The Consumer Financial Protection Bureau Flexes Its Muscle on Attorney-Client Privilege

The Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) is asserting its authority to demand attorney client privileged and other protected materials during the course of examinations. In two separate actions early this year, the Bureau has asserted that financial products and services providers will not waive the attorney-client privilege by providing privileged material to the agency, and that it will take assertive action against those who refuse to do so. While Congress is considering legislation to change existing law, under current law the Bureau’s nonwaiver position is open to question. Accordingly, there is a risk that a court would uphold a claim of a third party litigant that the privilege has been waived as to privileged information provided to the Bureau.

The Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) is asserting its authority to demand attorney client privileged and other protected materials during the course of examinations.  In two separate actions early this year, the Bureau has asserted that financial products and services providers will not waive the attorney-client privilege by providing privileged material to the agency, and that it will take assertive action against those who refuse to do so.  While Congress is considering legislation to change existing law, under current law the Bureau’s nonwaiver position is open to question.  Accordingly, there is a risk that a court would uphold a claim of a third party litigant that the privilege has been waived as to privileged information provided to the Bureau.

The CFPB supervises the largest depository institutions and credit unions (total assets of more than $10 billion), and their affiliates, with respect to federal consumer laws.  The CFPB also has similar supervisory authority over certain nondepository institutions.

Most recently, the CFPB, on March 12, 2012, announced a proposed rule that would provide that the submission of any information to the CFPB will not constitute a waiver of, or otherwise affect, any privilege under federal or state law (the “Proposed Rule”).  Earlier this year, the CFPB’s General Counsel issued CFPB Bulletin 12-01, dated January 4, 2012 (the “Bulletin”), to similar effect.  The issuance of the proposed rule is an apparent attempt to bolster the legal basis for the Bureau’s assertion that providing privileged materials to it will not waive the privilege.

The CPFB’s position is consistent with that of the Comptroller of the Currency, Federal Reserve Board and Federal Deposit Insurance Corporation that provision of privileged and confidential information to examiners does not result in waiver the privilege.  The difference is that existing federal statutory law enacted in 2006 supports nonwaiver of the privilege with respect to the prudential banking agencies, but does not include the Bureau as one of the enumerated agencies.  The Bureau’s position will likely revive some historical tension between the banking agencies’ requirement that privileged information, if relevant to the examination process, be provided to examiners, and financial institutions’ fears that providing privileged information to the agency may be considered a waiver of the privilege, resulting in the privileged information being discoverable by third-party litigants.  Because there is some uncertainty with respect to the basis for the Bureau’s position in this regard, there is some risk to financial institutions in providing privileged information to CFPB examiners.

The prudential banking regulators for many years asserted the right to receive privileged documentation from financial institutions under their examination authority and that providing the requested materials would not constitute waiver of the privilege.  Before 2006, the agencies’ position was based on their assertion that required disclosure of privileged information was not voluntary and therefore did not waive the attorney-client privilege; there was no federal nonwaiver statute.  Pri-2006, some courts considering the waiver issue during this period held that the privilege was waived.  Accordingly, many financial institutions resisted or hesitated to provide such information to the regulators.

In 2006, Congress enacted Section 1828(x) of the Federal Deposit Insurance Act, which provides that “the submission… of any information to any Federal banking agency… for any purpose in the course of any supervisory or regulatory process of such agency, supervisor, or authority shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law as to any person or entity other than such agency, supervisor, or authority.”  This provision largely quelled the fears of bankers and their attorneys that providing privileged information to the then existing banking agencies would result in waiver of the privilege.  However, Dodd-Frank did not amend the definitional provision to include the CFPB as a “Federal banking agency”, leaving it unclear whether the provision covers materials provided to the Bureau.

The CFPB articulates two independent bases for its position that providing privileged information will not result in waiver of the privilege.  First, it asserts that the provisions of Dodd-Frank that established the Bureau evidenced an intent to provide to it examination authority equivalent to that of the banking regulators, by transferring the examination authority of those agencies with respect to federal consumer financial law, together with “all powers and duties….relating” to that examination authority.  “Accordingly the examination authority and all related ‘powers and duties’ assigned by statute to the Bureau encompass the ability to receive privileged information from supervised entities without effecting a waiver.”  The CFPB states that its authority with respect to this matter is “consistent” with the scheme of coordinated supervision established by Congress and furthers the goal of consistent enforcement of federal consumer financial law by promoting parity in the supervision of large and small depository institutions.

The second basis is the Bureau’s contention that providing privileged information to the CPFB is required by law, and therefore not “voluntary”.  As a general matter, an effective waiver of the attorney-client privilege must be voluntary.  The CFPB relies in part on a 1991 interpretative letter issued by the OCC which concluded that no waiver occurs.  However, as referenced above, this assertion has met with mixed reception in the courts.

The Bulletin makes it clear that failure to provide its examiners the requested material, privileged or otherwise, will be treated seriously as “a violation of law for which the Bureau will pursue all available remedies.”  If a supervised institution is faced with a claim of waiver, the Bureau “would take all reasonable and appropriate actions to rebut such a claim.”

The Bulletin states that the CPFB will exchange confidential supervisory information with the prudential banking regulators and state regulators that share supervisory jurisdiction over a Bureau-supervised institution.  However, the CPFB will not routinely share such information agencies not engaged in supervision.  It will not, however, routinely share confidential supervisory information with law enforcement agencies not engaged in supervision, such as state attorneys general.  “Except where required by law, the CPFB’s policy is to share confidential supervisory information with law enforcement agencies, including State Attorneys General, only in very limited circumstances and upon review of all the relevant facts and circumstances.”  The Bulletin does not further define what information-sharing the bureau considers to be required by law.

The Proposed Rule also readopts in modified form its regulation that the Bureau will not be considered to have waived any privilege applicable to any information by transferring such information to any other federal or state agency.

Conclusion

Institutions that are subject to CFPB supervision should consider reviewing their policies and practices concerning attorney-client privilege and attorney work product doctrine in light of the CFPB’s articulated position.  In addition to larger depository institutions, mortgage lenders, payday lenders and larger participants in the consumer debt collection and credit reporting markets will be subject to CFPB’s examination authority. Attorneys and others creating documents intended to be privileged should consider that not only are these documents likely to be available to the Bureau (as they are currently available to the prudential banking regulators for depository institutions), but also carry greater risk of being discovered by third party litigants and their attorneys, as the CFPB’s position regarding nonwaiver is considerably less compelling than that of the prudential banking regulators.

Also See:

Legislative Fix for Consumer Financial Protection Bureau; Attorney Client Privilege Issue Remains in Limbo