We blogged recently about H.R. 4014, which President Obama signed into law near the end of 2012.  The law identifies the CFPB as a regulator to whom a regulated entity may submit privileged information without waiving any state or federal law privilege and provides that the CFPB may share privileged information of a regulated entity with other federal agencies without waiver of any state or federal law privilege. 

The protections afforded by H.R. 4014 have several important limitations, which we have explored in a recent legal alert.  Not only does H.R. 4014 provide no explicit protection for privileged information provided to state attorneys general, it does not address the fundamental threshold issue of whether the CFPB has the right to compel production of privileged documents in examinations.  This issue is particularly critical in light of the role that enforcement lawyers are playing in CFPB exams and the likelihood (if not certainty) that any privileged information provided to exam staff will be shared with enforcement attorneys when the CFPB believes there may be legal violations.

Calvin Hagins, of the CFPB’s Office of Supervision, and Kristen Donoghue, Assistant Litigation Deputy in the Bureau’s Office of Enforcement, addressed privilege issues at the ABA Consumer Financial Services Committee meeting in Naples, Florida.  Mr. Hagins explained that, during his time at the Office of the Comptroller of the Currency, he reviewed “everything” in connection with bank examinations, ostensibly including privileged materials.  However, the issue of whether a bank agency (or the CFPB) can override the attorney-client privilege has not been previously litigated.  In our view, the statutory basis for the authority to require production of privileged documents on the part of prudential regulators such as the OCC is unclear, at best.  The Bureau’s authority, in our view, is even weaker, because the prudential regulators have frequently justified their asserted access to privileged documents by their need to evaluate the “safety and soundness” of a bank’s operations.  The CFPB has no responsibility for safety and soundness.

Later at the same meeting, a round table discussed the impact of potential CFPB sharing of privileged information with state authorities.  During that discussion Gerald Sachs, Senior Counsel, Enforcement Strategy for the CFPB, advised that the CFPB was aware of the potential privilege issue and that guidance might be forthcoming.

One thing is certain, though: the issue of whether the CFPB has authority to compel the production of privileged documents in an examination is far from settled, and we expect that challenges to the CFPB’s ability to do so will be forthcoming.

On December  20, 2012, President Obama signed into law (1) the bill amending the Electronic Fund Transfer Act (H.R. 4367) to eliminate the ATM fee sticker requirement, and (2) the bill amending the Federal Deposit Insurance Act (H.R. 4014) to provide protection against waiver of the
attorney-client privilege when privileged information is shared with the CFPB or by the CFPB with other federal agencies.

The U.S. Senate, by unanimous consent, has passed a bill previously approved by the House of Representatives (H.R. 4014) that amends the Federal Deposit Insurance Act to provide protection against waiver of the attorney-client privilege when privileged information is shared with the CFPB or by the CFPB with other federal agencies.  The bill is expected to be signed into law soon by President Obama. 

The bill has two main components.  First, it adds the CFPB to the list of federal agencies that may share privileged information of a regulated entity with other federal agencies without waiver of any state or federal law privilege.  Second, it identifies the CFPB as a regulator to whom a regulated entity may submit privileged information without waiving any state or federal law privilege. 

The bill is intended to give regulated entities that provide privileged information to the CFPB with the same anti-waiver protection they have when dealing with the federal banking agencies or state banking regulators. However, those protections have several important limitations which we discuss in our legal alert.


On Friday, August 3, I had the pleasure of speaking on a panel at the ABA Annual Meeting with Meredith Fuchs, General Counsel of the CFPB, and Michael Gordon, Senior Counselor to the Director of the CFPB.  Also on the panel were Mark Metz from Bank of America, Jean Noonan from Hudson Cook, and Reginald Brown from Wilmer Hale, who did a great job moderating.

A few interesting comments were made by our CFPB representatives that I had not heard (or perhaps focused on) before:

— the Bureau believes, based on its experience, that the presence of enforcement lawyers in examinations does not chill communications during the exam process, and it was noted that the enforcement lawyers were there as part of the “integration” of the Bureau’s supervision and enforcement processes

— the senior leadership of the CFPB reads the submissions on the “Tell Your Story” part of the CFPB website regularly.

