CRE Regulatory Action of the Week
FTC Determines Attorneys to be Subject to Notice Requirements of Gramm-Leach-Bliley
The Federal Trade Commission (FTC) has determined that law firms must comply with the notice provisions included in the 1999 Gramm-Leach-Bliley financial modernization legislation. According to the FTC, attorneys may provide "financial services" under the Act, thereby triggering the notice provisions related to the privacy of consumer financial information. The American Bar Association (ABA) and other legal groups have reacted strongly against this interpretation which they deem to be at odds with congressional intent and which may have potentially serious negative impacts upon attorney-client privilege.
Read the ABA's Letter to the Chairman of the FTC.
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Comment on Item
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February 23, 2001
Timothy J. Muris, Chairman
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Dear Chairman Muris:
I am writing to you on behalf of the Boston Bar Association, as the current President of that organization. The BBA was astounded to learn that the Federal Trade Commission has undertaken to regulate the practice of law through the Gramm-Leach-Bliley Act, a federal statute intended to provide individual citizens with information about the privacy policies of the financial institutions of which they are customers. Because the statute is so plainly not intended to apply to the legal profession, and because that application provides no value to legal clients but would add significantly to the cost of legal services, we urge you to reconsider the recently announced FTC policy that lawyers may be considered "financial institutions" for the purposes of the GLB Act.
Given the language and purpose of the GLB Act, a law office providing private clients with legal advice and representation does not sensibly fit within the definition of "financial institution."
Growing concern about the use of information an individual provides to a bank, creditor, or investment company apparently led the Congress and President to enact the Gramm-Leach-Bliley Act. The BBA expresses no opinion on the merits of the Act itself; nor does it question the commitment of the FTC to implement the Act in a manner that carries out its purpose. However, with all due respect to the staff, adopting a policy that would bring lawyers and their clients under the provisions of this statute is simply inconsistent with the purpose and language of the statute itself.
That the drafters of the Act had no intention of sweeping lawyers and their clients into the regulatory mandate of this statute is obvious from several provisions in the law. Section 6809(3) of the Act defines a "financial institution" as "an institution the business of which is engaging in financial activities as described in section 1843(k) of title 12." It is difficult to comprehend how lawyers and law firms could be considered "financial institutions" within the meaning of the Act, since their business is to render legal advice and representation, and any financial activities are purely incidental to that business. For instance, in receipt of a retainer for legal services to be rendered, a lawyer will be "safeguarding money." In the course of giving legal advice to a widow about the tax consequences of different investments, or giving estate planning legal advice to a young parent, or negotiating a business contract for an entrepreneur, a lawyer will certainly incorporate facts about financial circumstances and options into the discussion. These activities are ancillary to the practice of law, and in no way convert one who renders legal advice into a "financial institution." The "business" of a lawyer is the provision of legal services, not financial services.
Section 6809 (9) of the Act defines "consumer" as "an individual who obtains, from a financial institution, financial products or services…and also means the legal representative of such an individual." If by statutory definition, the consumer's lawyer stands in the shoes of the consumer itself, how is it that the lawyer is also the financial institution?
The list of categories of "financial institution" set out in Section 6805 offers further proof that the legal profession lies completely outside the scope of this Act. Section 6802 (e)(3)(A) even notes a general exception for "persons acting in a fiduciary or representative capacity on behalf of the consumer."
In Massachusetts, the legal profession is governed by a comprehensive set of rules; confidentiality of client information is a central tenet of the practice of law.
All Massachusetts lawyers are subject to the Rules of Professional Conduct promulgated by the Commonwealth's Supreme Judicial Court. Those rules address every nuance of legal practice, with repeated emphasis on the sanctity of attorney-client communications. Complaints of violations of the rules are investigated and prosecuted by Bar Counsel before the Board of Bar Overseers, an administrative tribunal appointed by the Supreme Judicial Court.
Rule 1.6 (Confidentiality of Information) deals at length with the prohibition against revealing confidential information relating to representation of a client. Rule 1.15 (Safekeeping Property) sets out lengthy, detailed requirements for the handling of client funds. This rule recently underwent a public process of review and revision. The revised rule imposes appreciably greater responsibilities on lawyers than did the former version of the rule; the Boston Bar Association supported the changes that were made.
The Rules of Professional Conduct also address the reality that the practice of law often involves situations in which lawyers are called upon to incorporate financial considerations into client discussions about legal matters. Rule 2.1 (Advisor) explicitly addresses the circumstance of offering economic advice along with legal advice. Similarly, Rule 5.7 (Responsibilities Regarding Law-Related Services) makes it clear that lawyers are still operating under the Rules of Professional Conduct even when providing a client with "law-related services" in addition to pure legal advice or representation.
Given the rules and supervisory scheme in place in Massachusetts, as well as the culture and tradition of the legal profession itself, client information is assiduously guarded by lawyers here. Should lawyers have to hold themselves out as "financial institutions" and take all of the administrative steps dictated by the GLB Act, their clients will be forced to cover the expense of such compliance, with no increase in the level of confidentiality any information they have shared with their lawyers will enjoy.
For the legal and practical reasons set out above, we respectfully request that the FTC reconsider its decision to apply the Gramm-Leach-Bliley Act to lawyers. Thank you very much for your consideration.
Boston Bar Association