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Can the FTC Regulate Lawyers As Creditors?

Four years ago, the U.S. Court of Appeals for the D.C. Circuit struck down the Federal Trade Commission's attempt to regulate lawyers and law firms as "financial institutions" under the Gramm-Leach-Bliley Financial Modernization Act in American Bar Association v. FTC. According to the FTC, lawyers and law firms engage in "financial transactions" and provide "financial services," such as tax and estate planning and real estate settlement. Therefore, the FTC reasoned, it could impose the Gramm-Leach-Bliley Act's privacy provisions to lawyers and law firms. The D.C. Circuit was not buying it, however. The statute was silent as to whether it applied to lawyers. Yet whereas the FTC saw this as reason for the Court to defer to the Commissions reasoned (if expansive) statutory interpretation, the Court concluded that a statutory silence about the existence of agency power is not the sort of ambiguity that would trigger Chevron deference, but a simple failure to delegate the relevant power in the first place.

It seems that the FTC did not learn its lesson. Once again it is trying to impose financial privacy protection rules on lawyers and law firms. This time, however, it claims it has such authority under the Fair and Accurate Credit Transactions Act of 2003. This law's privacy provisions apply to all "creditors." Lawyers and law firms qualify as "creditors" (as do doctors and many other professionals) the FTC argues, as they do not bill their customers until after they provide their services. The FTC's definition seems quite broad to me. [Interestingly enough, it does not appear that the term "creditor" is defined in the bill's definition section — at least I didn't see it.] ["Creditor" is defined in the ECOA as "any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit." As this language is interpreted by the FTC,] my roofer would seem to qualify, as I did not receive an invoice and have to pay a cent until the job was completely done. Does this mean he was a "creditor" covered by the FTC's new regs? If so, I would expect he might have a more difficult time complying with the FTC's rules than most lawyers. [While the contract I signed with my roofer required payment upon completion of the work, he made clear that I had a few days if I wanted it; if this is his common practice, does he "regularly extend" or "continue" credit?]

The American Bar Association is going back to court to challenge the FTC. Whereas the FTC claims it is required to apply its so-called "Red Flag Rules" to all those who extend credit, and thus cannot exclude lawyers (or doctors, or other professionals), the ABA argues the FTC is engaged in dramatic regulatory overreach.

Given what happened the last time these two tangled in the D.C. Circuit, I'd think the ABA has to be the favorite going in. Indeed, it almost appears the FTC is getting cold feet, as it has repeatedly announced it is delaying enforcement of the contested rules.

The ABA's complaint is here. Additional covereage here. Nathan Sales and I also discuss the initial ABA v. FTC case in our forthcoming article "The Rest Is Silence:Chevron Deference, Agency Jurisdiction, and Statutory Silences" (Univ. Ill. L. Rev. 2009).

[NOTE: Post edited as indicated above. I had somehow overlooked the definition of "creditor" in the legislation. This makes the FTC's regulation somewhat plausible, though I still think there's a decent chance it will be struck down.]

Fub:
Indeed, my roofer would seem to qualify, as I did not receive an invoice and have to pay a cent until the job was completely done. Does this mean he was a "creditor" covered by the FTC's new regs? If so, I would expect he might have a more difficult time complying with the FTC's rules than most lawyers.
Not to mention the corner grocery store, neighborhood tavern or coffee shop, and other small businesses where people run tabs and pay at the end of the month.
8.28.2009 1:33am
GatoRat:
If the lawyer is providing services to someone in the same state, how in the world would Congress have any authority whatsoever, let alone the FTC?
8.28.2009 1:37am
James Gibson (mail):
Fub, what makes you think your Roofer, Grocer, or barkeep isn't regulated under the FTC. Have you ever asked?
8.28.2009 1:43am
J. Aldridge:
If the lawyer is providing services to someone in the same state, how in the world would Congress have any authority whatsoever, let alone the FTC?

That commerce clause is powerful. Congress could regulate lawyers all around the world if they wanted because they can claim they have been empowered to regulate other nations commerce.