— the Bureau is trying to work with supervised entities to find alternatives to the turnover of privileged documents, and is being restrained in its requests for such documents.

— the “larger participant” rule relating to debt collectors will be finalized in “a couple of months.”

— the Bureau is working on adding a search function to its website.  (In the meantime, just use Google and restrict the search to consumerfinance.gov, like this: “qualified mortgage site:consumerfinance.gov”).

I made two suggestions to the Bureau during the panel.  First, as I have commented on this blog before, the strict time limitations and disfavored status of extensions of time to file a Petition to challenge a Civil Investigative Demand, and the similar focus on speed in the Bureau’s administrative enforcement rules are not only unfair to the subjects of these proceedings, they make it much more difficult for parties to cooperate and resolve disputes.  The absence of time for both sides to gather information and talk about a resolution means that both sides are at risk of being needlessly pushed into disputes.  I believe experience will show that the emphasis on speed in these proceedings will work to the Bureau’s detriment, not advantage.

Second, I suggested that in addition to gathering information through its complaint process, the Bureau should also gather information from consumers who have not complained in order to understand the market before engaging in rukemaking. Complaints can be a valuable data point, but regulatory and policy decisions should also take into account the experiences of the majority of consumers who haven’t chosen to complain.  Basing decisions on complaints alone risks acting on a self-selected, non-representative group of consumers, and creating problems for the non-complaining majority.

Anyway, thanks very much to the ABA and my co-panelists for a great discussion.

On Tuesday July 17, Senate Banking Committee Chairman Tim Johnson (D.-SD) introduced a new bill, S. 3394, which combines two consumer-related regulatory initiatives that had already been separately introduced and passed by the House of Representatives.  These are (1) eliminating one of the automated teller machine (“ATM”) fee notice provisions (so-called “ATM placard regulation”), passed by the House in H.R. 4367, and (2) providing protection for privileged information shared with, or by, the CFPB, passed by the House in H.R. 4014.  Both initiatives have been on the regulatory agenda of the American Bankers Association.

             ATM Placard Regulation

             In the Electronic Funds Transfer Act (“EFTA”), subparagraph (A) of Section 904(d)(3)  mandates that regulations thereunder require ATM operators charging fees for providing host transfer services to consumers to provide, at the time the services are provided,  notice to consumers of the fact that a fee is being charged and the amount of the fee.  12 U.S.C. § 1693b(d)(3)(A).  Subparagraph (B) then establishes requirements for such notice and, as currently in force, mandates both that prominent and conspicuous notice be placed on or next to the machine itself (usually done in the form of a printed placard) and that, once an ATM transaction is initiated (but while the customer can still abandon the transaction), notice also appear on the ATM screen.  12 U.S.C. § 1693b(d)(3)(B).

             The ATM placard regulation is duplicative, because consumers are already alerted to the nature and amount of the fee on the ATM screen and have the option to decline the transaction without being charged.  S. 3394, like H.R. 4367, would eliminate the placard requirement by amending subparagraph (B) with the following deletions:

                    (B) Notice requirements

 (i) On the machine

 The notice required under clause (i) of subparagraph (A) with respect to any fee described in such subparagraph shall be posted in a prominent and conspicuous location on or at the automated teller machine at which the electronic fund transfer is initiated by the consumer.

 (ii) On the screen

 The notice required under clauses (i) and (ii) of subparagraph (A) with respect to any fee described in such subparagraph shall appear on the screen of the automated teller machine, or on a paper notice issued from such machine, after the transaction is initiated and before the consumer is irrevocably committed to completing the transaction, except that during the period beginning on November 12, 1999, and ending on December 31, 2004, this clause shall not apply to any automated teller machine that lacks the technical capability to disclose the notice on the screen or to issue a paper notice after the transaction is initiated and before the consumer is irrevocably committed to completing the transaction.

