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WASHINGTON – The Federal Trade Commission has filed notice that it will appeal a U.S. District Court decision which said that regulations designed to combat identity theft cannot be enforced against attorneys.

The case now heads to the D.C. Circuit, and the question of whether the anti-identity theft rules will be applied to lawyers is again open.

The so called “red flags” rules require businesses that accept deferred payments from clients to create written policies outlining how they will prevent, detect and address identity fraud. The rule was designed to apply to financial services businesses, but FTC officials said other businesses – including law practices – would be covered as well.

The American Bar Association sued the agency, claiming that it exceeded its authority by imposing the regulations on attorneys outside of the financial sector, and that the regulations would pose an undue burden on attorneys. The FTC contended that under the Fair and Accurate Credit Transactions Act, attorneys who accept deferred payments from clients are creditors.

The group later moved for partial summary judgment, asking the U.S. District Court for the District of Columbia to hold that the regulation is inapplicable to attorneys engaged in the practice of law.

At a hearing on the summary judgment motion, Judge Reggie Walton granted the ABA’s request from the bench, holding that Congress did not intend for lawyers to be considered “creditors” under the Act.

The FTC and ABA agreed to drop the remaining counts in the complaint, but the commission preserved its right to appeal. the FTC filed notice of appeal Friday.

ABA President Carolyn B. Lamm expressed disappointment at the commission’s decision to appeal.

But she noted that the Association won an appeal in a similar case in 2005 involving exempting attorneys from a financial services law what was designed to cover banks, securities companies and the insurance agency. The same arguments that won that case, she said, apply to the red flags rule.

“The D.C. Circuit … resoundingly upheld the American Bar Association’s lower-court victory in 2005 against the commission in the Gramm-Leach-Bliley lawsuit, and we are anticipating no less a victory in this case,” Lamm said in the statement.

Questions or comments can be directed to the writer at: kimberly.atkins@lawyersusaonline.com

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