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July 23, 2009 2:56 PM

The ABA v. FTC, Part II

Posted by Brian Baxter

Four years ago the American Bar Association won a federal appellate court ruling precluding the Federal Trade Commission from regulating the legal profession.

Joined by state bar associations nationwide, the ABA and the New York State Bar Association argued in ABA v. FTC that the FTC had no right to regulate lawyers under provisions of the 1999 Gramm-Leach-Bliley Act.

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Now the FTC is trying to reassert its authority, this time under the 2003 Fair and Accurate Credit Transactions Act, designed to protect consumers from identity theft by requiring businesses to develop procedures to respond to "red flags" for fraud.

To fight the FTC's attempt to apply the law to lawyers, ABA president H. Thomas Wells, Jr. (pictured right), says the organization is prepared to return to court. While commending the FTC for its aggressive stance on protecting consumers, the ABA believes the protocols pose potential problems for lawyer confidentiality rules and attorney-client privilege.

Wells, a founding member of Birmingham's Maynard Cooper & Gale, plans to file suit by the end of the week if the FTC doesn't abandon its plans to begin enforcing the new regulations on August 1, The National Law Journal reports. Proskauer Rose has agreed to represent the ABA pro bono. (Proskauer partner Steven Krane represented the NYSBA in the FTC's last legal go-around over the regulatory issue.)

Betsy Broder, assistant director of the FTC's division of planning and information, told The NLJ it is considering a request from a House Appropriations subcommittee to delay enforcement of the new regulations.

During the last go-around, the FTC interpreted the Graham-Leach-Bliley Act to include lawyers as part of the "financial institutions" that the act gave it the authority to regulate--an interpretation the courts shot down.

This time the debate centers on the definition of a creditor in the context of the 1974 Equal Credit Opportunity Act. The ABA's current beef with the FTC is defining lawyers as creditors.

In June, Wells issued a statement urging the FTC to exclude lawyers from the regulations, known as the "Red Flags Rule," which require businesses and organizations that act as creditors to establish programs for preventing identity theft.

"The FTC has taken the position that professionals like lawyers, who regularly bill their clients for services after those services are rendered, are creditors under the ECOA," Wells says.

That's not what Congress intended when it passed FACTA, Wells says, citing a Third Circuit decision finding it "implausible" that lawmakers intended the definition of a creditor to include the "professional fees of doctors, lawyers, and others." Moreover, lawyers are already required to protect the identity and property of clients under ABA and state bar confidentiality rules.

But the FTC's Broder tells The NLJ that the commission cannot exempt certain professions from the law without specific authorization to do so.

"When Congress says to cover creditors, we look to see what that means under the law," Broder says. "This calls for sort of a common sense approach to dealing with fraud."

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But past ABA president Michael Greco (pictured left), now a partner with K&L Gates in Boston, says applying FACTA to lawyers will only create more busy work for law firms and confuse clients.

If the legal profession does need to increase client protection, it's up to the states--not the federal government--to amend their codes of professional responsibility for lawyers, he says.


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