Normally, a client can say just about anything to their attorney and it will be privileged. That may not be the case if the Consumer Financial Protection Bureau has its way. Taking a position that has drawn from the American Bar Association, the CFPB announced that it takes the position that it has the authority to demand privileged documents from a financial institution in connection with any audit. The CFPB takes this position based upon certain specific statutory authority granted to the FDIC. Under the CFPB’s analysis, it could demand–and use against–a lender, privileged communications to and from counsel.
A major problem with the CFPB’s position is that unlike the statutory authority given to the FDIC, Dodd-Frank has no such provision. Indeed, the CFPB is “interpreting” its powers to be equivalent to the FDIC in this regard. Obviously, such an interpretation is highly questionable given the sacred nature of the attorney client privilege in our legal system and that the FDIC’s reach is quite limited whereas the CFPB’s is extremely broad. The fact that the CFPB has the ability and full autonomy to initiate litigation and impose enforcement sanctions, essentially means that the proverbial judge jury and executioner would, under the CFPB’s interpretation, be able to demand any and all communications with legal counsel.
While the ability of the CFPB to demand access to privileged documentation is unclear, this is an area where the concept of better safe than sorry applies. Lenders should carefully consider whether certain communications are better in verbal than written form (remembering of course that certain documentation, such as compliance recommendations and reports, must be made in writing). However, when sensitive issues of a compliance nature first arise and legal counsel is sought, it may be best to obtain initial legal advice via the telephone as opposed to email. In this regard, lenders can first seek advice and create written communications after consideration of the overall situation and with the recognition that such written communication may ultimately find its way into the CFPB’s hands.