What Is the Red Flags Rule and Why Does It Cover law Firms?

The rule requires "creditors" that maintain "covered accounts" to develop and implement a written Identity Theft Prevention Program designed to detect, prevent and mitigate identity theft. The rule, adopting the definition provided in Section 702 of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. Section 1681a(r)(5), defines "creditor" as any person who regularly extends, renews or continues credit or who regularly arranges for the extension of credit. 15 U.S.C. Section 1691a(e). "Credit" is defined as "the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefore." 15 U.S.C. Section 1691a(d). According to the FTC, the plain language of the statute defines "creditor" very broadly and includes businesses, including law firms, that regularly permit a customer to defer payment for goods or services, and does not permit the FTC to make industry-based exclusions. Since it is ...  more