Court Blocks Enforcement of FTC’s Red Flags Rule with Regard to Lawyers

By William T. Koustas –

On October 29, 2009, Judge Walton of the United States District Court for the District of Columbia ruled for the American Bar Association (“ABA”) and prevented the controversial Red Flags Rule (“the Rule”) from being enforced on November 1, 2009 with respect to lawyers.  (See our previous post here.)

The ABA filed suit against the Federal Trade Commission (“FTC”) on August 27, 2009.  On September 23rd, the ABA filed a motion for summary judgment and declaratory and injunctive relief insofar as the Rule could be deemed to apply to attorneys.  According to media reports, Judge Walton had trouble accepting the FTC’s characterization of lawyers being considered “creditors.”  He noted that the FTC’s definition of a creditor could even include a plumber who bills a customer for work and said he has “…a real problem with concluding that Congress intended to regulate lawyers when these statutes were enacted.” 

The ABA released a short statement following its victory which states, “[b]y voiding the FTC’s interpretation of a statute that was clearly not intended to apply to the legal profession, the court has ensured that lawyers stay focused on the mission of their work…”  

Though this decision apparently only applies to lawyers, it is possible it could have broader implications. 

UPDATE:

• FTC extends enforcement deadline for Red Flags Rule until June 2010.