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Consumer Financial Protection Bureau Tells Supervised Institutions Not to Worry About Waiver of Privilege

Client Alert

Authors: Richard P. Eckman, Stephen G. Harvey and Frank A. Mayer III

1/10/2012

In a bulletin issued on January 4, 2012, the Consumer Financial Protection Bureau (the Bureau) advised institutions that it supervises that upon request they must disclose to it privileged material, such as documents otherwise protected from disclosure by the attorney-client privilege, but that they need not fear waiver of the privilege. The Bureau’s suggestion that institutions need not worry about waiver of privilege is cause for concern because it is hard to reconcile with a specific Federal statute that provides for non-waiver of privilege for submission of privileged materials to Federal banking agencies, but not the Bureau. Specifically, 12 U.S.C. § 1828(x) provides that “[t]he submission by any person of any information to any Federal banking agency ... for any purpose in the course of any supervisory or regulatory process of such agency ... shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information. ...” The term “Federal banking agency” is defined at 12 U.S.C. § 1813 as “the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation.” Congress enacted 12 U.S.C. § 1828(x) as part of the Financial Services Regulatory Relief Act of 2006 (Pub. L. No. 109-351). When Congress created the Bureau in the Dodd-Frank Act, it did not amend the definition of “Federal banking agency” in Section 1813 to include the Bureau.

From the perspective of supervised institutions, the concern is that the disclosure of privileged material to the Bureau could lead a court in future proceedings, such as a class action lawsuit, to hold that the disclosure waived the privilege and compel the institution to produce the privileged material in those proceedings. From the perspective of the Bureau, the concern is that institutions will not cooperate fully in supervisory examinations and that it will be deprived of the plenary supervisory authority exercised by the Federal banking agencies.

Bulletin 12-01 is an obvious attempt by the Bureau to rectify this situation by announcing that, in its view, the required disclosure to it of privileged material will not result in a waiver of privilege, for either of two reasons.

First, the Bureau contends that “because entities must comply with the Bureau’s supervisory requests for information, the provision of privileged information to the Bureau would not be considered voluntary and would thus not waive any privilege that attached to such information.” In support of this contention, the Bureau cites one district court case from 1996 and a 1991 interpretive letter from the Office of the Comptroller of the Currency, both of which state that required disclosure of privileged material to a banking regulator does not waive the privilege. These authorities support the Bureau’s position, but they fail to explain why, if required disclosure did not waive the privilege, Congress saw the need to enact 12 U.S.C. § 1828(x) in the first place.

Second, the Bureau contends that “Congress intended the Bureau’s examination authority to be equivalent to that of the prudential regulators.” According to the Bureau, when the “examination authority” of the prudential regulators with respect to compliance with Federal consumer financial law transferred to the Bureau on July 21, 2011, as of that date the Bureau was also granted “all powers and duties” that had been vested in the prudential regulators, including “the power to receive privileged information from supervised entities (whether or not deemed voluntarily provided) without effecting a waiver of privilege.” The Bureau believes that this is “consistent with the scheme of coordinated supervision established by Congress” and will further “consistent enforcement of Federal consumer financial law.”

For these two reasons, “the Bureau will not consider waiver concerns to be a valid basis for the withholding of privileged information responsive to a supervisory request.” The Bureau will, however, “give due consideration to supervised institutions’ requests to limit the form and scope of any supervisory request for privileged information.” The Bureau will also, upon request, “provide a demand identifying the privileged information sought and confirming that the materials will be treated confidentially in accordance with this [bulletin] and applicable Bureau rules.” Finally, the Bureau “is prepared to take all reasonable and appropriate steps to assist supervised institutions in rebutting any claim that they have waived privilege by providing information to the Bureau.”

The Bulletin also discusses the Bureau’s treatment of confidential supervisory information. The Bulletin notes that, consistent with the policies of other prudential regulators, the Bureau will treat information obtained in the supervisory process as confidential and privileged. In addition, the Bulletin states that the Bureau recognizes that sharing of such information may sometimes be appropriate or required, which is also consistent with the policies of the prudential regulators. The Bureau notes, however, that it will not routinely share confidential supervisory information with agencies that are not engaged in supervision. The Bulletin indicates that the Bureau’s overall treatment of confidential supervisory information will be consistent with treatment by the prudential regulators.

Pepper Points: An institution required by the Bureau to produce privileged material in connection with supervisory examinations faces a difficult choice: produce the material and risk the possibility that a future court will deem it a waiver of privilege, or refuse to produce the material and face an enforcement action by the Bureau. As the Bureau warns in the Bulletin: “Failure to provide information required by the Bureau is a violation of law for which the Bureau will pursue all available remedies.” The risk of waiver can be minimized by asking the Bureau to provide a demand identifying the privileged material and clarifying that the institution’s disclosure of it to the Bureau is not voluntary. The institution should also consider asking the Bureau if there is any way to provide the information it needs without disclosure of privileged material. The Bureau’s position that required disclosure to it will not waive privilege seems plausible, although it would be far more clear if Congress had amended 12 U.S.C. § 1813 to include the Bureau.

 

A deep irony lies buried in this story. The fact is that Congress today is so fractured that even technical corrections to the Dodd-Frank Act seem unlikely, although at least one bill has been proposed that includes a provision clarifying that submission of privileged material to the Bureau would not result in a waiver of the privilege. In contrast, the Financial Services Regulatory Relief Act of 2006, which enacted Section 1828(x), passed the Senate on unanimous consent and it passed the House without any nays. How times have changed.

Pepper will shortly issue an Alert addressing a Bureau-examined institution’s concern that Freedom of Information Act exemptions may be inapplicable when the Bureau receives a third-party subpoena seeking material that an examined institution has already provided to the Bureau.

Richard P. Eckman, Stephen G. Harvey and Frank A. Mayer III

More Resources on the Dodd-Frank Act

For additional information, please visit Pepper’s Financial Services Reform Resource Center.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.