The House unanimously approved by voice vote legislation, HR 4014, that would protect confidential bank examination information provided to the Consumer Financial Protection Bureau. Senator Tim Johnson (D-SD), Chair of the Banking Committee, and Senator Richard Shelby (R-Ala), the Committee’s Ranking Member, have introduced a companion piece of legislation, S 2099, to create a single and consistent standard for the treatment of privileged information submitted to all federal agencies that supervise banks.
The bi-partisan legislation fixes the omission in the Dodd-Frank Act that opens the door for third parties to obtain privileged information provided by financial institutions to the Consumer Financial Protection Bureau. The legislation would require the CFPB to preserve the confidentiality of privileged information it receives from financial institutions, as other banking regulators do.
The American Bankers Association supports the legislation. The ABA, working through its Task Force on Financial Markets Regulatory Reform, has developed key principles for financial regulatory reform. The legislation advances three of those principles: 1) the regulation of financial intermediaries, products, and services should be integrated and comprehensive to protect investors and consumers; 2) functionally similar products and services should be subject to the same or essentially equivalent regulation; and 3) the regulation of the financial services industry should operate in a complementary and coordinated manner.
Currently, privileged materials shared with federal banking agencies remain privileged as to all other parties. Under 12 U.S.C. § 1828(x), the submission by any person of any information to any federal banking agency must 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 such agency.
The creation of the Bureau required that this statute be updated. The term federal banking agency is defined in the Federal Deposit Insurance Act, and that definition does not include the CFPB. Although the CFPB issued guidance asserting that 12 USC 1828(x) applies to its receipt of privileged materials, Bureau Director Richard Cordray has acknowledged that there is real concern over the issue. He expressed support for legislation to resolve any doubt. See testimony of Richard Cordray before the House Subcommittee on TARP, Financial Services and Bailouts, Jan. 24, 2012 and the Senate Banking Committee, Jan 31, 2012.
By explicitly applying the same privilege standards to information submitted to the CFPB that currently apply to any submissions to a federal banking agency, said the ABA, the legislation fosters a more integrated, consistent and coordinated approach to the regulation of financial services providers. In particular, the legislation would align current law with past practices by promoting uniform treatment of privileged materials by the Federal banking regulators and the CFPB.
Prior to the creation of the Bureau, noted the ABA, the Federal banking agencies examined depository institutions for compliance with consumer protection laws and such examinations could include the review of privileged materials without causing a waiver of the privilege. See 12 U.S.C. § 1828. Unfortunately, when the Bureau examines the same institutions today for compliance with the same consumer protection laws, there is uncertainty over whether the examination may include the review of privileged materials without causing a waiver of the privilege. The legislation would place CFPB examinations on the same footing as prior consumer protection examinations conducted by Federal bank regulators with regard to privilege.