Wednesday, January 18, 2012

CFPB Claims to Pierce Privilege in Discovering Confidential Bank and Financial Records

In a harrowing story--or just more of the same, in the recent attempted onslaught by regulatory agencies on attorney-client and work-product privilege--the new Consumer Financial Protection Bureau (CFPB) issued Bulletin 12-01 on January 4, 2012, to clarify its role in the production of records from banks and other financial institutions as part of CFPB oversight. The discovery power is claimed to include privileged documents. Although CFPB then proposes to keep the documents confidential, the bulletin is upfront that the bureau may have to share those documents outside its agency, including release to state attorneys general and other agencies, as needed. Fuller story here, at the Payment Law Advisor blog.

Although the bulletin assures readers that the agency intends to use non-privileged sources when it can, it really does not effectively assure them that any production of privileged documents would not constitute a general waiver to plaintiffs' attorneys and others. Of course, it does claim that discovery to themselves is not waiver to all--but that view may be problematic, at least arguably so, in that the specific congressional authorization for such a power (or such a protection) is not so easily found for the CFPB as it is for other regulatory agencies. Says the PLA blog:

The Bureau’s conclusion was based largely on provisions of the Financial Services Regulatory Relief Act of 2006, which applies to the federal banking agencies (the OCC, Federal Reserve, FDIC, and formerly, the OTS), allowing the agencies to receive privileged documents from supervised entities without effectuating a waiver of privilege. But the statute does not expressly apply to the CFPB, leaving the Bureau’s position on privilege questionable. The CFPB asserts that Congress intended it to be treated as a prudential regulatory agency with respect to waiver; but, its position has yet to be challenged in court.

To me, the lack of clear congressional authorization to add a layer of waiver protection on the discovery may be either harrowing news, as it could basically end the concept of attorney-client privilege in financial representations. Or it could be the trojan pony (I name him Tarpy, but his preppy barn friends call him Chase) that would make a court stop the initial grab of documents by the agency. I am not sure a court wants to allow an agency to end the centuries-old concept of privilege and the sanctity of the attorney-client relationship by a post-holiday bulletin (well, OK, by previous adminstrative regulations that a bulletin clarifies). More generally, we ethics writers and teachers have to seriously consider not just the usual buried-body and Upjohny cases on privilege but also the phenomenon that administrative agencies increasingly just don't believe in privilege anymore: they purport to act like a judge (just show me the documents in chambers; we're cool) then suggest they may have to show them to the Rhode Island and Hawaii attorneys general, but without a judicial finding that they were not privileged in the first place. You waived because you complied with a discovery demand, any decent opposing attorney would think.

[Alan Childress]

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