A federal appeals court decision that supports clarifications to the term "creditor" under the red flags rule has prompted the American Medical Association to drop a similar suit against the Federal Trade Commission.
The U.S. Circuit Court of Appeals for the District of Columbia held that in the matter of American Bar Association v. FTC, the ABA's challenge to the FTC Red Flags Rule no longer has any value.
The court's decision was based on recent amendments to the Fair Credit Reporting Act which clarify that small businesses like doctor's and law offices are not classified as creditors because they don't offer or maintain accounts that pose a risk of identity theft.
[See also: Obama signs law excluding doctors from Red Flags Rule]
The appeals court made the district court's ruling void, and remanded with instructions that the case be dismissed.
The AMA, which had been engaged in a similar lawsuit with other physician groups to challenge the FTC's efforts to extend the red flags rule to all physicians, has said that its suit will be dropped.
[See also: AMA files suit against FTC over looming Red Flags Rule]
According to the court's opinion, "(T)he Clarification Act makes it plain that the granting of a right to 'purchase property or services and defer payment therefore' is no longer enough to make a person or firm subject to the FTC's red flags rule – there must now be an explicit advancement of funds. In other words, the FTC's assertion that the term 'creditor,' as used in the red flags rule and the FACT Act, includes 'all entities that regularly permit deferred payments for goods or services,' including professionals 'such as lawyers or healthcare providers, who bill their clients after services are rendered,' … is no longer viable."
"The court's decision reinforces the intent of a new law clarifying the scope of the red flag rule and helps eliminate any further confusion about the rule's application to physicians," said AMA President Cecil B. Wilson, MD. "The AMA will remain vigilant that the FTC respects the meaning and intent of the Clarification Act."
"Congress made a very good fix to a very badly written law," FTC Chairman Jon Leibowitz said in statement. "Not surprisingly, the DC Circuit vindicated the FTC's position that the ABA's case should be dismissed. The commission will continue to carry out Congress' directive to protect the American people from ID theft. We look forward to working with business and professional organizations to minimize compliance costs while safeguarding the public."