District Court Decides that FTC Cannot Make Attorneys Comply With Red Flags Rule

On October 29, 2009 the District Court for the District of Columbia ruled that the FTC cannot force practicing attorneys to comply with Red Flags Rule.

The FTC's scheduled enforcement for the Red Flags Rule was November 1, 2009. The American Bar Association (ABA) challenged the Red Flags Rule's applicability to attorneys arguing that it would impose a serious and undue burden on law firms, and sought an injunction and declaratory judgment finding that lawyers were not covered. In response, the FTC stated that lawyers should be covered because billing practices, such as charging clients on a monthly basis rather than upfront, made them "creditors" under the plain language of the Red Flags Rule.

The District Court rejected the FTC's definition of a creditor stating that under the FTC's interpretation, a plumber who charges a customer after working on a toilet for two days also would be considered a "creditor."

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