CFPB: Treatment of Privileged Information - Final Rule

The Consumer Financial Protection Bureau (the "CFPB" or "Bureau") issued its Final Rule ("Rule") on July 5, 2012, adopting its Proposed Rule, without modification, regarding the confidential treatment of information by adding a new section providing that the submission by any person of any information to the Bureau in the course of the Bureau's supervisory or regulatory processes does not waive or otherwise affect any privilege such person may claim with respect to such information under Federal or State law as to any other person or entity.*

Also, the CFPB has amended its regulations to provide that its provision of privileged information to another Federal or State agency does not waive any applicable privilege, whether the privilege belongs to the CFPB or any other person.

The Final Rule implements the Proposed Rule, without modification, regarding the confidential treatment of information. The effective date is August 6, 2012.

To put the Final Rule in context, you might want to read my April 2012 review of the CFPB’s Proposed Rule with respect to the treatment of privileged information. Entitled “The CFPB’s Treatment of Confidentiality and Privilege” (April 2012), my article outlined important considerations and also offers an Action Plan.

“CFPB’s Treatment of Confidentiality and Privilege”
 

Newsletter: HERE. (Abbreviated Version - March 2012)

Website Article: HERE. (Full Text - March 2012)

Article Download: HERE. (Publication - April 2012)

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IN THIS ARTICLE

Proposed Rule

Certain Objections

Certain Clarifications

Summary

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Proposed Rule

On March 15, 2012, the CFPB published a notice and request for comment regarding its proposal to add a new section to its rules relating to the confidential treatment of information that would provide that any person's submission of information to the CFPB in
the course of the CFPB's supervisory or regulatory processes will not waive any privilege such person may claim with respect to such information as to any other person or entity.

According to the CFPB, the proposed rule was intended to provide protections for the confidentiality of privileged information substantively identical to the statutory provisions that apply to the submission of privileged information to the prudential regulators, and State and foreign bank regulators.

In effect, the notice of proposed rulemaking reiterated the position set forth in CFPB Bulletin 12-01 ("Bulletin") that the submission of privileged information to the CFPB would not, under existing law, result in a waiver of any applicable privilege, and explained that the Bureau was exercising its rulemaking authority to codify this result in order to provide maximum assurances of confidentiality to the entities subject to its supervisory or regulatory authority.

The proposed rule was intended to govern any claim, in Federal or State court, that a person has waived any applicable privilege, including the privilege for attorney work product, by providing such information to the Bureau in the exercise of its supervisory or regulatory processes.

Certain Objections

I will provide a sketch of the objections raised by twenty trade associations (with one letter being submitted on behalf of five trade associations), eight individual financial institutions, and two individuals.

Objection

The Rule will have the effect of chilling attorney-client communications within supervised entities.

Note: According to the CFPB, the Rule encourages and strengthens communications between supervised entities and their attorneys by providing additional protections for the confidentiality of those communications. The Rule itself does not require the submission of privileged information, but instead merely provides protections for privileged information that is submitted to the CFPB, voluntarily or otherwise.

CFPB: Treatment of Privileged Information

On March 12, 2012, the Bureau of Consumer Financial Protection (CFPB) announced proposed amendments to the confidential treatment of information obtained from persons in connection with its exercise of authorities under federal consumer financial law.

The proposed amendments will add a new section to the rules which provide that the submission by any person of any information to the Bureau in the course of the Bureau's supervisory or regulatory processes will not waive or otherwise affect any privilege such person may claim with respect to such information under federal or state law as to any other person or entity.

Additionally, the CFPB is proposing to adopt a provision which provides that privileged information given by the CFPB to another federal or state agency does not waive any applicable privilege, whether the privilege belongs to the CFPB or any other person.

The Dodd-Frank Act (Dodd-Frank) did not explicitly address whether the submission of privileged information to the CFPB in the course of the its supervisory or regulatory processes will affect any privilege a supervised entity may claim with respect to such information, even though Congress did provide that "all the powers and duties" of the prudential regulators relating to their transferred consumer financial protection functions would be granted to the CFPB, and this grant of authority encompasses the ability to receive privileged information from supervised entities without effecting a waiver.

In this article, I will offer a brief understanding of this complex issue and provide an Action Plan.*

IN THIS ARTICLE

History
Bulletin 12-01
Proposed Rule
Confidentiality
Considerations
Action Plan

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History

The CFPB first announced in October 2010 that it would be gathering information from banks and nonbanks in its efforts to examine and supervise financial service products.

Many financial institutions at the time expressed considerable concern that divulging privileged documents to the CFPB would be deemed a waiver by the courts, thereby permitting competitors and consumer groups to access the privileged documents.

The CFPB's first official release in 2012, Bulletin 12-01, addressed the treatment and scope of confidentiality protections accorded information collected from supervised institutions through the CFPB's supervisory process.

Then, as indicated above, on March 12, 2012, the CFPB proposed the new rule, the purpose of which, among other things, is to codify protections for privileged information submitted by financial institutions that are regulated by the CFPB.

Bulletin 12-01

The CFPB asserts that "Congress intended the Bureau's examination authority to be equivalent to that of the prudential regulators," with respect to the statutory provision that grants prudential regulators the authority to receive privileged information from their supervised entities without there being a waiver of privilege.

The CFPB reached this conclusion by claiming that in inheriting the prudential regulators' examination authority with respect to compliance with federal consumer financial laws for supervised institutions, it was concomitantly granted "all powers and duties" vested in the prudential regulators related to examination authority.

And one of the powers is the ability and authority to receive privileged information without affecting a waiver. However, it should be noted here that the statutes cited by the CFPB in support of its claim applies to federal banking agencies, not the CFPB. Thus, it seems that the CFPB is not entirely in a position to use, mutatis mutandis, the same statutory privilege protection provided for in Dodd-Frank.

Bulletin 12-01 (Bulletin) addressed two specific parts of the CFPB's policy on confidential information.

1) It states that institutions providing privileged information to the CFPB pursuant to a supervisory request will not waive any privilege that attaches to such information.

2) It indicates that the CFPB will treat information obtained through the supervisory process as confidential and privileged, and, importantly, it provides that the CFPB will only disclose such information to prudential and state regulators, when necessary and/or appropriate, and to law enforcement agencies, only where justified, as determined by the CFPB.

The Bulletin seeks to resolve an intrinsic issue regarding the CFPB's lack of a statutory examination privilege such as that provided to the federal banking agencies. Although the Bulletin provides possible legal support for why similar privilege applies to supervisory information provided to the CFPB, the outline itself does recognize the absence of the same statutory protection that the federal banking agencies had been compelled to pursue in the Financial Services Regulatory Relief Act of 2006 ("FSRRA"), specifically Section 607.