman & Goggin
1845 Walnut Street
Philadelphia, PA  19103
Telephone:  (215) 575-2713
Fax: (215) 575-0856
Email: tjkobus@mdwcg.com
Website: http://www.marshalldennehey.com/