Privilege Protection and the CFPB–Part II 2

Introduction

The Dodd–Frank Act established the Bureau of Consumer Financial Protection (CFPB) to regulate certain financial institutions and related entities subject to various consumer financial-protection laws.  The CFPB takes the position that its broad oversight and enforcement authority includes the authority to require supervised institutions to disclose privileged information.  In July 2012, the CFPB issued a rule purportedlyHanding Documents anointing selective waiver protection for privileged information that it compelled from supervised institutions.  And in December 2012, Congress expanded the banking selective waiver statute to include the CFPB.

But questions remain. Does the CFPB have authority to compel privileged information? Do the federal selective waiver provisions provide total protection? Will these issues promote or reduce supervised institutions desire to engage in frank and candid legal discussions? Will these issues ever receive a court resolution?

PoP examines these issues in a three-part blog post.  Part I, accessible here, addresses whether the CFPB actually has authority to compel privileged information.  This post, Part II, addresses the import of 2012 federal selective waiver regulations and statutes.  And Part III discusses a recently filed case, Pisinski v. CFPB, which may place these issues center stage for resolution.

Part II

In Part I, PoP examined whether the CFPB has authority to require supervised institutions to disclose privileged information.  The reality is that a third party could argue that a supervised institution that discloses privileged information to the CFPB without a court order does so voluntarily.  And this voluntary disclosure raises the issue whether the institution thereby waives the privilege as to third parties, such as third-party civil litigants.  In other words, may a third party discover privileged information on grounds that the institution waived the privilege upon disclosure to the CFPB?

These concerns are real. The majority of federal circuit courts of appeals reject a selective waiver doctrine that would permit parties to share privileged information with government entities without waiving the privilege.  Decisions in the 6th Circuit, In re Columbia/HCA Healthcare Corp., 293 F.3d 289 (CTA6 2000), and 10th Circuit, In re Qwest Communications Int’l, Inc., 450 F.3d 1179 (CTA10 2006), are the most notable.  The 8th Circuit approved a selective waiver doctrine in Diversified Industries, Inc. v. Meredith, 572 F.2d 596 (CTA8 1977), but subsequent decisions erode Diversified’s effect.

In an effort to alleviate these fears, the CFPB issued a rule, codified at 12 CFR § 1070.48, declaring that the submission of privileged material to the CFPB would not constitute privilege waiver under federal or state law as to any person.  Many, including the ABA, questioned the viability and effectiveness of this rule, asserting that the CFPB lacked authority to issue the rule and that, in any event, the rule emboldened the CFPB to pressure supervised institutions into disclosing privilege information.  This so-called culture of waiver is detrimental—even with the selective waiver rule, why should institutions voluntarily provide privileged information? Doing so will cause institutions to rely less on attorneys for fear that their candidness will ultimately be used against them.

On December 20, 2012, President Obama signed into law an amendment to the Federal Deposit Insurance Act.  The act made two statutory changes.  First, the act amended 12 USC § 1821(t)(2) to permit the CFPB to disclose privileged information to other federal agencies without the disclosure constituting privilege waiver.  Second, the act amended 12 USC § 1828(x) to include the CFPB on the list of federal banking agencies that may receive privileged information without that provision constituting privilege waiver.

The statute has its problems.  The statute did not address the fundamental issue whether the CFPB may require supervised institutions to disclose privileged information.  As discussed in Part I, this is a significant, threshold issue that remains unresolved.  The statute also does not extend the anti-waiver provision to privileged information that the CFPB may share with state attorneys general or other state agencies.  If the CFPB shares privileged information to a state attorney general, a third-party civil litigant may subpoena or submit a state FOIA request to obtain the information, claiming that the CFPB’s disclosure amounts to waiver.

The statute does not expressly protect information falling within the work-product doctrine.  The work-product doctrine is not a privilege, and third-party civil litigants could argue that 12 USC § 1828(x)’s anti-waiver provision does not extend to work-product documents.  Because many, including courts, often (incorrectly) identify work-product as a “work-product privilege,” supervised institutions should argue that § 1828(x) anti-waiver protection logically extends to work-product information, but the success of that argument is less than clear.

Practice Tips

The amendments to § 1828(x) and § 1821(t)(2) provide supervised institutions with some comfort that disclosing privileged information to the CFPB will not constitute privilege waiver as to third parties. Some commentators assert that this anti-waiver statute, combined with the CFPB’s confidentiality rule (12 CFR §1070.48), will encourage the CFPB to increasingly demand production of privileged information, thus fueling the culture of waiver.

When faced with a request for privileged information, supervised institutions must first determine whether to produce the information or refuse on the grounds that the CFPB has no authority to require production of privileged information.  If the supervised institution determines to produce privileged information, then it should take additional steps to protect its privileges.

Institutions should clearly label all privileged documents with some variation of the phrase “privileged and confidential—not subject to disclosure” and the additional phrase of “protected from disclosure by 12 USC § 1828(x).”  The institution should send the documents with a cover letter outlining its privilege claims and confirming that it expects protection and dissemination only in accordance with § 1828(x) and § 1821(t)(2).

And most importantly, the institution should seek a written agreement with the CFPB that the produced information is, in fact, privileged; that work-product information falls within the privilege protections; that the CFPB will not disclose the information to third parties except pursuant to a court order and only after the institution receives notification and an opportunity for a hearing; and a limitation on governmental agencies to which the CFPB may disclose the privileged information, particularly a prohibition of sharing with entities, such as state attorney general offices, not covered by § 1828(x).