Of course regulating commerce always meant imposing duties and taxes on articles of imports.
8.28.2009 2:22am
Bruce Hayden (mail):
I don't see why attorneys should be treated any differently than anyone else. Of course, I don't think that they should be treated any differently when they are collecting for someone else either. A lot of times, it seems like they operate almost identically to other collection agencies up to the time they file suit, and then the only difference is that they don't have to hire lawyers to prosecute the lawsuit.
8.28.2009 3:08am
Toby:
The Guild protects itself again.
8.28.2009 7:10am
Kristian (mail):
By that reasoning, any business that has accounts receivable would be a creditor, am I correct? That seems like a mighty broad definition of creditor...
8.28.2009 8:08am
David M. Nieporent (www):
Of course regulating commerce always meant imposing duties and taxes on articles of imports.
Nonsense. That's a separate power of Congress. Your misinterpretation - let me guess which blog you got it from - would render the commerce clause a nullity.
8.28.2009 9:37am
Houston Lawyer:
Clearly we are all subject to this rule and are all in criminal noncompliance. Isn't that the point, to make criminals out of everyone?
8.28.2009 9:44am
anomdebus (mail):
I am reminded of this story:
A Tax Break for Trial Lawyers?
8.28.2009 9:53am
K Brady:
While I agree that anyone who doesn't collect their fee in advance would meet this definition, it seems to me that lawyers as a class are among the least likely to extend credit. Many lawyers insist on having an advance to bill against. If a client works with me for years and regularly pays me in advance, then isn't that client extending credit? Won't the same rules apply to her?

Karen
8.28.2009 9:55am
David M. Nieporent (www):
While I agree that anyone who doesn't collect their fee in advance would meet this definition, it seems to me that lawyers as a class are among the least likely to extend credit. Many lawyers insist on having an advance to bill against. If a client works with me for years and regularly pays me in advance, then isn't that client extending credit? Won't the same rules apply to her?
Well, no. Clients don't pay in advance; they give us money in advance to hold onto. But the money is theirs, held in our trust account on their behalf, until it's actually earned.
8.28.2009 10:48am
Bama 1L:
Not to mention the corner grocery store, neighborhood tavern or coffee shop, and other small businesses where people run tabs and pay at the end of the month.

Does this still go on? I have never witnessed it.
8.28.2009 10:55am
Fub:
James Gibson wrote at 8.28.2009 1:43am:
Fub, what makes you think your Roofer, Grocer, or barkeep isn't regulated under the FTC. Have you ever asked?
Regulated as a lender? My grocer would be surprised at least.

Asked who? The FTC? They don't speak to uppity peons who ask too many questions.

My grocer? The only "credit report" he uses to determine customer creditworthiness is whether he knows his customer or not. So he might be surprised at all the paperwork the FTC wants before he can let me pay the dollar three eighty for the tomatoes next time I see him. Maybe I'll show him a copy of the FCRA and we can have a good laugh.
8.28.2009 11:14am
J. Aldridge:
David M. Nieporent said:


Of course regulating commerce always meant imposing duties and taxes on articles of imports.

Nonsense. That's a separate power of Congress. Your misinterpretation - let me guess which blog you got it from - would render the commerce clause a nullity.

Why did James Madison called the regulation of commerce among the states a "negative and preventive provision" rather than as a "power to be used for the positive purposes of the General Government."? Because congress is prevented from laying duties and taxes on the states own exports.

Regulations for buying and selling and regulating commerce is two different powers.
8.28.2009 11:22am
Houston Lawyer:
Not only do attorneys' clients not pay in advance, they often don't pay at all. I am very happy if a client pays his bill in full within 90 days. Believe it or not, but a lot of firms get stiffed on very large bills on a fairly regular basis. If you sue to collect, the client counter-claims for malpractice and files a complaint with the state bar. Then there is the endless haggling with regard to fees that exceeded client expectations.
8.28.2009 11:23am
PatHMV (mail) (www):
Amen, Houston Lawyer. I've even been stiffed on bills for work I did for clients who were themselves lawyers. One of the reasons I hated being a solo practitioner, for the brief time I did it. Find the work. Do the work. Bill the work. Collect the bill. Sometimes that last part took more time than the other 3, combined.
8.28.2009 11:29am
David M. Nieporent (www):
Why did James Madison called the regulation of commerce among the states a "negative and preventive provision" rather than as a "power to be used for the positive purposes of the General Government."? Because congress is prevented from laying duties and taxes on the states own exports.
The second sentence isn't even close to a sequitur, and neither one has anything to do with the original claim you made.

