Court Blocks Enforcement of Red Flag Rules with Regard to Attorneys

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 Flag Rules from being enforced with respect to attorneys.

The ABA brought suit against the Federal Trade Commission ("FTC") on August 27, 2009. On September 23, the ABA filed a motion for summary judgment and declaratory and injunctive relief insofar as the rules could be deemed to apply to attorneys. Apparently, Judge Walton had trouble accepting the FTC's characterization of attorneys as "creditors." The Judge noted that the FTC's definition of a creditor could even include a plumber who bills a customer for plumbing services. Judge Walton stated that he has "...a real problem with concluding that Congress intended to regulate lawyers when these statutes were enacted."

Following its victory, the ABA released a short statement that provides, "[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..."

Although the decision in this case appears to only apply to attorneys, it may lead to additional exemptions from the Red Flag Rules' definition of "creditor." At the request of Members of Congress, the Federal Trade Commission has again delayed enforcement of the Red Flag Rules until June 1, 2010.

For additional information regarding the Red Flag Rules click here.