• Congress Passes Legislation to Ensure Privilege Is Not Waived when Confidential Information Is Shared with the CFPB
  • December 18, 2012 | Authors: David N. Anthony; John C. Lynch; Ethan G. Ostroff; Ashley L. Taylor
  • Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Virginia Beach Office ; Troutman Sanders LLP - Richmond Office
  • On Dec. 11, 2012, the Senate passed S. 3394, which is intended to ensure the confidentiality of privileged information provided by financial institutions to the Consumer Financial Protection Bureau (CFPB). This bill, previously passed by the House of Representatives, H.R. 4014, amends the Federal Deposit Insurance Act (FDIA) to add the CFPB to the list of banking regulators. It also clarifies that the submission of any information to the CFPB in the course of any supervisory or regulatory examination does not waive, destroy, or otherwise affect any privilege that may be claimed with respect to third parties.

    The legislation (H.R. 4014 and S. 3394) address a very important issue involving the protection of confidential and privileged information in examinations of financial institutions subject to CFPB supervision. Under existing law, banks have express legal protection that gives them the confidence and legal certainty to turn over privileged information and documents at the request of the federal banking agencies. A bank does not “waive” privilege and risk disclosure of information to an outside party - potentially involved in litigation with the bank - by sharing privileged information with a covered agency during the course of a supervisory or regulatory process

    However, some uncertainty has arisen related to privilege for institutions subject to CFPB regulation. In creating the CFPB, Congress did not provide the same express statutory protections relating to privilege that the other banking agencies are given. Many nonbanks now subject to CFPB supervision have expressed concern that providing the CFPB with privileged information could waive the institutions’ privilege with respect to third parties. As we told you, in response to these concerns, the CFPB issued a proposed rule intended to clarify that privilege is not waived when confidential information is either submitted to the CFPB or shared by the CFPB with a state or federal agency. But the CFPB’s proposed rule left reservations on the table of many supervised nonbanks. 

    The bill is intended to address this uncertainty by providing the same express rules regarding privilege of information for the CFPB as those already established for the other federal banking supervisors. Under current law, sharing privileged information with a covered agency during the course of a supervisory or regulatory process does not waive attorney-client, work-product, or other privileges recognized under federal or state law. The purpose of the amendment is to clarify that institutions regulated by the CFPB have not risked and will not waive applicable legal privileges as to third parties when they have shared or will provide information to the CFPB.

    The legislation also amends the FDIA by adding the CFPB to the list of covered agencies that may share information with other covered or federal agencies without waiving or impacting a regulated institution's attorney-client or work-product privilege as it applies to third parties. The other covered agencies currently include any federal banking agency, the Farm Credit Administration, the Farm Credit System Insurance Corporation, the National Credit Union Administration, the Government Accountability Office, and the Federal Housing Finance Agency.

    Although the credit reporting and debt collection industries have been subject to compliance with numerous laws enforced by regulators, as we discussed here, they now are under federal regulatory supervision for the first time. This statutory change should ensure that confidential information remains privileged and provide greater clarity and protections for institutions to engage with legal counsel and seek necessary guidance.

    The bill now advances to the President's desk, where it is expected to be signed into law in order to add certainty to the process and facilitate better communications between institutions and the CFPB.