The fact that Congress is prevented from laying duties and taxes on exports -- which it explicitly is -- is an argument against your original claim (that regulation of commerce is "imposing duties and taxes on articles of imports.") Congress has the power to regulate commerce among the states. If the power to regulate is the power to tax, and it doesn't have the power to tax, then you've just rendered the commerce clause a nullity. Arguing that it's solely a "negative provision" doesn't make sense, because the states are already forbidden from taxing imports or exports without Congress's consent in Section 10.

Moreover, reading it as purely a negative provision against the states makes no sense, because the actual power granted to Congress is to "regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." In your reading, it would have one purpose when referring to foreign nations and indian tribes and another purpose entirely when referring to the states.


As an aside, Madison said that in 1829. While Madison's statements are certainly worthy of consideration, statements made forty years after the constitution was adopted are hardly authoritative of anything. He could be mistaken, he could have forgotten, he could have changed his mind, and he could be speaking only for himself and not for anybody else. Or, he could have been explaining not the entire scope of the clause, but simply his expectation for how it would generally be used. You've really got to stop your approach of constitutional interpretation through cherry-picking random statements by individual people.
8.28.2009 12:02pm
ShelbyC:

If the lawyer is providing services to someone in the same state, how in the world would Congress have any authority whatsoever, let alone the FTC?


Well, somehow some judges got appointed that couldn't tell the difference between "the power to regulate interstate commerce" and "the power to regulate things that affect interstate commerce". It's a reading-comprehension thing.
8.28.2009 12:05pm
J. Aldridge:
^^^ Didn't Oliver Ellsworth say during the convention the "power of regulating trade between the States will protect them agst each other—Should this not be the case, the attempts of one to tax the produce of another passing through its hands..."?

Didn't James Monroe say:

Commerce between independent powers or communities is universally regulated by duties and imposts. It was so regulated by the States before the adoption of this Constitution, equally in respect to each other and to foreign powers. The goods and vessels employed in the trade are the only subjects of regulation. It can act on none other.

Didn't Thomas Jefferson say: "To make a thing which may be bought and sold is not to prescribe regulations for buying and selling. Besides, if this were an exercise of the power of regulating commerce, it would be void, as extending as much to the internal commerce of every state, as to its external."?
8.28.2009 12:18pm
Duffy Pratt (mail):
Just about every employee in the country gets paid at the end of a period for which he has already done work. Are they all creditors?

And, at most restaurants, you eat first, and then get the check. So that makes the restaurant a creditor.

But, at McDonald's, you pay first and then wait a bit for your food. This, I think would make all their regular customers creditors.
8.28.2009 12:43pm
J. Aldridge:
David says, "If the power to regulate is the power to tax, and it doesn't have the power to tax, then you've just rendered the commerce clause a nullity."

Taxing to regulate and taxing for revenue is two different things. The constitution makes clear there is a difference between the power of "regulation of commerce" and foe revenue under section 9.
8.28.2009 1:45pm
ShelbyC:

my roofer would seem to qualify, as I did not receive an invoice and have to pay a cent until the job was completely done. Does this mean he was a "creditor" covered by the FTC's new regs?


What about parents whose kids do their chores on, say, Tuesday or Wednesday, but they don't pay them their allowance untill Saturday?
8.28.2009 2:59pm
Linus (mail):
As for the comment about protecting the Guild, hell, you think they charge a lot now; wait until they say "sorry, the FTC says I can't extend you any credit."
8.28.2009 3:01pm
Virginian:

As for the comment about protecting the Guild, hell, you think they charge a lot now; wait until they say "sorry, the FTC says I can't extend you any credit."


