Re: Fair and Accurate Credit Transaction Act 'Red Flags' Rule
CHICAGO, June 22, 2009 - The American Bar Association urges Congress and the Federal Trade Commission to exempt lawyers from the Red Flags Rule that imposes requirements on creditors to detect the warning signs of identity theft in their day-to-day operations. The Rule, adopted under the Fair and Accurate Credit Transactions Act, or FACT Act, is noble in its intent. However, the Commission’s application of the Rule to lawyers is unnecessary and not supported by law. Lawyers are not engaged in the type of commercial activity that Congress was attempting to regulate with the FACT Act and should not be considered creditors under the Red Flags Rule.
Congress intended the FACT Act to apply to financial institutions and other businesses that extend credit, not to lawyers who merely bill for services after they are performed. Regardless of the specifics of billing arrangements used in client-lawyer relationships, lawyers cannot ethically charge for legal services until they are rendered.
Lawyers’ fees already have been determined not to be credit transactions by the Second Circuit Court of Appeals. Further, 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.” Nowhere in the FACT Act did Congress even imply that it intended to regulate lawyers with respect to their client relationships, and lawyers should not be considered creditors simply because they bill for legal services only after those services are rendered.
Treating lawyers as creditors under the FACT Act would impose an undue burden on law firms, especially solo practitioners, and would accomplish very little. The type of identity theft addressed by the Rule would be present only if an individual pretended to be someone else; a person would have to assume not only another person’s identity, but his or her legal needs as well. Compliance with the Act would complicate client arrangements and require a major commitment of lawyers’ time, yet the FTC has failed to identify a single case of identity theft in the legal service context, suggesting that such a scenario is far-fetched, if not impossible.
The American Bar Association 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 ABA will work with Congress and the Federal Trade Commission to ensure that, when the final Red Flags Rule goes into effect, the Rule will not apply to lawyers engaged in the practice of providing legal services to clients.
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