             CFPB Anti-Privilege Waiver Amendments

             Chris Willis and I have previously blogged on several occasions, such as  here and here, about the “legislative fix” passed in the House and stalled in the Senate earlier in this session of Congress, and, more recently, we issued an E-Alert about the Bureau’s rulemaking to accomplish the same goal by administrative fiat.  S. 3394, in addition to amending the EFTA, is the latest iteration of the two-fold legislative fix.  First, it would amend Section 11(t)(2)(A) of the Federal Deposit Insurance Act to add the Bureau to the laundry list of federal regulatory agencies that may share privileged information with other federal agencies without the privilege being waived.  Second, it would amend Section 18(x) of that Act expressly to include the Bureau with the other Federal banking agencies in terms of insulating from waiver any privileged information submitted by a regulated entity. 

             The bill is co-sponsored by Ranking Member Richard Shelby (R.-AL) and by Senators Sherrod Brown (D.-OH), Mike Crapo (R.-ID), Kay Hagan (R.-NC), Mike Johanns (R.-NE), Diane McCaskill (D.-MD), and Jim Tester (D.-MT).

Last week, the American Banker reported  that while the legislative “fix” to the CFPB privilege waiver problem is stalled in the Senate, an alternative version of the legislation is being circulated in Congress. This alternative version, being proposed by the American Financial Services Association, broadens the existing proposed legislation (HR 4014) principally by providing that privileged documents provided to the CFPB and then shared by the Bureau with a state banking regulatory agency remain privileged despite that sharing. The legislation that passed the House and now awaits action in the Senate was silent with regard to sharing between the CFPB and any state agency. For that reason, in our blog posts regarding HR 4014, we have referred to it as a “partial fix” to the privilege waiver problem.

The AFSA proposal has engendered two different reactions in the industry. On one hand, proponents of the proposal see it as a step in the right direction, because it would provide greater protection to privileged documents when they are shared by the CFPB with a state banking regulatory agency. Since the Bureau has announced that it may engage in such sharing, and it seems likely that this sharing will occur with respect to state-chartered banks and non-banks supervised by the CFPB, the AFSA proposal makes good sense and should not be politically controversial. Indeed, we would hope that the CFPB will support the proposal, as it has stated it supports HR 4014.

On the other hand, some in the industry see the AFSA proposal as counterproductive. HR 4014 was expected to move swiftly through Congress on a bipartisan basis, and “tweaking” the language might delay a legislative solution to a pressing problem, or deter Congress from acting at all.

Regardless of what happens with HR 4014 and the AFSA proposal, doubts will remain with respect to the privilege issue. Even under the AFSA proposal, two important issues remain unresolved: (1) the Bureau’s authority to demand privileged documents from supervised entities, as highlighted by the American Bar Association’s comment letter on the Bureau’s proposed privilege regulation, and (2) the status of privileged documents shared by the CFPB with a state attorney general, with respect to which the AFSA proposal is silent. We doubt that either of these issues will be resolved by Congress any time soon, but until they are, entities supervised by the CFPB will continue to be unsure of the ultimate fate of privileged documents they share with the CFPB, and therefore may be justifiably reluctant to do so.

The American Bar Association (ABA) and the Committee on Consumer Financial Services of the ABA’s Section of Business Law have submitted comment letters on two CFPB proposals. The Committee’s letter comments on the “larger participant” proposal and the ABA’s letter comments on the proposed rule on confidential treatment of privileged information.

The Committee’s “larger participant” letter addresses the concern that the CFPB appears to believe it could treat an attorney engaged in the practice of law who is not involved in offering or providing a consumer financial product or service either as a “service provider” over whom the CFPB has supervisory authority or as a “larger participant” subject to the CFPB’s supervisory authority. The letter points to Dodd-Frank legislative history that makes clear Congress’ intent to exclude such attorneys from Title X.

