Maryland Bar Bulletin
Publications : Bar Bulletin : July 2009


Identity theft is now a very real threat to every American citizen, so the federal government is instituting new measures to fight it. One of these new Rules, which views lawyers as “creditors,” has met with opposition from the legal profession, including MSBA. On May 1, the Federal Trade Commission (FTC) amended the Red Flags Rule, under the Fair and Accurate Credit Transactions Act of 2003, to “require creditors to develop programs identifying, detecting, and responding to the warning signs (“red flags”) of identity theft.” The FTC considers lawyers, as well as doctors and other professionals, creditors, so they are subject to this Rule.

Nationwide, lawyers and doctors opposed to the label of “creditor” have joined forces to fight it. The Rule requires creditors (thus, lawyers and law firms) “to have written policies and procedures in place to prevent identity theft.” This is a burden to lawyers, who are not “creditors.”

MSBA has joined the ABA and the American Medical Association in its opposition to this Rule because it should not be applied to professionals who provide services in advance of payment. Last month, MSBA alerted its members about this new Rule and its impending effective date, sending an e-mail to them and posting an alert on its website.

“Lawyers are neither creditors nor financial institutions,” declares Paul V. Carlin, MSBA Executive Director, “and the regulation of the legal profession is done traditionally by the states, not the federal government.” Carlin emphasizes, “These Rules are unduly burdensome and unnecessary since law firms already need to comply with court-administered ethical rules and the Rules of Professional Conduct.”

MSBA applauds the FTC’s efforts to limit the potential for identity theft, but feels the FTC has expanded the reach of the Fair and Accurate Credit Transactions Act (FACTA) too broadly. Moreover, MSBA strongly believes the inclusion of lawyers in the definition of “creditors” is unnecessary and burdensome. “We don’t believe that it was the intent of Congress to regulate lawyers, based on the legislative history of the Act,” asserts Carlin. “Plus, Riethman v. Berry, US Third Circuit, a recent federal case, held that lawyers do not come within the definition of creditors.”

Originally, the new Rule was slated to take effect on May 1, but the ABA requested a postponement so it could assess the implications of the Rule on lawyers and law firms. On April 30, 2009, the FTC delayed enforcement of the Rule until August 1, 2009. The ABA Board of Governors passed a policy on June 13 “urging the FTC and Congress to exempt lawyers from the Red Flags Rule. It was advocating the exemption of lawyers from the Rule before the August 1 enforcement date.”

According to the MSBA member e-mail alert, Congress passed the Fair and Accurate Credit Transactions Act (FACTA) in 2003 to address identity theft procedures for “creditors and financial institutions.” Congress asked the Federal Trade Commission (FTC) to draft Rules to implement the law. The FTC drafted the Rules but interpreted FACTA so broadly that it included lawyers and other professions. The FTC wants lawyers to institute “Red Flag Rules” in their offices to limit the risk of identity theft. These Rules are due to go into effect on November 1, 2009.

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Publications : Bar Bulletin: July 2009

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