Red Flags Rule Comes Back

By William T. Koustas –

The Federal Trade Commission (“FTC”) has amended its Red Flags Rule (“the Rule”) to comply with the Red Flag Program Clarification Act of 2010 (“Clarification Act”).  As we have previously reported, the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) directed the FTC to promulgate regulations that required creditors to enact procedures to prevent identity theft.  In 2007, the FTC adopted the Rule, which required creditors to implement these procedures.  However, in April 2009, the FTC issued a document explaining that the Rule applied to various professions, including attorneys and healthcare providers because they bill their clients after services are rendered, thus extending credit. 

This caused many professional organizations, including the American Medical Association and the American Bar Association, to lobby for changes to the Rule or the FACT Act.  In August 2009, the American Bar Association filed a lawsuit against the FTC to enjoin enforcement of the Rule.  In the end, Congress enacted the Clarification Act that amended the definition of the term “creditor” in the FACT Act to exempt attorneys and other professionals who bill their clients for services rendered.

On November 30, 2012, the FTC issued an interim final rule amending the definition of a “creditor” in the Rule to make it consistent with the definition in the Clarification Act.  The interim final rule becomes effective on February 11, 2013.