The Consumer Financial Protection Bureau has issued a proposed rule to govern the effect of voluntary or involuntary submission of otherwise privileged information to the Bureau and the question of whether the privileges attaching to that information would be waived if it were shared with a third party.

The proposed rule’s privilege preservation regime would apply only to a waiver for information finding its way into the hands of third parties (such as other federal or state agencies, including state attorneys general) and does not purport to preserve the privilege vis-à-vis the CFPB.

The comment period for this CFPB rulemaking is relatively short for a rule with such significant ramifications. Comments are due on April 14, 2012, just 30 days after publication in the Federal Register.

This rulemaking will be of interest to all entities—bank and nonbank alike—that are subject to the supervisory and enforcement jurisdiction of the CFPB. Each entity may wish to revisit its policies with respect to privileged information subject to attorney-client privilege or work product protection, and may wish to comment on the Bureau’s proposed rule.

The CFPB rulemaking builds upon ground staked out by the agency early in January in its Bulletin 12-01, which likewise claimed unfettered access to the records of regulated entities and asserted that the information so obtained would not be subject to waiver of attorney-client privilege (other than vis-à-vis the Bureau). This rulemaking expands upon that position in two significant ways. First, whereas Bulletin 12-01 applied only to banks subject to the Bureau’s examination authority (those with more than $10 billion in assets), the proposed rule would apply to all nonbank entities, large and small. Second, whereas the Bulletin dealt solely with the attorney-client privilege, the proposed rule purports to cover other privileges as well and specifically refers to the attorney work product doctrine.

The Bureau asserts this position even though it is aware that there are two federal statutes providing for privilege preservation and that the existence of these statutes makes a change in that regime by any federal entity other than Congress questionable. Under 12 U.S.C. Section 1828(x), the submission by a financial institution of privileged information to a federal banking agency, a state bank supervisor, or a foreign financial regulator in connection with any supervisory or regulatory process does not waive any privilege applicable to that information (except as to the regulator to whom it has been submitted). Then, under 12 U.S.C. Section 1821(t), the sharing of any such information by a federal financial regulatory agency with any other federal agency also does not waive the privilege belonging to the privilege holder. Neither of these statutes, as currently on the books, applies to the Bureau (except in the limited sense that the Bureau would be a permissible recipient of shared information under § 1821(t)).

The Bureau is also aware that Congress is interested in a "legislative fix" for this oversight, and CFPB Director Cordray even proclaimed his support for such a statutory correction in his sworn testimony before Congress last month. Moreover, as the Bureau knows, bills have recently been introduced in both houses of Congress—S. 2009 and H.R. 4014—to effect such a "legislative fix." Indeed, the House passed H.R. 4014 on March 26. Why the agency would "jump the gun" by seeking to accomplish the same thing by regulatory fiat is unclear. Combined with its recent MOU with state attorneys general, the CFPB's action is suggestive of the eagerness with which it anticipates sharing information with state law enforcement authorities.

In short, the proposed rule would apply to submission of any information by any person and would, for example, subsume not only documents or analysis prepared by counsel in anticipation of litigation with a regulatory agency (including the Bureau itself!) but also privileged material belonging to any otherwise unregulated, nonbank entity over which the Bureau might assert authority. The Bureau’s privilege preservation approach tracks very closely language in the recently introduced bills mentioned above.

The breadth of rulemaking authority asserted in the agency release is unprecedented. To begin with, the Bureau claims derivative rulemaking power from the supervisory authority transferred by the financial institution regulatory agencies—OCC, FDIC, OTS, the Fed, and NCUA—as part of the grant of "all powers and duties . . . relating" to that transfer pursuant to Dodd-Frank Section 1061. Next, the agency claims "nearly identical authority" with respect to nonbanks and service providers pursuant to Section 1024(b), (e). Third, the Bureau claims delegated authority under Section 1022(c)(6)(A) to "prescribe rules regarding the confidential treatment of information obtained from persons in connection with the exercise of its authorities under Federal consumer financial law." Finally, the CFPB invokes authority, pursuant to Section 1022(b)(1), to prescribe rules it determines are "necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasion thereof."

The arguments made by the Bureau both in Bulletin 12-01 and in the notice of proposed rulemaking are reminiscent of the arguments made in the 1980’s and 1990’s by the bank regulators when they sought to prevent the plaintiffs’ bar from obtaining access to reports of examination. Those efforts were not uniformly successful, and some courts were willing to provide access to confidential exam reports if the plaintiffs could make a sufficient showing of need for the information.

Ballard Spahr’s Consumer Financial Services Group and Bank Regulation and Supervision Group include experienced lawyers who regularly assist clients in the preparation and filing of comments in agency rulemaking proceedings. For more information, please contact CFS Group Practice Leader Alan S. Kaplinsky, 215.864.8544 or; CFS Group Practice Leader Jeremy T. Rosenblum, 215.864.8505 or; or Keith R. Fisher, 202.661.2284 or

Copyright © 2012 by Ballard Spahr LLP.
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