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.]