Under the current ethics rules, I don't see how it is even possible for a lawyer NOT to extend credit. It is unethical to move the client's money from the trust account to the operating account until you have earned it. So you have to perform the work before you receive the payment.
8.28.2009 3:19pm
Reasoner:
I can't think of any transaction that doesn't have a time interval between delivery of the product and payment, or vice-versa. Often the bill can't even be calculated until after the product is delivered. So a normal short time interval between delivery and payment seems more like basic transaction overhead rather than an extension of credit. The question here is what is a short time interval. A month or two seems like a reasonable accommodation to the process of getting a payment through the customer's bureaucracy, rather than an extension of credit. It would be unreasonable to expect payment within 10 milliseconds of bill presentment. Even if a check is put in the mail within 60 seconds of the arrival of the bill, several days have to be allowed for delivery of the mail. A customer also has to have time to review the bill for accuracy. I don't see that as an extension of credit. That's just normal transaction overhead. More than a couple months though is starting to look like an extension of credit.

If a provider offers a payment plan up front, then that would probably be an extension of credit. But if a customer doesn't pay promptly according to the original agreement, then allowing payments probably wouldn't be extension of credit, rather it would be more like bill collections, i.e. you got cheated and are trying to recover your losses on an INVOLUNTARY extension of credit.
8.28.2009 5:41pm
David M. Nieporent (www):
Didn't Oliver Ellsworth say during the convention the "power of regulating trade between the States will protect them agst each other—Should this not be the case, the attempts of one to tax the produce of another passing through its hands..."?
Well, not exactly, no; that's how Madison summarized his comments. But what does that have to do with the price of tea in China? Does that mean, "Therefore, the power to regulate commerce is only the power to tax?" No.
Didn't James Monroe say:
Yes, more than 30 years after the Constitution was adopted; he wasn't even at the Philadelphia convention. And? Again, what is the point of this random cherry-picking of quotes?
Didn't Thomas Jefferson say: "To make a thing which may be bought and sold is not to prescribe regulations for buying and selling. Besides, if this were an exercise of the power of regulating commerce, it would be void, as extending as much to the internal commerce of every state, as to its external."?
Yes, he did. Again, what's your point? Not only is this not relevant (and again, Jefferson wasn't at the convention), but it contradicts your argument, as it implies that in his view, "prescribing regulations for buying and selling" = "regulating commerce."

It hardly makes sense to quote the anti-federalists, who lost the debate, on the subject of what the constitution meant.
8.28.2009 9:27pm
Tim Nuccio (mail) (www):

It hardly makes sense to quote the anti-federalists, who lost the debate, on the subject of what the constitution meant.


Last I checked, nobody completely lost that debate. If not for the anti-federalists, there might not be a bill of rights in our constitution.
8.28.2009 10:58pm
J. Aldridge:
Yes, he did. Again, what's your point?

Commerce was regulated by taxes and duties and not by any other method before and after the adoption of the Constitution. I think the first regulation of commerce was called the tariff bill or something.

Turning the tables to a Federalist and anti-Federalist dispute won't save you, David. It is too clear what the term to "regulate commerce" meant.
8.29.2009 2:34am
Brett Bellmore:

...though I still think there's a decent chance it will be struck down.


It would annoy the legal profession. That's enough to generate a decent chance ANYTHING would be struck down, regardless of the merits.
8.29.2009 5:44pm
Tim Nuccio (mail) (www):

It is too clear what the term to "regulate commerce" meant.


I would argue that the actual clause is even narrower than that. It says "regulate interstate commerce."
8.29.2009 7:28pm
David M. Nieporent (www):
I would argue that the actual clause is even narrower than that. It says "regulate interstate commerce."
To be precise, it says "regulate commerce among the several states," but who's counting.
8.29.2009 8:17pm
David M. Nieporent (www):
Commerce was regulated by taxes and duties and not by any other method before and after the adoption of the Constitution. I think the first regulation of commerce was called the tariff bill or something.
That doesn't follow in any way from your quote, and obviously commerce was regulated by regulation after the adoption of the Constitution.

It is too clear what the term to "regulate commerce" meant.
"Clear" only to a guy who runs a blog somewhere, and his hanger-on. You haven't actually produced a single quote which actually says that.
8.29.2009 8:20pm
J. Aldridge:
David M. Nieporent says: "That doesn't follow in any way from your quote, and obviously commerce was regulated by regulation after the adoption of the Constitution."

What quote are you referring to? Yes, trade was regulated after the adoption of the constitution through duties.

"Clear" only to a guy who runs a blog somewhere, and his hanger-on. You haven't actually produced a single quote which actually says that.

What blog are you whining about? I visit a dozen including this one.
8.29.2009 10:24pm

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