FTC takes aim at lawyers and law firms with its new "Red Flag" rules
On May 11, 2009, I wrote a blog post about the FTC's new Red Flag rules. These rules require prospective lenders to develop policies and procedures to identify identity theft. Sounds like a good idea, right? Sure...right up until the FTC said that these Red Flag Rules apply to lawyers and law firms as well. Now, the gauntlet has been dropped and many state bar associations, including (not surprisingly) New York, have picked it up and are ready to do battle with the FTC regarding these rules.
Since identity theft is such a rampant crime, the FTC did a good thing by making prospective lenders develop policies for identifying potential identity theft and requiring businesses to report it and deal with it effectively. So what is the problem lawyers? Are we just a whiny bunch or are there some legitimate reasons why our businesses should not be subject to the Red Flag rules?
Many lawyers believe that the Red Flag rules would undermine the Attorney/Client Privilege since it would require us to identity our own clients. I am not sure that this is a legitimate argument. The Red Flag Rules are designed to identify and deal with identity theft at the inception of a relationship. When Joe Client walks through our office door and introduces himself as Joe Client, don't we want to know for a fact that he is Joe Client? If he is NOT Joe Client, don't we want to know why he introduced and represented himself to be Joe Client? If he is NOT Joe Client, don't we owe it to our community to identity this guy as an identity thief?
Lets go one step more towards reality. How many of us have had clients misrepresent their identities to us when they wanted to form a professional relationship. Perhaps I might be surprised, but in 20 years it has happened once, and then, it was over the internet. If I had the ability to identity the real person, I would have identified him and complied with the Red Flag Rules to prevent him from trying to scam anyone else.
At the end of the day, I think lawyers who oppose the Red Flag Rules really should take a moment to examine what it is and why they are opposing these rules before puffing their chests and arguing for the sake of avoiding a little bit of extra regulation designed to protect the rest of us.
