FTC Red Flags Rule Enforcement Delayed Again (and New Legal Challenge)
The FTC announced today that it is delaying enforcement of its FACTA Red Flags Rule yet again, this time through December 31, 2010. This is the fifth time the FTC has delayed enforcement of its beleaguered red flag rule, which it originally had planned to enforce beginning November 1, 2008. This latest delay, just like the previous one, comes at the request of members of Congress who plan to amend the FACTA red flag provisions to narrow the scope of the entities that are covered. On May 25, 2010, members of Congress introduced S. 3416, which would exclude health care, accounting and law practices with fewer than 20 employees as well as certain other small businesses.
The further delay comes as FTC Chairman Leibowitz acknowledges the agency’s Rule’s shortcomings: “Congress needs to fix the unintended consequences of the legislation establishing the Red Flags Rule – and to fix this problem quickly.”
As previously covered in the Chronicle, the last delay occurred on October 30, 2009 when the FTC announced it would not begin enforcing the rule until June 1, 2010. That delay followed U.S. District Court for the District of Columbia's ruling that the Red Flags Rule does not apply to lawyers (for analysis of that decision, click here). It also followed the House of Representatives' unanimous passage in late October of HR 3763, which proposes to amend FCRA to exempt certain small businesses from the Red Flags Rule. Subsequently, in November 2009, the American Institute of Certified Public Accountants (AICPA) filed a lawsuit against the FTC challenging the applicability of the Red Flag Rule to Certified Public Accountants.
Now the Red Flag Rule is facing a new legal challenge. On May 21, 2010, the American Medical Association (AMA), the American Osteopathic Association and the Medical Society of the District of Columbia filed a lawsuit against the FTC in the U.S. District Court for the District of Columbia challenging the Red Flag Rule and citing the court’s earlier decision regarding the applicability of the Rule to lawyers. In the latest lawsuit, these medical organizations argue that the Rule, which is applicable to financial institutions and creditors, unjustifiably "treats physician practices like banks, credit card companies and mortgage lenders."