Do Red Flag Rules apply to Physicians, Attorneys or Accountants?

Joe Popp | December 29th, 2010

The identity theft protection measures known as the “Red Flag Rules” will not apply to physicians, attorneys and accountants, thanks to legislation passed by the US Congress and signed by President Obama in late December 2010.

Created through the Fair and Accurate Credit Act of 2003, the regulations require businesses that extend credit to consumers to develop a written policy that identifies warning signs and suspicious activities (i.e., red flags) of possible identity theft, and tactics to address and prevent it. Businesses that defer payment for goods or services must follow the Red Flag Rules. Originally scheduled to become effective January 1, 2008, the rules were granted a series of extensions to the deadline for compliance by the FTC. The rules now become effective December 31, 2010.

The new law changes the definition of a creditor, making healthcare providers such as doctors and physicians, as well as law firms and other professional service providers such as accountants exempt from the law. The law also states that the rule should apply only to businesses that obtain or use consumer credit reports, directly or indirectly, in connection with credit transactions, furnish information to consumer reporting agencies in connection with a credit transaction or advance funds to or on behalf of a person based on an obligation to repay funds or repayable from specific pledged property.

The FTC, under the new law, also gained the authority to promulgate regulations applying the rule to businesses whose accounts the FTC decides should be subject to reasonably foreseeable risk of identity theft.

Associations representing various professional groups, including the American Medical Association, the American Bar Association and the American Institute of Certified Public Accountants lobbied heavily for the passage of the legislation and also brought lawsuits against the FTC during the past year, arguing on various grounds that the rule should not apply to them. In the first case to be tried, the U.S. District Court for the District of Columbia ruled that the FTC is barred from applying the Red Flag Rules to lawyers, who were represented in the suit by the American Bar Association. The FTC had said it would appeal the decision.

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