• Red-Flag Rules Delayed Again in Effort to Allow for Legislative Fix
  • January 12, 2011 | Author: Kevin M. Greenberg
  • Law Firm: Flaster/Greenberg P.C. - Philadelphia Office
  • Still struggling with objections to how it plans to implement the "red-flag" rules designed to protect against identity theft on doctors, lawyers and other professional practices, the Federal Trade Commission (FTC) on Friday pushed back enforcement of the rules until the end of the year.  In announcing these changes, the FTC chairman expressed hope that a legislative fix to the stalemate would be forthcoming. 

    Problems have arisen as the FTC regulations and their interpretation of the underlying statute classify most professionals who routinely later bill for services as "creditors" and thus subject to the regulations that were aimed at more traditional providers of credit.  This interpretation has been opposed by members of Congress and trade associations and recent decisions in litigation brought by the American Medical Association and the American Bar Association have gone against the FTC and are currently being appealed.  

    This enforcement extension, the fourth since the hyper-aggressive interpretation was announced, is expressly designed to allow Congress to amend the underlying law, which could lead to new, less severe, regulations from the FTC.  The regulations were supposed to first take effect on May 1, 2009.  

    "Congress needs to fix the unintended consequences of the legislation establishing the Red Flags Rule -- and to fix this problem quickly. We appreciate the efforts of Congressmen Barney Frank and John Adler for getting a clarifying measure passed in the House, and hope action in the Senate will be swift," FTC Chairman Jon Leibowitz said in a statement released with the announcement of the extension. 

    Professionals should monitor the situation and be prepared to adopt plans appropriate for their businesses later this year in case the legislative fix is not forthcoming.  This will require the adoption of an identity theft prevention program consistent with the information and risks associated with the underlying business. To comply with the FTC requirements, each creditor must have a program to identify and respond to identity theft risks.  

    This client alert contains just a brief summary of the law.  For more information or if you have any questions, please contact any member of the Flaster/Greenberg Business and Corporate Department.