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 purportedly anointing selective waiver protection for privileged information that it compelled from supervised institutions.  And in December 2012, Congress expanded USDCDCthe 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.  Part II, accessible here, addresses the import of 2012 federal selective waiver regulations and statutes.  This final post, Part III, discusses a recently filed case, Pisinski v. CFPB, which may place these issues center stage for resolution.

Part III

It is questionable whether the CFPB, despite its assertions, has statutory authority to require supervised institutions to produce privileged information. The recently enacted selective waiver statute provides institutions with some comfort that disclosure of privileged information will not constitute privilege waiver.  The issue will likely remain open until a supervised institution actually challenges the CFPB’s authority to require privileged information. But a case challenging the constitutionality of the Dodd–Frank Act provision creating the CFPB may offer an avenue through which a court addresses the issue.

A Case

While the Dodd–Frank Act provides the CFPB with broad authority, there is an exclusion for the practice of law.  Section 1027(e) of the Act provides that the CFPB may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a state.  The plaintiffs in Pisinski v. CFPB, filed in the U.S.D.C. for the District of Columbia, seek to declare the CFPB unconstitutional, but alternatively seeks a declaration that demanding privileged information violates the 10th Amendment and Section 1027(e).  The complaint is accessible here.

Pisinski is a Connecticut solo practitioner who represents low-income debtors in bankruptcy matters.  She outsources her paralegal and support staff to Morgan Drexen.  As part of her practice, Pisinski, sometimes using staff contracted from Morgan Drexen, seeks to negotiate her clients’ debts to avoid filing bankruptcy.

The CFPB issued a Civil Investigative Demand to Morgan Drexen seeking information about its relationship with attorneys, like Pisinski, that provide settlement services ancillary to their legal representation.  The request for information demanded that Morgan Drexen produce, in part, privileged information between Pisinski and her clients.

The Pisinski complaint does not directly seek a ruling that the CFPB has no authority to require production of privileged information.  Nor does it directly challenge the selective waiver statutes (12 USC §§1821(t)(2) & 1828(x)) enacted in 2012.  But the allegations challenging the CFPB’s ability to wade into the practice of law—which is governed by state law—may bring these issues to the forefront.

Ethical Concerns

Attorneys may not disclose privileged information without client consent.  And state ethical rules also impose broader confidentiality duties on attorneys that prohibit them from disclosing client information without consent.  Arguably, if the CFPB requires supervised institutions to produce privileged information, then it is operating in the practice-of-law area that Section 1027(e) prohibits and that the Pisinski suit claims the Tenth Amendment reserves to the states.

CFPB supervision and enforcement activities present important yet unresolved privilege issues.  May the CFPB require production? Are the selective waiver statutes adequate to protect against privilege waiver if a supervised institution discloses privileged information? Will a supervised institution ever challenge the CFPB’s authority?  Perhaps the Pisinski case provides an alternative avenue for raising and resolving this issue.  It is certainly a case worth following.

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