Last week, the CFPB released Bulletin 12-01, in which it took the position that it can demand attorney-client privileged documents from its supervised institutions without the privilege being waived as to third parties. It reached this conclusion by relying on a federal statute applicable to the federal banking agencies, even though the underlying statute does not apply to the CFPB. The Bureau may believe that its position is a sensible one, but by jumping to this conclusion without the necessary support in the statute, it has set a dangerous precedent.
By way of background, there is a federal statute, 12 U.S.C. § 1828(x)(1), that provides that there is no waiver of the attorney-client privilege, under federal or state law, when a federally-chartered bank provides privileged materials to a “Federal banking agency.” The CFPB is not a “Federal banking agency,” as definied in the statute. Nevertheless, it has now decided that, regardless of the text of the statute, § 1828 applies to the Bureau because it makes good sense to apply it.
The CFPB reaches this conclusion by noting that it inherited supervisory authority from the federal banking agencies (which it did, but only partially) and that effective supervision requires access to privileged materials. It follows, then, that it would only be sensible for the same anti-waiver rule to apply to the Bureau. So, the Bureau declares in Bulletin 12-01 that it will require banks to provide privileged materials to it on demand, and that there is no waiver of the privilege if banks do as the CFPB instructs.
The Supreme Court has taught us again and again that in interpreting federal laws, we should read what the statutes say, rather than inferring what we thought Congress meant. The CFPB’s approach to the privilege issue violates that commandment and shows that the Bureau is willing to take a short cut when it deems doing so to be sensible or necessary to accomplish its goals. In this instance, its goal is to gain access to the privileged materials of the banks it has jurisdiction over. But by basing its conclusion on what it thinks is reasonable or necessary instead of what the relevant statute says, it has assumed a legislative role that will only serve to reinforce criticisms of its lack of accountability.
Fortunately, there is a legislative solution available. Section 6(b) of H.R. 3461, introduced November 17, 2011, would amend § 1828(x) to extend the protection against privilege waiver to documents provided to the CFPB. We hope that the CFPB will support the enactment of this legislation. In the meantime, supervised banks should carefully review this issue with their in-house and outside counsel.