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 (PDF) 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.

Attorneys expressed deep concern that the standards imposed by the FTC, which would the agency authority to monitor and oversee the confidentiality protection systems firms/attorneys use to protect their clients' interests and would reduce protection for their client's personal, confidential information.

The ABA sought relief for attorneys and their clients from the burdens of the Gramm-Leach-Bliley Act Title V provisions. After first seeking an exemption to the Act from the FTC per the agency's exemption authority contained in Title V, the ABA filed suit against the agency September 25, 2002. On the same day, Representatives Judy Biggert (R, IL) and Carolyn Maloney (D, NY) introduced the first of two bills to exempt attorneys from this portion of the Act. The Privacy Protection Clarification Act would have made clear Congress had no intent to regulate attorneys engaged in the practice of law through the Act.

The ABA and the New York State Bar Association successfully defended their favorable decision in the U.S. District Court of the District of Columbia before the U.S. Court of Appeals. On December 6, 2005, the Appeals Court agreed with the association's contention that it was not Congress' intent to apply the financial industry privacy standards of Title V, Subtitle A of the Gramm-Leach-Bliley Act to attorneys engaged in the practice of law. The bar associations had filed suit to stop the FTC's effort to regulate the attorney-client relationship through the banking law known as the Gramm-Leach-Bliley Act. The ABA requested that the court declare the FTC's interpretation of the law as unlawful because it conflicted with the ethical codes by which attorneys in all 50 states and the territories are governed and because it was contrary to Congress' intent. The district court held for the bar associations but the FTC appealed. In support of the ABA and the NYSBA's case on appeal, more than 53 state and local bar associations filed an amicus brief, as did the Conference of Chief Justices.

While this decision now represents a final decision in favor of attorneys and our clients, the ABA and the other bar associations are concerned that legislation that could weaken this judicial decision remains possible. For instance, the Senate is considering the House-passed Financial Services Regulatory Relief Act of 2005 this Congress. It would amend the notice provision of Title V. This opens the possibility of amendments that could impact the attorney-client relationship. The ABA will remain vigilant against that possibility and other adverse amendments to that legislation.

• 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.


• The U.S. Court of Appeals for the DC Circuit has affirmed that lawyers are not financial institutions and are not subject to Title V, Subtitle A privacy restrictions intended to regulate financial institutions.

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.