The ABA’s letter on the privileged information proposal addresses concerns that (1) the CFPB does not have legal authority to compel supervised entities to produce materials protected by the attorney-client privilege or work product doctrine, (2) the proposal would undermine the attorney-client privilege and work product doctrine, the confidential lawyer-client relationship and the fundamental right to counsel, and (3) because it is based on the incorrect premise that the CFPB has the authority to compel production of privileged materials, the proposal will not be effective in preserving the privileged status of materials supervised entities provide to the CFPB and could result in the waiver of those entities’ privileges as to the CFPB and all third parties. Asserting that federal legislation is the most effective way to preserve the privileged status of materials provided to the CFPB, the letter urges the CFPB to withdraw the proposal and to instead encourage Congress to pass such legislation. The proposal has been the subject of several posts by my colleagues Chris Willis  and Keith Fisher who have expressed concerns similar to those raised in the ABA’s letter.

One of the issues that we have discussed several times on this blog is the CFPB’s position with respect to privileged information it may request during examinations of supervised entities.  As we have noted, the CFPB has taken the position that no waiver of the privilege has occurred when such information is provided, but its position on this issue has been called into question by the lack of any direct statutory support for the position it took.

Although there is a legislative “fix,” of sorts, pending in Congress now, the CFPB has now taken the step of issuing a proposed regulation to address the privilege waiver problem.  Yesterday, it released a new proposed rule that would essentially create a regulatory equivalent of 12 U.S.C. §§ 1828(x) and 1821(t), which would allow the CFPB to demand privileged information from all supervised entities (not just banks, which were the only ones mentioned in Bulletin 12-01).  Further, the proposed rule provides that no waiver occurs when the CFPB shares privileged information with any state or federal agency..

Unfortunately, while the proposed rule is sensible and hopefully will offer more protection to the entities supervised by the CFPB, it suffers from the same basic flaw as Bulletin 12-01: an “ends-justify-the-means” approach that pieces together a rationale from inferences and observations about what the law should be, together with an invocation of CFPB’s power to make rules under Dodd-Frank.  The better approach would have been for the CFPB to take its cue from Congress and await a legislative solution to this issue, and await requesting privileged information until Congress acts, but it has decided instead to simply create a new law itself (compete with preemptive effect on state courts), modeling its proposed rule after §§ 1828(x) and 1821(t).  This approach underscores the urgency with which the CFPB views its examination activity, and its approach to anything that might get in the way of performing such examinations in the manner it wishes.

There are a couple of other interesting things about the proposed rule:

  • Unlike Bulletin 12-01, which discusses only the attorney-client privilege, the new proposal explicitly mentions the work product doctrine.  This signals the Bureau’s intent to request both attorney-client and work product materials from supervised entities.
  • The proposed rule applies to banks and non-banks alike, while Bulletin 12-01 only applies to banks subject to the Bureau’s supervision.
  • The proposed rule reiterates the promise of assistance made in Bulletin 12-01, in which the Bureau has stated that it will assist supervised entities in resisting claims of waiver asserted by third parties.

The proposed rule also underscores the intent of the CFPB to share privileged information with state agencies (including, presumably state attorneys general), stating that “[t]he coordinated intergovernmental action envisioned by Title X of the Dodd-Frank Act would be significantly hampered if the Bureau were not able to exchange privileged information with these agencies freely.”  This raises an interesting question: will the MOU between the CFPB and state AGs prohibit the AGs from using privileged information in enforcement actions against supervised entities?  It would seem to be required, because the CFPB’s proposed rule provides that there is no privilege waiver “as to any person or entity other than the CFPB.”  Thus, it would seem, the CFPB could share privileged information with a state attorney general, but that AG would be unable to use that information in an enforcement proceeding, because under the CFPB’s proposed rule, the information would still be privileged as to the attorney general.  This is of limited comfort, of course, because having a litigation adversary see privileged material strikes at the very heart of the purpose of the privilege, but at a minimum, the Bureau should demand that state attorneys general not use such information in any enforcement proceeding.  When the proposed information-sharing MOU that Director Cordray mentioned in a recent speech to NAAG is released, that is one of the issues we’ll be interested in.

