We recently covered the Red Flag Program Clarification Act of 2010 in a blog post and client alert.  The Act was intended to narrow the scope of the Federal Trade Commission’s Red Flags rule, which imposes requirements on creditors and financial institutions to detect and deter identity theft.  Prior to the Act’s passage, the American Bar Association had commenced litigation against the FTC regarding the rule’s application to attorneys.  The litigation is presently in the U.S. Court of Appeals for the District of Columbia Circuit, and in court papers filed on Friday, January 20, 2011, the FTC provided its initial interpretation of the Act’s impact on the rule. 

The FTC argued that the Act does not provide a blanket exemption for all attorneys, contrary to the ABA’s contention and the district court’s ruling.  Pursuant to the Act, an attorney could be subject to the Red Flags rule if he or she satisfies the definition of “creditor” under the Equal Credit Opportunity Act and regularly obtains consumer reports in connection with credit transactions, furnishes information to consumer reporting agencies in connection with credit transactions, or lends money to or on behalf of a person unless the loan is for expenses incidental to the services provided by the attorney.  In addition, the Act authorizes the FTC to subject any person to the rule if the FTC determines, by rulemaking, that the person “offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft.”  The FTC pointed to these two provisions, as well as the absence of legislative history supporting a blanket exemption for any profession, in arguing that the Act does not support the ABA’s position that attorneys should be categorically exempt from the rule. 

The ABA’s responsive brief is due on February 3, 2011. 

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Mike Nonaka Mike Nonaka

Michael Nonaka is co-chair of the Financial Services Group and advises banks, financial services providers, fintech companies, and commercial companies on a broad range of compliance, enforcement, transactional, and legislative matters.

He specializes in providing advice relating to federal and state licensing and…

Michael Nonaka is co-chair of the Financial Services Group and advises banks, financial services providers, fintech companies, and commercial companies on a broad range of compliance, enforcement, transactional, and legislative matters.

He specializes in providing advice relating to federal and state licensing and applications matters for banks and other financial institutions, the development of partnerships and platforms to provide innovative financial products and services, and a broad range of compliance areas such as anti-money laundering, financial privacy, cybersecurity, and consumer protection. He also works closely with banks and their directors and senior leadership teams on sensitive supervisory and strategic matters.

Mike plays an active role in the firm’s Fintech Initiative and works with a number of banks, lending companies, money transmitters, payments firms, technology companies, and service providers on innovative technologies such as bitcoin and other cryptocurrencies, blockchain, big data, cloud computing, same day payments, and online lending. He has assisted numerous banks and fintech companies with the launch of innovative deposit and loan products, technology services, and cryptocurrency-related products and services.

Mike has advised a number of clients on compliance with TILA, ECOA, TISA, HMDA, FCRA, EFTA, GLBA, FDCPA, CRA, BSA, USA PATRIOT Act, FTC Act, Reg. K, Reg. O, Reg. W, Reg. Y, state money transmitter laws, state licensed lender laws, state unclaimed property laws, state prepaid access laws, and other federal and state laws and regulations.