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April 20, 2014

FTC Delays Identity Theft Red Flags Rule for Fourth Time

Day Pitney LLP

On October 30, 2009, just two days before the November 1 enforcement date, the Federal Trade Commission ("FTC") delayed yet again enforcement of the Identity Theft Red Flags Rule until June 1, 2010. The rule was delayed "[a]t the request of Members of Congress," according to an FTC statement.[1]

Controversy continues to swirl around certain entities covered by the rule. The controversial part of the rule requires "creditors" of certain accounts to implement an Identity Theft and Prevention Program to identify, detect, and respond to patterns, practices, or specific activities - called "red flags" - that could indicate identity theft.

Under the rule, creditors are defined as entities that regularly extend or renew credit or arrange for others to do so, and include any entity that regularly permits deferred payment for goods and services. Entities subject to the rule include those that permit payment after products are sold or services rendered, e.g., health care providers, accountants, retailers, and non-profit organizations. (See July 28, 2009, Alert for details on the Red Flags Rule.)

Objecting to the inclusion of lawyers under the rule, the American Bar Association ("ABA") sued the FTC alleging (i) it exceeded its authority in seeking to impose the rule on attorneys and (ii) Congress intended to apply the rule to financial institutions and other entities that extend credit, not attorneys who merely bill for services after they are performed. On October 29, 2009, the U.S. District Court for the District of Columbia granted the ABA's motion for an injunction prohibiting the FTC from extending the rule to the legal profession.[2]

Further, on October 20, 2009, the House of Representatives passed a bill to exclude health care, accounting, and legal practices with 20 or fewer employees from application under the rule. In addition, the bill would require the FTC to issue regulations allowing all businesses to apply for an exemption from the rule. A company would be eligible for an exemption if the FTC determines that it knows all of its customers or clients individually, only performs services at customer residences, or has not faced identity theft problems, and identity theft is rare for its type of business.[3] The legislation is now working its way through the Senate. 


[1] Federal Trade Commission, Office of Public Affairs, FTC Extends Enforcement Deadline for Identity Theft Red Flags Rule (October 30, 2009), available at http://www.ftc.gov/opa/2009/10/redflags.shtm.

[2] American Bar Association v. FTC, No. 09-1636 (D.D.C. Oct. 29, 2009).

[3] H.R. 3763, 111th Cong. (2009).

Copyright © 2009 Day Pitney LLP, all rights reserved.

About the Author

Jim Bowers is director, Compliance Risk Services and practices in the areas of compliance risk management, corporate governance, ethics, and antitrust and securities law. In this capacity, Jim provides legal advice related to the numerous compliance and ethical requirements mandated under a variety of state and federal laws, as well as regulations and compliance best practices.

Jim joined the firm after 25 years of legal and compliance experience at Aetna Inc. The last position he held at Aetna was vice president, corporate compliance, where Jim had broad responsibilities for...

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