Director Cordray attended a meeting of the National Association of Attorneys General yesterday, delivering some prepared remarks and answering questions from the state AGs in attendance.  Here are the highlights – statements that give us a clue about what the CFPB and the AGs will be joining forces to do in the near future:

  • A new information-sharing MOU.  The CFPB is going to present a new Memorandum of Understanding to the state AGs, “to establish a general framework to share information on consumer financial protection issues.”  We haven’t seen the MOU yet, and until we do, the prospect of information-sharing between the CFPB and the state AGs will continue to unsettle everyone in the industry because of the possible sharing of supervision information, especially privileged material.  We hope that the MOU will make it clear that the CFPB will not share such information with state AGs.
  • Focus on debt collection.  Mr. Cordray’s remarks addressed debt collection at length, calling on the AGs to form a “national strategic plan” with the CFPB to combat “unconscionable” and “inexcusable” conduct by debt collectors.  He specifically mentioned “robo-signing” with regard to debt collection.  These comments make it clear that there is a strong impetus behind the CFPB’s desire to supervise debt collectors under the proposed Larger Participant Rule, and also make it clear that the Bureau will be looking at documentation issues with regard to debt collection, as we’ve predicted on this blog
  • New Mortgage-Related Rules Coming.  The Director previewed several upcoming mortgage-related rulemaking efforts forthcoming “this year” – including one dealing with monthly mortgage statements, one requiring disclosures on ARMs, and another dealing with force-placed insurance. 
  • “Zoning in” on tribal payday lenders.  Answering a question from Colorado’s Attorney General, Mr. Cordray stated that both the CFPB and the FTC are looking at payday lenders who assert Native American tribal immunity as a defense to state laws. 

The overall theme of the Director’s remarks was to underscore the cooperation between the CFPB and state AGs, which is certainly no surprise.  What will result from that cooperation remains to be seen, but given the Director’s rhetoric, I won’t be surprised to see it happen sooner rather than later.

In a recent blog on the Bacchus-Capito letter to CFPB Director Richard Cordray, possible “legislative fixes” to the highly publicized privilege waiver issues involving the Bureau and possible amendments to 12 U.S.C. §§ 1821(t) and 1828(x) were discussed.  The major shortcoming identified with regard to such amendments was the persistent problem of the Bureau’s sharing privileged information, whether obtained from a regulated entity or from another federal regulatory agency, with State Attorneys General or other law enforcement authorities.

Two bills have recently been introduced in Congress, H.R. 3871 and S. 2009. Each is a partial solution to the privilege waiver problem, but neither avoids that identified shortcoming.  S. 2009 takes the direct approach of adding the Bureau to §§ 1821(t)(2) and 1828(x), which arguably maintains privilege with respect to material shared with State bank supervisors.  I say “arguably” because § 1828(x) by its terms applies to privileged material provided directly by a bank to a regulator during the supervisory process.  Only by inference could that provision be interpreted to extend to the situation where the information is provided to one regulator by another.  Such an inference is arguably negated, however, by the separate existence of § 1821(t), and § 1821(t)(2), even if amended to include the Bureau, does not include State bank supervisors.

H.R. 3871 takes a different approach, amending § 1022(c)(6) of the Dodd-Frank legislation by adding the following language as a new subparagraph (B):

“The submission by any person of any information to the Bureau for any purpose in the course of any supervisory or regulatory process of the Bureau shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law as to any person or entity other than the Bureau.”

To recapitulate: both approaches seek (with varying degrees of success) to eliminate inadvertent or coerced waiver of the attorney-client privilege or the work product doctrine by (1) a regulated entity’s directly turning over privileged material to the Bureau, (2) sharing with the Bureau of privileged information by a bank regulatory agency, (3) the Bureau’s sharing such information with another federal agency (such as the FTC) or with a State or foreign bank supervisor.  Neither approach, however, protects such material if the Bureau should share it with a state law enforcement authority other than a State bank supervisor.

One way to resolve this problem unambiguously would be to insert a new subparagraph (E) to Dodd-Frank § 1022(c)(6) along these lines:

“Notwithstanding subparagraphs (C) and (D) of this subsection, neither access by the Bureau to reports of other regulators nor access by any other Federal or State agency or regulatory or law enforcement authority to any reports or other information issued by the Bureau or in its possession shall result in the waiver of any statutory or common law privilege held by any covered person or service provider, unless the holder of such privilege has otherwise waived it.”