Will Physicians Find Permanent Relief From the FTC’s “Red Flag Rules”?

A legal ruling finding that the Red Flag Rules promulgated by the Federal Trade Commission (“FTC”) do not apply to the profession of law has raised new hope that physicians may find a similar exemption.

In a final rule published in 2007 under the Fair and Accurate Credit Transaction Act of 2003, the FTC issued these “Red Flag Rules,” which requires any entity that regularly extends credit or defers payments to adopt a formal policy to detect and prevent identity theft. The rule was originally set to be implemented on January 1, 2008, with compliance required by October 22, 2008. Due to significant confusion about the rule, especially regarding which professions are considered “creditors” under the rule’s definition, implementation has been delayed three times (enforcement is currently set to begin June 1, 2010). An Extended Enforcement Policy revised July 29, 2009 by the FTC offered clarification, stating that professions such as physicians and attorneys fit their definition of “creditor,” and would be affected by the rules.

However, in a suit for partial summary judgment brought by the American Bar Association against the FTC, the U.S. District Court of D.C. found that the FTC lacked the authority to apply these rules to attorneys. The decision holds that “The context is inconsistent with the regulation of attorneys,” and that, “As the plaintiff correctly posits: ‘In ‘ordinary English,’ no one would assume that a lawyer engaged in the practice of law is a ‘creditor’ simply because the lawyer bills clients for services rendered and does not demand immediate payment.'” This decision exempting attorneys was issued on December 1, 2009.

Physicians and other health care professionals now hope that they will find relief through a similar exemption. On January 27, 2010, the American Medical Association sent a letter to the FTC claiming that health care professionals should be exempted if lawyers are, based on the similarity of their business structures. The letter states, “While acknowledging that there may be minor differences between lawyers and [licensed health care professionals] for purposes of the applicability of the Rule, we believe that the dispositive considerations underlying that decision apply equally to LHCPs.”

For more information, contact Abby Pendleton, Esq. at (248) 996-8510.