Red Flags Rule deadline looms again

The ADA is once again lobbying the U.S. Federal Trade Commission (FTC) to delay implementation of the Red Flags identify theft rules, slated to take effect June 1.

Published by the FTC in conjunction with the U.S. Department of the Treasury and other federal financial oversight agencies, the Red Flags Rule requires businesses that accept deferred payments from clients -- including dentists and other healthcare providers -- to develop a written plan to detect identity theft in their businesses. Failure to comply could result in administrative penalties and up to $2,500 in fines per violation.

The ADA, which has been aggressively lobbying for the exemption of dentists from the rule, has estimated that the average cost to implement and manage a Red Flags program will be at least $600 per dental office, or $80 million for 130,000 dental offices.

The association has been a strong proponent of H.R. 3763, a bill that would exclude any healthcare practice, accounting practice, or legal practice with 20 or fewer employees from the meaning of "creditor," as defined in the Red Flag Rule. That legislation unanimously passed the U.S. House of Representatives in October 2009, but has been pending before the Senate Committee on Banking, Housing, and Urban Affairs ever since, delayed in part by the financing reform package.

"The good news is that Red Flags legislation [H.R. 3763] passed in October by a 400-0 vote, and we have been pressing the Senate to pick it up ever since," said Michael Graham, managing director of government affairs for the ADA. "And the Senate Banking Committee earlier this year said they would like to do something but they weren't in a big rush because they had until June 1. But then they began working on the banking reform legislation."

The ADA was successful in helping to get dentists excluded from the jurisdiction of the Consumer Financial Protection Bureau -- a component of the financial reform bill -- which used essentially the same definition of creditor proposed in the Red Flag Rule, he added.

Another delay?

The FTC has delayed the enforcement of the Red Flags Rule several times in the past year to give businesses time to comply. At the same time, several categories of businesses have challenged the applicability of the rules to their industries.

For example, the American Bar Association (ABA) filed a lawsuit last year in federal court asking for an injunction, and the court issued a declaratory judgment finding that lawyers were not covered by the rule. The decision is currently on appeal. Similarly, accountants filed a lawsuit last November in federal court in the District of Columbia, but the court has not yet ruled.

And following the FTC's rejection of a formal request by the American Medical Association (AMA) for an exemption from the rule for physicians and medical providers, on May 21 the AMA and other medical groups sued the FTC, seeking to prevent the agency from defining physicians as "creditors" whenever they do not require payment in full at the time they provide care.

Now the ADA is hoping to persuade the FTC to delay implementing the rule one more time, Graham said, to give the association a chance to work with the Senate Banking Committee to craft new language that would exempt dentists -- similar to what they did in the financial reform bill. On April 7, Graham and Raymond Gist, D.D.S., president-elect of the ADA, met with FTC Chairman Jon Leibowitz to ask the agency to do just that.

"He said, 'We agree you make a good case on this Red Flags issue, and we'll take another look at extending the deadline if we think some progress is being made in coming up with a solution to this problem,' " Graham said. "So we contacted the FTC office yesterday [May 24] and said, 'We need you to extend the deadline one more time so we can work with the banking committee to come up with language that is acceptable to everybody.' "

If the FTC gives the go-ahead, the ADA will begin working with the banking committee as soon as possible to come up with language that is acceptable to everyone, Graham added.

"We believe that Chairman Leibowitz would like to find a solution to this issue because he is sympathetic to our concerns," he said.

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