House passes bill exempting lawyers from 'red flags' rule

By Correy Stephenson

The Daily Record Newswire

Just days after the Senate passed a bill to exempt lawyers from the application of the controversial "red flags" rule, the House of Representatives has followed suit, sending the legislation President Barack Obama for his signature.

The rule requires businesses that accept deferred payments from clients to create written policies outlining how they will prevent, detect and address identity fraud.

It was designed to apply to businesses in the financial services industry, but Federal Trade Commission officials said other businesses - including legal practices - would be covered as well.

The American Bar Association sued the FTC, challenging the application of the rule to attorneys, and the ABA won a federal district court ruling preventing enforcement of the rule against attorneys.

The FTC is currently appealing that ruling.

Enforcement of the rule has been postponed five times, with the FTC set to begin enforcement on Dec. 31, barring another delay.

Two weeks ago, the Senate approved S. 3987, The Red Flag Program Clarification Act of 2010, which would exempt lawyers, accountants, doctors, dentists and other health care and service providers from the rule.

Those who "advance funds on behalf of a person for expenses incidental to a service provided by the creditor to that person" would no longer be covered under the rule.

Instead, under S. 3987, the rule would apply only to businesses that use consumer reports in connection with credit transactions, furnish information to consumer reporting agencies in connection with a credit transaction or advance funds.

Last week, the House passed its version of the bill on a voice vote, moving the legislation to President Obama's desk for a signature.

ABA President Stephen N. Zack praised the bill's passage.

"At last, the American legal profession has clear and final relief from attempts to solve a non-existent problem that would have created paper-pushing and raised legal costs," he said in a statement.

"Congress acted decisively in passing legislation that clarifies how the Federal Trade Commission should apply the Red Flags Rule.

"We applaud the leaders of [the] House vote ... and welcome President Obama signing this bill into law."

Published: Mon, Dec 13, 2010


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