ALERT: FTC Announces Delay in Red Flags Enforcement Until June 1, 2010

Two days before they were scheduled to go into effect, and on the same day that a federal judge ruled that lawyers should be excluded from enforcement, the Federal Trade Commission (FTC) announced today that it was delaying enforcement of its Red Flags Rule until June 1, 2010.  In the announcement, the FTC stated that the delay was due to "the request of Members of Congress" and highlighted the efforts it has made to provide guidance to covered entities on how to comply with the Rule.  However, the announcement specifically mentioned the October 30, 2009 ruling by District Judge Reggie B. Walton of the U.S. District Court for the District of Columbia (see our coverage here), in which the Court granted the ABA’s motion for summary judgment, finding that the FTC may not apply the Rule to attorneys.  According to the announcement, the delay in enforcement "does not affect the separate timeline" of the ABA’s lawsuit "and any possible appeals."  Given the timing of the announcement, the most likely explanation for the delay is that the FTC wants to give itself time to appeal the district court’s decision in the ABA suit. 

To recap the events leading up to this postponement: in April, the ABA received word that the FTC intended to enforce the FTC’s Red Flags Rule, 16 CFR Part 681, against lawyers.  The ABA immediately asked the FTC to extend the May 1, 2009 deadline and the FTC obliged by postponing the deadline until August 1, 2009 (see our post on this topic).  After the ABA publicly called on the FTC and Congress to exempt lawyers from the Red Flags Rule in late June, it filed suit in federal district court on August 27, 2009, leading to the ruling in its favor this morning.

However, as we noted in our post on the district court’s ruling, caution may be warranted for attorneys because a number "of federal and state laws demand that companies ensure that customer information is protected "downstream" — i.e., by consultants, accountants, lawyers and anyone else who is given access to customer records . . . . Under these overlapping obligations [along with the fact that the FTC will almost certainly appeal Judge Walton’s decision to the D.C. Court of Appeals] lawyers and law firms who represent regulated businesses may ultimately have little to celebrate as a result of the ruling in favor of the ABA" and the delay in enforcement of the Rule.

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