Memo to Washington: Hands Off Lawyers
The United States has a long history of state judicial branch regulation of the legal profession. Historically, the regulation of lawyers has rested with the highest court of each state and is administered by the court through either a disciplinary agency or state bar association. This system has worked well and should not be changed without careful study, thought and consensus. In the coming year, a new American Bar Association task force called Ethics 20/20 will study carefully the practice of law as it occurs today and recommend model rules that continue to protect tested principles while addressing changes in the profession. Any changes suggested, however, will be studied, thoughtful and reached by consensus within the profession.
Unfortunately, the present system of regulation of lawyers is being eroded through multiple changes enacted at the federal level, without the needed study, thought and consensus and without central guiding principles. A series of piecemeal federal laws and regulations threaten to undermine state judicial branch regulation of lawyers and to erode several of the cornerstones on which is built the client-lawyer relationship that protects both clients and the public.
Congress and various federal agencies have recently adopted measures that incorrectly identify lawyers and other professionals as “creditors,” subjecting them to certain federal regulations. For example, in endeavoring to implement the Fair and Accurate Credit Transaction Act of 2003, the Federal Trade Commission (FTC) has established a “red flags rule” intended to assist in the identification and prevention of identity theft. Despite the fact that lawyers are not engaged in the type of commercial activity that Congress had intended to regulate, the FTC appears intent upon applying the rule to lawyers and law firms, potentially requiring lawyers to disclose client relationships and information they are ethically bound to keep confidential. Fortunately, at least one federal circuit court has already concluded that lawyers are not creditors under the relevant underlying statute, the Equal Credit Opportunity Act. The ABA will continue to work with both Congress and the FTC with the hope of preventing the application of the red flags rule to lawyers.
Congress also passed a bankruptcy overhaul law in 2005 that imposes restrictions on the types of legal advice a lawyer may give clients. The overly broad language of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act requires certain lawyers to identify themselves as “debt relief agencies” and restricts the bankruptcy-related legal advice that they may provide to their clients. The law mandates that lawyers may not advise clients to “incur more debt in contemplation” of a bankruptcy filing. Such advice may not only be warranted but may have favorable effects that reach beyond the bankrupt individual himself. A lawyer might recommend that a client reduce overall debt, for example, by selling a large home and purchasing a smaller one, an action that technically incurs new debt but is often in the best interest of the client, creditors and the public.
Because the 2005 bankruptcy act threatens the work of lawyers trying to provide independent and sound advice to financially beleaguered clients, the ABA recently adopted a policy opposing provisions of the act that impose restrictions on bankruptcy-related legal advice, and we have submitted a brief amicus curiae in the U.S. Supreme Court in Milavetz, Gallop & Milavetz P.A. v. U.S. on behalf of the lawyer challenging this restriction.
The ABA also is concerned that key provisions in the proposed Consumer Financial Protection Agency Act seem to categorize the practice of law as a “financial activity…product or service,” subjecting it to federal regulations that threaten the confidential client-lawyer relationship and interfering with existing state court regulation of the profession. Our ABA Task Force on Financial Markets Regulatory Reform and other concerned entities within the association are studying the legislation so that a thoughtful response to this proposal can be developed and presented to policymakers.
Most recently, legislation has been proposed that would give the new consumer protection agency the power to regulate lawyers as providers of “financial products or services.” What this action and all those mentioned above have in common is their interference with the states’ right to regulate lawyers and protect consumers of legal services. The ABA has a well-established record of supporting strong consumer protection under the law. We are equally committed, however, to the principle that the legal profession is best regulated under the authority of the highest appellate court in each state. Since its inception, the legal profession in the United States has been strong and independent, protecting the freedom of lawyers to provide legal advice to their clients in their client’s best interests, not as mandated or regulated by federal law. This recently introduced legislation must also be rejected as an inappropriate interference with the lawyer-client relationship.
We take some comfort in recalling that when, several years ago, the FTC attempted to regulate lawyers under the Gramm-Leach-Bliley Act — and the ABA joined in challenging that attempt — the U.S. Court of Appeals for the D.C. Circuit held that “the regulation of the practice of law is traditionally the province of the states.” Continued adherence to that principle will provide the best protection to all citizens.
Carolyn B. Lamm is president of the ABA. She is a partner in the Washington office of White & Case and specializes in international arbitration and litigation.
Published in The National Law Journal.