A Consumer Financial Protection Bureau (CFPB) proposal would protect certain information banks provide to the agency, but one prominent group is claiming CFPB doesn't have a right to the information in the first place.
In a comment letter filed Monday, the American Bar Association (ABA) said CFPB's proposal may not shield confidential bank information — turned over during the supervisory process — that is protected by attorney-client privilege. The reason? The rule is based on a flawed presumption that the agency is entitled to the information, the ABA argued.
"The ABA has serious concerns regarding the assertions in the proposed rule's commentary that the bureau can require or compel supervised entities to submit privileged information in connection with the bureau's supervisory and regulatory processes," the group wrote. "In addition, the ABA is concerned that, because the proposed rule is based in part on this unfounded assertion of the bureau's authority to compel production of privileged materials, the proposed rule may not protect the privileged status of that information, thereby placing supervised entities at risk of losing the privilege with respect to materials furnished to the bureau."
The banking industry has warned that turning over privileged information to the CFPB could constitute a waiver of privilege, which in turn could open the door to subpoenas from civil plaintiffs who want to use the information against a bank in court.
The ABA and others — including Director Richard Cordray — have supported a change in legislation that would clarify that the agency may receive privileged information without the bank waiving their attorney-client privilege.
Still, CFPB has argued that the agency is no different from other banking regulators, and that providing privileged information to it does not constitute a waiver because it is not a voluntary disclosure — that is, the banks are required to turn it over during an exam. It seemed the banking industry and the CFPB were generally in agreement on this point.
The bar association, however, said that claim is "not legally sound" and would erode fundamental attorney-client privilege protections.
"Although the ABA understands that banks often produce privileged materials to federal banking agencies when requested to do so during examinations, the ABA is not aware of any reported federal appellate court case holding that federal banking regulators — or any other federal agencies — can require production of privileged materials, nor do the federal banking statutes contain such authority," the group wrote. "Furthermore, the application of this alleged agency authority to compel production of privileged information with regard to non-banks is wholly unprecedented."
CFPB cited three court decisions in which judges ruled against third parties, saying the bank's disclosure did not constitute a waiver because it was involuntary.
But the ABA dismissed those cases, arguing they have no binding effect because they were written by magistrate judges, and don't address the direct question of whether the bureau has the authority to compel banks to produce the information.
The group said that pressuring supervised entities to submit privileged information "risks chilling and seriously undermining the confidential lawyer-client relationship." It also warned that a policy of seeking such information on a regular basis would go well beyond what other bank regulators and federal agencies currently request.
In a joint letter to CFPB Monday, the Clearing House, American Bankers Association, Consumer Bankers Association and the American Financial Services Association said it is essential that the final rule "expressly reaffirm" the importance of privileges to the legal system and the need to limit requests for privileged information when possible. They also asked CFPB to continue to support a legislative fix to clarify the protections, and to limit the sharing of information with non-supervisory agencies, such as state attorneys general.
"By amending existing statutory law, the proposed legislation would ensure an integrated, consistent and coordinated approach to the regulation of financial service providers," the groups said