In October 2011, the Consumer Financial Protection Bureau (CFPB) first announced that it would be gathering information from banks and nonbanks in the CFPB’s effort to examine and supervise financial service products. Financial institutions became concerned that disclosing privileged documents to the CFPB would be deemed a waiver by the courts, thus allowing competitors and consumer groups to access these privileged documents.
On March 12, 2012, the CFPB proposed a new rule that would codify protections for privileged information submitted by financial institutions regulated by the CFPB. Richard Cordray, the CFPB’s director, stated that “this is a common sense rule that is consistent with our practice of guarding the confidentiality of the information of the institutions we supervise. This rule will allow us to further protect consumers by facilitating the flow of information between the Bureau and its supervised entities.”
This proposed rule comes after extensive lobbying for a legislative solution by various organizations, including the American Bar Association and the American Bankers Association. Currently, there are bills in the United States Senate and House of Representatives, which would specify that the CFPB should be treated as a federal banking regulator, thus subjecting the CFPB to the rules governing the protection of privileged documents.
What Does the Rule Say and What Does this Mean?
The proposed rule states that the submission by any person of any information to the CFPB for any purpose in the course of any supervisory or regulatory process of the CFPB shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim … under Federal or State law as to any person or entity other than the CFPB.” 12 CFR § 1070.48. The CFPB asserts that this rule is substantively identical to the statutory provisions that apply to the submission of privileged information to the prudential regulators, State bank and credit union supervisors, and foreign banking authorities. Significantly, however, subpart D of the rule makes clear that the CFPB is authorized to disclose, in “appropriate circumstances, confidential information to another Federal or State agency.”
While the proposed rule may provide some comfort, the uncertainty behind the constitutionality of Cordray’s appointment, along with the uncertainty of the legitimacy of a rule issued by the CFPB, continues to leave reservations on the table. Moreover, the CFPB has continued its vague language by noting that it will be sharing information with other entities under “appropriate circumstances.” How much comfort financial institutions can take in the rule, therefore, is very much in doubt.
TROUTMAN SANDERS LLP