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FTC Red Flags Rule Further Delayed

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  • Baker, John
    The Federal Trade Commission has further delayed enforcement of its red flags rule, until June 1, 2010, for financial institutions and creditors subject to
    Message 1 of 1 , Nov 2, 2009
      The Federal Trade Commission has further delayed enforcement of its "red flags" rule, until June 1, 2010, for financial institutions and creditors subject to enforcement by the FTC. The rule requires financial institutions and creditors with covered accounts to develop and implement written identity theft prevention programs to identify, detect, and respond to red flags that could indicate identity theft. Financial institutions that fall under the jurisdiction of a different regulator have been subject to the rule since November 1, 2008, but the FTC has given a series of extensions on enforcement, with the most recent prior extension to November 1, 2009.

      The FTC said that it was granting the extension at the request of members of Congress, in order to allow Congress to finalize legislation that would reduce the number of "creditors" subject to the rule. The U.S. House of Representatives on October 20, 2009, by a vote of 400 - 0, approved H.R. 3763, which is now under consideration by the Senate Banking Committee. That bill would amend the Fair Credit Reporting Act to provide that the term "creditor" does not, for purposes of the red flags rule, include a health care, accounting, or legal practice with 20 or fewer employees, or any other business as to which the FTC determines, following an application process, that the business knows all of its customers or clients individually; only performs services in or around the residences of its customers; or has not experienced incidents of identity theft and identity theft is rare for businesses of that type.

      The American Bar Association has brought suit to prevent application of the red flags rule to lawyers, and the U.S. District Court for the District of Columbia on Friday granted the ABA summary judgment on the ground that application of the rule to lawyers is "in excess of statutory jurisdiction, authority, or limitations, or short of statutory right," under 5 U.S.C. ยง 706(2)(C). American Bar Association v. FTC, Civil Action No. 09-1636 (RBW) (D.D.C. Oct. 30, 2009). The court said that an opinion would issue within 30 days; news reports indicate that the court's reasoning may involve a narrowed construction of the statutory term "creditor." The FTC said that its announcement of an enforcement delay does not affect the separate timeline of the legal proceeding and any possible appeals. If Congress passes H.R. 3763, it is possible that its passage could undercut the ABA position with respect to legal practices with more than 20 employees.

      The FTC press release, with a link to the formal extension, is available online at

      http://www.ftc.gov/opa/2009/10/redflags.shtm

      For H.R. 3763, see

      http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.3763:


      John M. Baker <JMB@...>
      Stradley Ronon Stevens & Young, LLP http://www.stradley.com
      1250 Connecticut Avenue, NW, Suite 500
      Washington, DC 20036
      202.419.8413
      202.822.0140 fax
      FundLaw Listowner http://groups.yahoo.com/group/fundlaw
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