On July 14, the Tennessee Bar Association (TBA) wrote a letter to Federal Trade Commission (FTC) chairman Jonathan D. Leibowitz urging the FTC not to interpret the 2003 Fair and Accurate Credit Transactions Act (FACTA) to require lawyers to comply with the Red Flags Rule.

 

A week later, Thomas Wells, president of the American Bar Association (ABA), said the national group is prepared to go to court if the FTC refuses to exempt lawyers from the new regulations to protect against identity theft.

 

The ripple-effect is still being felt, and some say lawyers are also championing the cause for healthcare professionals.

 

"It appears that the arguments of doctors and lawyers, as professionals, are aligned with regard to their seeking an exemption from compliance with the FTC's Red Flags Rules," said Memphis healthcare attorney Walt Schuler.

 

The law requires businesses that act as creditors to establish programs for identity theft prevention, ascertain potential areas of vulnerability within the business, and include policies for detecting and responding to red flags.

 

Defining "creditors" has stirred much debate.

 

The FTC, responsible for protecting consumers, has ruled that lawyers, doctors, and other professionals are defined as "creditors" because these groups bill customers only after providing services.

 

Betsy Broder, assistant director of the FTC's Division of Planning and Information, repeated that the commission cannot exempt professions without specific authority to do so. "When Congress says to cover creditors, we look to see what that means under the law," she said.

 

Wells disagrees with the interpretation, saying "we just don't think this is what Congress was looking at" when it wrote the law.

 

The TBA — and at least 20 other state bar associations and six local bar associations that have sent independent letters to the FTC — argue that compliance with the rule would impose an unnecessary burden on lawyers and law firms, which are zero-risk entities.

 

TBA president Gail Vaughn Ashworth explained that customary billing for legal services should not fairly be considered to be a "deferral" of payment.

 

"The FTC's position on the Red Flags Rule is that the mere fact of billing for services after they have been rendered amounts to a 'deferral' of a debt and therefore an extension of credit," she said. "However, lawyers do not extend credit in the manner envisioned by FACTA."

 

Ashworth said the burden of lawyer compliance with the Red Flags Rule far outweighs any perceived client benefit.

 

"The FTC's template for low-risk entities refers to approval of the identity theft program by a Board of Directors or committee of the Board; many solo practitioners and small law firms do not have such formal bodies," she said. "Further, the additional language that would need to be inserted into clients' engagement agreements could make relatively simple transactions more cumbersome. Each entity must devote time to developing an identity theft program, even though the client's identity is already protected by rules of confidentiality and the attorney-client privilege."

 

After the FTC said the cost of implementing such programs should be relatively inexpensive for most firms, the ABA asked two law firms to go forward with the mandate. It took administrators 15 hours in a five-lawyer firm, and 120 hours for a 300-lawyer firm. "This calls for sort of a common sense approach to dealing with fraud," Broder said. "Where an entity is not aware of any fraud, their program is necessarily streamlined."

 

The ABA and AMA have spoken about the issue, but talks have not escalated to the level of collaboration on a potential lawsuit. The Tennessee Medical Association declined to comment on the issue; sources say the membership is divided about the group's action plan.

 

The FTC has delayed enforcement of the regulations three times at the request of the ABA and AMA. Most recently, FTC officials moved the compliance date from Aug. 1 to Nov. 1.

 

"The repeated delays in implementation show the FTC is hearing our message that physicians are not creditors, but we will keep all options on the table, including a potential lawsuit with ABA and other groups affected by the rule, if the issue is not resolved during this new three-month delay period," said AMA president-elect Cecil Wilson, MD, an internist from Winter Park, Fla. "We'd like the opportunity to formally make our case through the rule-making process, and we've advocated for a republishing of the rule to FTC and to House Small Business Chairwoman Nydia Velazquez. The AMA greatly appreciates her work to include language in the FY 2010 House Financial Services Appropriations bill that called on FTC to delay enforcement."

 

Diana L. Gustin, an attorney with London & Amburn, PC, of Knoxville said the ABA report accompanying the recommendation to the FTC contains a number of references tocase law and legislative history, noting that regulation of the practice of law is traditionally the province of the states unless federal law compels an intrusion, which would alter the balance between state and federal government. 

 

"From a practical standpoint, the report explains the manner in which lawyers customarily bill is not an extension of credit," said Gustin. "Likewise, physicians must continue to argue that they should not be considered creditors under the Red Flags Rule, based upon the fact that they accept insurance payments."

 

If a lawsuit is filed, New York-based firm Proskauer Rose will represent the ABA pro bono. Proskauer Rose represented the New York State Bar Association in 2005, when the FTC attempted to require lawyers to send out privacy notices to clients. A panel for the U.S. Court of Appeals for the D.C. Circuit upheld a district court ruling that lawyers did not have to comply with the mandate.