Background
In June 2001, lawyers around the country were surprised to find
that the Federal Trade Commission (FTC) had determined that a banking
law passed in 1999 granted the Commission authority to regulate
the ethical duty of confidentiality attorneys owe their clients.
Title V, Subtitle A of the Gramm-Leach-Bliley Act (previously known
as the Financial Industries Modernization Act) requires financial
institutions to provide customers with periodic notices regarding
the institution’s privacy protection policies and empowers certain
federal agencies to enforce privacy protection regimes within those
firms. A “financial institution” is defined by the Act to include
all businesses that are “significantly engaged” in certain listed
activities deemed to be financial in nature. These include tax planning
and tax return preparation services; debt collection; financial,
investment and economic advisory services; and real estate settlement
services. Most law firms, legal services agencies and sole practitioners
in the course of their practices engage in one or more activities
that can be characterized as financial under this definition.
Current Status
On September 25, 2002, the ABA filed suit to end the imposition
of the Gramm-Leach-Bliley, Title V, Subtitle A confidentiality regime
upon attorneys. On the same day Congresswoman Judy Biggert (R-IL),
along with her colleague, Congresswoman Carolyn Maloney (D-NY),
introduced H.R. 5457
to exempt attorneys from the needless imposition of its requirements.
The bill will be reintroduced in the 108th Congress. The ABA supports
both the legislative and judicial remedies to this issue.
The Senate held a hearing on Title V of the Gramm-Leach-Bliley
Act on September 19, 2002, in preparation for activity on this issue
during the 108th Congress.
On April 29, 2002, in response to the FTC’s refusal to grant administrative
relief to attorneys engaged in the practice of law from the burdens
of the Gramm-Leach-Bliley Act, the New York State Bar Association
initiated suit at the federal district court level seeking declaratory
judgment that in effect would exempt attorneys from the requirements
of the Act.
In a letter dated April 8, 2002, the FTC informed the American
Bar Association if its determination not to grant the exemption
requested. This was in response to the American Bar Association’s
July 2001 request that the FTC use its statutory authority under
the Act to exempt attorneys engaged in the practice of law from
the requirements of Title V. The ABA is working with several Congressional
offices to draft legislation to address this problem.
On February 11, 2002, a bipartisan group of Members from the Energy
and Commerce and the Financial Services Committees of the House
of Representatives sent a letter to the FTC citing the lack of support
in the legislative record for the extension of the regulation to
attorneys, and calling for the grant of the exemption request.
ABA Policy
The American Bar Association believes that the privacy protections
afforded the public by the legally enforceable rules of ethics in
all fifty states and the territories are stronger protections than
those contained in Title V of the Gramm-Leach-Bliley Act (Public
Law 106-102) and for that reason, among others, attorneys should
be exempted from the regulations promulgated pursuant to that title.
Key Points
- The law was drafted
for financial institutions. The FTC and other regulators believe
that law firms engaged in certain activities are identical to
financial institutions for the purposes of the law. This does
not take into account the unique nature of the attorney-client
relationship nor the privileges that arise from it.
- All attorneys
and all law firms within each state are bound by a duty of confidentiality
that is far more sweeping and protective of consumer privacy than
are the Gramm-Leach-Bliley provisions. The practice of law is
strictly regulated by the court of highest appellate authority
in the jurisdiction, unlike financial institutions that are regulated
by either the legislature or administrative agencies. An attorney
who violates the professional code of ethics may be subject to
judicial process, civil liability to the injured client, and disciplinary
actions ranging from censure to disbarment. The Gramm-Leach-Bliley
regulations will not add to the protections the current system
provides.
- The public already
knows to expect confidentiality for all disclosures to attorneys
and not just the disclosures protected by this statute. The notice
requirement in Gramm-Leach-Bliley confuses clients of law firms.
Application of Gramm-Leach-Bliley would infringe upon longstanding
state regulation of the attorney-client relationship and could
potentially destroy the attorney-client privilege in certain circumstances.
- The public is
better protected by the existing system of ethical regulation
of lawyers by the state courts than it would be by Gramm-Leach-Bliley.
American Bar Association