Red Flags Rule Revisited – Congress Fixes “Problem”

February 2011

… In the June 2009 issue of the Avoiding Liability Bulletin I wrote about the Red Flags Rule, promulgated by the Federal Trade Commission, requiring those covered by the Rule to comply with specified requirements in an effort to identify and prevent identity theft, which has become a problem of large and potentially devastating proportion throughout the country. The FTC took a very broad view of who was considered to be a “creditor” under the law and federal regulations, and their position was that psychotherapists, lawyers, accountants, physicians, and many other professionals were covered by the new mandate. The FTC seemed to take the position that if payment is made after services are rendered, credit has been extended. Thus, at least according to the FTC, if patients routinely pay at the end of the hour, credit has been extended. Or, if the therapist or counselor billed on a monthly basis, this too would be an indication that the practitioner’s business was one where credit was regularly extended.

At the time I wrote the article, enforcement for non-compliance with the Rule was scheduled to begin on August 1, 2009. This date was subsequently extended on more than one occasion, with the most recent date for the commencement of enforcement being January 1, 2011. In the interim, however, there were many protests about the FTC’s overly broad interpretation of the Rule. I indicated in the June article that it was my view that the FTC went beyond the statute and the intent of Congress, and that there were federal court decisions that were supportive of that view. The FTC believed otherwise. I contacted a few attorneys at the time who were challenging or planning to challenge the FTC in federal court. I recommended that therapists and counselors check with their respective professional associations for their view on the Rule – and what they were recommending to their respective memberships.

As a result of all of the protests over the FTC’s position, Congress, at the behest of a number of trades and professions, recently passed a bill (S. 3987) that was signed into law by President Obama. The Red Flag Program Clarification Act of 2010, as the Act is titled, makes amendments to the Fair Credit Reporting Act to clarify (and narrow) the definition of “creditor.” Without getting into the technicalities and legal niceties, the new law is intended to make clear that small businesses like the practices of physicians, accountants, veterinarians, dentist’s, and other health care providers should not be swept under the Red Flags Rule in the future just because these businesses allow payment to be deferred, when they don’t offer or maintain accounts that pose a reasonably foreseeable risk of identity theft. If you were under the impression that your business was covered by the Red Flags Rule, it might be worthwhile to check again!


Richard Leslie

"At the Intersection of Law and Psychotherapy" Richard S. Leslie is an attorney who has practiced at the intersection of law and psychotherapy for the past twenty-five years. Most recently, he was a consultant to the American Association for Marriage and Family Therapy (AAMFT), where he worked with their various state divisions to develop and implement their legislative agendas. He also provided telephone consultation services to AAMFT members regarding legal and ethical issues confronting practitioners of diverse licensure nationwide. Additionally, he wrote articles regarding legal and ethical issues for their Family Therapy Magazine and presented at workshops on a variety of legal issues. Prior to his work with AAMFT, Richard was Legal Counsel to the California Association of Marriage and Family Therapists (CAMFT) for approximately twenty-two years. He was director of Government Relations for CAMFT, and as such was the architect of CAMFT’s widely regarded and successful legislative agenda. He represented CAMFT before the regulatory board (the Board of Behavioral Sciences) and was a tireless advocate for due process and fairness for licensees and applicants. He was a regular presenter at workshops and was consistently evaluated as CAMFT’s most highly rated presenter. He also sat with the CAMFT Ethics Committee and acted as their advisor on matters pertaining to the enforcement of ethical standards. Richard is an acknowledged expert on matters pertaining to the interrelationship between law and the practice of marriage and family therapy and psychotherapy. For many years, he taught Law and Ethics courses for a number of colleges and universities in their marriage and family therapy degree programs. While at CAMFT, he provided telephone consultation services with thousands of therapists in California and elsewhere for over twenty years. He is highly regarded for his judgment, his expertise, his direct style, and his clarity. Richard has been the driving force for many of the changes and additions to the laws of the State of California that affect MFTs. In 1980, he was primarily responsible for achieving passage of the "Freedom of Choice Law" that required insurance companies to pay for psychotherapy services performed by MFTs. Passage of that law allowed MFTs to earn a living, allowed them to better compete in the marketplace, and strengthened the profession in California by leading to a great increase in the number of licensees and CAMFT membership. Currently, about half of the licensed marriage and family therapists in the country are licensed in California. While at CAMFT, Richard was primarily responsible for, among other things, the successful effort to criminalize sex between a patient and a therapist. He was successful in extending the laws of psychotherapist-patient privilege to MFTs, thereby giving patients the same level of privacy protection as when seeing a psychiatrist or psychologist. He fought tirelessly and successfully for the right of MFTs to refer to themselves as "psychotherapists," to perform psychological testing services, to be appropriately reimbursed by California’s Victims of Crime Program, and to be employed in county mental health agencies throughout California. Richard was admitted to the Bar in New York (1969) and in California (1973). While practicing in New York, he served as a public defender, and later, as an Assistant District Attorney. Shortly after moving to California, he worked for the San Diego County Human Relations Commission as their Law and Justice Officer. While there, he worked successfully to achieve greater racial diversity in the criminal jury selection system and to expose and stop police abuse. For such work with that agency, he was the recipient of the Civil Libertarian of the Year Award by the San Diego Chapter of the American Civil Liberties Union.

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