A hearing entitled “How will the CFPB Function under Richard Cordray?” was held on January 24 by the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs. At that hearing, Mr. Cordray testified that Congress’s failure to amend 12 U.S.C. § 1828(x) to include the Bureau was an oversight and that he would be supportive of a legislative fix. Section 1828(x), discussed in an earlier blog, is an anti-privilege waiver statute applicable to information provided to the Federal banking agencies, State bank supervisors, and foreign bank regulators.
In a letter dated January 30, 2012, House Financial Services Committee Chair Spencer Bacchus and Financial Institutions and Consumer Credit Subcommittee Chair Shelley Moore Capito reminded Cordray of this testimony and noted that it was inconsistent with the Bureau’s own Bulletin 12-01, which seeks to persuade regulated entities that they should be comfortable in voluntarily turning over privileged documents upon request. That Bulletin puts forward an interpretation of § 1828(x) as though it were applicable to the Bureau and promises that the Bureau “would take all reasonable and appropriate actions” to rebut a third-party’s claim of privilege waiver.
The Bacchus-Capito letter observes that, in spite of the tone of Bulletin 12-01, the Bureau “clearly recognizes a potential problem” and criticizes the Bulletin’s threat to “pursue all available remedies” against any regulated entity that fails to provide information to the Bureau. “Without legal certainty,” the letter states, “the attorney-client privilege and work-product privilege will be at risk.”
The letter concludes by urging the Bureau not to request privileged material from regulated entities until the Committee can enact a “legislative fix.” The legislative fix they have in mind is to add the Bureau to § 1828(x). That will not be sufficient, however, to protect the privilege against waivers arising from the Bureau’s sharing the information with others.
For example, Chris Willis has recently noted that the MOU between the Bureau and the FTC provides that if the FTC requests “Confidential Supervision Material” from the Bureau, the Bureau will provide it unless it decides it has “good cause not to do so.” Even if Congress were to include the Bureau within § 1828(x), information that remains privileged in the hands of the Bureau would be waived if the Bureau turned it over to the FTC. That problem can be remedied — as to the FTC and any other federal agency — by amending another anti-privilege waiver statute, 12 U.S.C. § 1821(t)(1). Thus any “legislative fix” should include adding the Bureau as a “covered agency” in 12 U.S.C. § 1821(t)(2)(A). Regulated entities remain exposed to potential waiver issues, however, if the Bureau shares privileged information with State agencies or law enforcement authorities.