AICPA Files Lawsuit Challenging Application of 'Red Flag' Rules to CPAs

In the latest news surrounding the U.S. Federal Trade Commission's (FTC) "Red Flags" Rule, the AICPA announced this afternoon that it has filed a lawsuit in the U.S. District Court for the District of Columbia seeking an injunction barring the FTC from applying the Rule, which would impose onerous and unnecessary requirements on CPAs.

“We do not believe that there is any reasonably foreseeable risk of identity theft when CPA clients are billed for services rendered,” said AICPA President and CEO Barry Melancon. “As trusted advisors, CPAs are personally acquainted with their clients and already adhere to strict privacy requirements governing identifying information.”

The AICPA’s complaint, filed by law firm Fried, Frank, Harris, Shriver & Jacobson LLP, alleges that the FTC is exceeding its congressionally granted powers under the 2003 law by interpreting its Red Flags Rule to apply to accountants. The AICPA’s complaint alleges that the FTC has acted arbitrarily, capriciously, and contrary to law by failing to articulate a rational connection between the profession of public accounting and identity theft. The FTC failed to explain how the manner in which public accountants bill their clients in the normal course of business constitutes an extension of credit. The FTC further failed to identify any legally supportable basis for applying the rule to accountants.

Due to urging from Congress, the FTC announced Friday, October 30, that it had delayed enforcement of the Rule until June 1, 2010, for financial institutions and creditors subject to enforcement by the FTC. Read more online at http://www.vscpa.com/.

In related news, HR 3763, which recently passed the House of Representatives, grants only certain sized businesses an exemption Red Flags Rule. One of the professions identified for exemption criteria in this legislation is the accounting profession, but only if a firm has 20 or fewer employees. On November 3, the VSCPA mailed a letter to Sen. Mark R. Warner stating that the current exemption criteria would provide relief to just a small percentage of accountants and accounting firms from the burden of complying with the Rule. The VSCPA said the exemption should be expanded to all CPA firms.

Also, check out an earlier post on this issue, and read a letter the VSCPA sent to Sen. Jonathan D. Leibowitz on August 5, 2009, detailing several reasons CPAs should be exempt from the Rule.