In a recent article in The American Banker (paid subscription required), Kate Davidson discussed the opposition that's been building to the CFPB's proposed rule that we discussed last month. In line with the arguments made by Reed Smith's Travis Nelson that we highlighted in the previous post, the ABA thinks that the CFPB is engaged in a stretch beyond the breaking point.
"The ABA has serious concerns regarding the assertions in the proposed rule's commentary that the bureau can require or compel supervised entities to submit privileged information in connection with the bureau's supervisory and regulatory processes," the group wrote. "In addition, the ABA is concerned that, because the proposed rule is based in part on this unfounded assertion of the bureau's authority to compel production of privileged materials, the proposed rule may not protect the privileged status of that information, thereby placing supervised entities at risk of losing the privilege with respect to materials furnished to the bureau."
To refresh the reader's memory, the CFPB is proposing a rule that would ostensibly protect the privileged nature of communications that are turned over to the CFPB by regulated entities on the basis that such entities are "compelled by law" to turn over attorney-client-privileged material whenever the CFPB asks for it, just like, the CFPB claims, is the case with other federal banking agencies.
The bar association, however, said that claim is "not legally sound" and would erode fundamental attorney-client privilege protections.
"Although the ABA understands that banks often produce privileged materials to federal banking agencies when requested to do so during examinations, the ABA is not aware of any reported federal appellate court case holding that federal banking regulators — or any other federal agencies — can require production of privileged materials, nor do the federal banking statutes contain such authority," the group wrote. "Furthermore, the application of this alleged agency authority to compel production of privileged information with regard to non-banks is wholly unprecedented."
The ABA "dismissed" cases cited by the CFPB because none of them address the right of the agency involved in the case (and, by analogy, the CFPB) to "compel" the production of attorney-client-privileged material. All sides to the argument agree that it would be helpful to have Congress extend to the CFPB the express protection of privileged material that an entity voluntarily produces, and the House did just that late last month. However, banks and CFPB-regulated non-banks aren't crazy about the CFPB's attempt to enact a regulatory fix that is based upon an assumption that the CFPB can step all over attorney-client privilege whenever it gets the whim.
Davidson also points out that the Clearing House, American Bankers Association, Consumer Bankers Association and the American Financial Services Association submitted a joint letter last week that supported the continued protection of privileged material and expressed concern with the CFPB's approach. In other words, the financial institutions industry stands united in its opposition to the CFPB on this particular issue, and they're aligned with the lawyers on this one. I don't think the opposition is going to back down an inch on this issue, so stay tuned for more fireworks if the CFPB continues to press its case.