The Federal Trade Commission's interpretation of the Fair and Accurate Credit Transactions Act overreaches, and its application of identify theft "red flags" rules to lawyers is unreasonable, Judge Reggie Walton ruled from the bench, with a written decision to follow. He said he had trouble accepting the FTC’s definition of a creditor.

The FTC contended that lawyers should be covered, because many of their billing practices, such as charging clients on a monthly basis rather than up front, made them “creditors.”

The American Bar Association (ABA) fought the FTC's definition, arguing in court that the rules would impose a serious burden on law firms. The ABA's complaint said that the application of the Rule to practicing lawyers is “arbitrary, capricious and contrary to law.

The FTC has not yet indicated whether it will appeal Judge Walton's ruling (see court order).

For those financial institutions and creditors who do fall under the Red Flags Rule, the Federal Trade Commission has announced that it will delay enforcement (for the fourth time) until June 1, 2010 to develop written policies and procedures to detect and respond to "red flags.”