Thursday, December 13, 2012

Senate Passes and Clears for President Legislation Preserving Confidentiality of Privileged Information Provided to the CFPB

The Senate passed by unanimous consent bi-partisan legislation fixing an 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, HR 4014, would require the CFPB to preserve the confidentiality of privileged information it receives from financial institutions, as other banking regulators do. The legislation also clarifies that the CFPB can share such information with the SEC and other federal agencies without impacting a financial institution's attorney-client privilege or work product immunity as it applies to third parties. 

The House passed HR 4014 earlier this year. Since the Senate passage is without amendment, the legislation is cleared for the President, who is expected to sign it.

Richard Cordray, Director of the CFPB, told a House panel earlier this year that this was an oversight and that he supports a legislative solution to ensure that privileged information is not leaked to third parties through the CFPB.

Financial Services Committee Chairman Spencer Bachus (R-ALA) noted that the legislation protects both attorney-client and work product privilege. Rep. Bill Huizenga (R-MI), the author of the legislation, noted that the Dodd-Frank Act specifically failed to safeguard the proprietary information that HR 4014 protects. Currently, the Bureau could have access to confidential information and the legislation would close this loophole and protect data provided during an examination. He described the legislation as a common sense measure that applies to both depository and non-depository institutions.

Banks currently have express legal protection that gives them the confidence and legal certainty to turn over confidential privileged documents at the request of the federal banking agencies. Current law provides that a bank does not waive confidentiality and risk disclosure of the information to an outside party, potentially involved in litigation with the bank, by providing the information to its regulator.

But uncertainty has arisen related to privilege and the Consumer Financial Protection Bureau. In creating the CFPB, Congress did not provide the same express statutory protections relating to privilege that the other banking agencies are given. This was clearly an unintended oversight, in the view of Congress and the banking industry, and while the CFPB has made commendable efforts to address this issue through the regulatory process, there is broad bipartisan support for removing any uncertainty.