The Statewide Title Newsletter and Legal Memorandum

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Issue  107  Article  186
Published:  6/1/2004

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Attorneys Not Subject to Gramm-Leach-Bliley Act
Sarah Friede, Legal Counsel and Senior Underwriter

Attorneys in North Carolina and every other jurisdiction were granted a well-deserved reprieve on April 30, 2004, when a decision handed down by the U.S. District Court for the District of Columbia relieved attorneys from having to comply with the privacy provisions of the Gramm-Leach-Bliley Act of 1999.

Title V of the Act requires financial institutions that form customer relationships with consumers to disclose, in writing, what the institutions’ policies are regarding disclosure of individually identifiable personal information, as well as the opportunity for consumers to opt out of those disclosures to third parties. Only natural persons are entitled to Constitutional privacy protections, so the Act does not apply to institutional or corporate clients. The Federal Trade Commission was authorized to enforce the privacy policy provisions and had announced that law firms and sole practitioners would be considered financial institutions and thus subject to the disclosure requirements if the lawyers or firms "significantly engaged in financial activities."

The American Bar Association, backed by twenty-six other bar associations, challenged the decision by the FTC on various grounds: first, that attorneys are bound by an ethical duty of confidentiality to their clients and by contractual agreements that prohibit any such use of client information, which impose higher standards than the Act; second, that all states regulate the legal profession and impose stricter guidelines than the Act regarding confidentiality; third, that enforcement of the Act would infringe significantly on the attorney-client relationship and could actually destroy attorney-client privilege in some circumstances; and fourth, that imposing the rules would unduly burden small firms and sole practitioners.

The ABA also made clear in its lawsuit that it supports the spirit of the Act, but that imposing the disclosure requirements on attorneys would do nothing to promote consumer protection or privacy.

The U.S. District Court agreed with the ABA, holding that the FTC’s decision to impose the requirements of the Act on attorneys was beyond its statutory authority and constituted arbitrary and capricious agency action. The FTC has 60 days within which to file an appeal, and it has not announced whether it will appeal. The FTC has agreed that attorneys who choose not to comply with the Act within the time frame for filing an appeal will not be subject to penalties if the District Court ruling is overturned.

The title insurance industry continues to be subject to Title V requirements. Statewide Title, Inc, attaches a privacy policy disclosure to every owner’s policy it issues for non-corporate or non-institutional owners. We at Statewide Title view compliance with the Act as just one more way that we can help protect your clients and all consumers in North Carolina.

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