Brian K. Stanley
Attorney & Counselor at Law
3625 North 16^th Street, Suite 119
Phoenix, Arizona 85016-6446

Phone: (602) 956-9201 Fax: (602) 956-9366

bks@brianstanleylaw.com

August 31, 2009

Subject: "Red Flags Rule"

Hon. Jonathan D. Leibowitz
Federal Trade Commission
600 Pennsylvania Avenue NW
Washington, DC 20580

Dear Commissioner Leibowitz:

I have seen the letter addressed to you by Mr. Ray Hanna as president of the State Bar of Arizona, dated July 27, 2009.

On the whole, I concur with the views Mr. Hanna expressed. However, I do not believe his assertion that "Customary billing for legal fees is not an extension of credit" is accurate. From an accounting or economic perspective, a lawyer is like any other tradesman (however highly skilled he may be, and however traditionally respected, and therefore "professional," the social classification of his work) performing services for which he has not yet been paid. As he labors, a liability is being incurred by his client which is counterbalanced by an asset - a receivable - accruing to himself. For economic and accounting purposes the relationship of client and attorney is certainly a debtor-creditor relationship even though, beyond the economic dimension, it may also be much more. Less often, and by appropriate agreement, the client may also have prepaid for a particular legal service, in which case the positions of debtor and creditor are merely reversed.

In thinking about the Red Flags Rule and, more broadly, the problem of "identity theft," if we are to distinguish among particular trade groups - such as lawyers, dry-cleaners, restaurateurs, credit card companies, lawn-maintenance services and so on - we should do so on the basis of empirical data reflecting the actual incidence of harm resulting from "identity theft" associated with the activities of each trade group. Since the Commission and its staff made no attempt to systematically identify relevant trade groupings, however, and collected no such empirical data, it is not surprising that the Rule does not define or address any such syndical distinctions.

Mr. Hana's argument on this point, it seems to me, takes exactly the wrong tack. Effective understanding of the problem will not be reached by trade-group particularization but rather by recognizing at the threshold that the debtor-creditor dimension is a pervasive aspect of economic activity. When I put a dollar in the bank, the bank becomes my debtor. When I sit down in the barber's chair, with the first snip the barber becomes my creditor and I his debtor - unless, as happens in some inner-city neighborhoods, the barber demands prepayment, in which case I become his creditor and he my debtor until the job is done. The time-frame for settlement may stretch to the near-universal (among smaller businesses, anyway) "terms net 30 days," and by degrees beyond that to debentures maturing in 30 years -but however soon or late settlement is expected, economic activity inherently gives rise to debts and receivables.

When this fact is duly appreciated, it becomes clear that, pace your honorable Commission and its well intended regulation, being a "creditor" bears about the same relationship to being a "facilitator of identity theft" as being a "mammal" bears to being a "mass murderer."

More fundamentally, little progress toward addressing this growing social evil will be made until it is recognized that there is no such thing as "identity theft" - there are only improvident extensions of credit. The universally taught and quoted first rule of business, before our economy became a bubble-blowing machine, used to be: "KNOW THY DEBTOR." The big modern company that finds it more profitable to turn the knob of its finely adjusted, computer-guided credit-extending machine a little more in the "trusting" and a little less in the "suspicious" direction may be directed quite accurately by its matrix of linear equations. But its profit-maximization only works because it is able to disregard an external cost - the cost imposed on the person whose name was accepted as the debtor's on that transaction, one in fifty, maybe a hundred thousand to the big company, that involved "identity theft."

The effective way to address the problem is obvious. Identify as a victim any individual who can show that, without any knowledge or collusion on his part, Creditor X extended credit to some other person but identified its debtor as him- or herself - a victim of both Creditor X and the "other person." Then give that individual the right to recover actual or statutory minimum damages from Creditor X, and make the statutory minimum say, $10,000 per incident. If this were done, you would scarcely believe how quickly and resourcefully the huge corporate facilitators of identity theft would begin to stamp it out. (Some will howl that such an enactment would stop all lending and dry up credit completely. Don't believe them. It would be easier to extinguish the sun.) Identity theft would soon be eradicated, and your overworked staff would be freed from the burden of collecting a four-part "Identity Theft Protection Program" from every dry-cleaner, tailor and greengrocer in America (to say nothing of every shirt-tail lawyer).

Sincerely,

S/

Brian K. Stanley

BKS:sea

cc: Ray Hanna, Esq.
Editor, The Arizona Lawyer
Hon. Jon Kyl
Hon. Ed Pastor