Richard Cordray extended an olive branch to the banking industry last week when he said the Consumer Financial Protection Bureau would support legislation to protect data that institutions provide during exams.
But the problem is far from solved.
Although banks are pleased with the agency's position, the industry is concerned that until the law is changed, plaintiffs could argue that the bank waived its attorney-client privileges when it turned the information to the CFPB. In such cases, a bank could be subpoenaed to provide confidential data that might be used against them in a lawsuit.
"Once privilege is waived, it's waived," said Richard Riese, senior vice president for the American Bankers Association's Center for Regulatory Compliance. "A bank can't just say, 'I'll share it today and maybe you'll resolve the waiver issue in a year.'"
House Financial Services Committee Chairman Spencer Bachus and Rep. Shelley Moore Capito, R-W.V., called on the CFPB last week to stop requesting privileged information from banks until the panel can at least hold a hearing on the issue — one is scheduled for Wednesday — and until a permanent legislative fix is enacted.
But the letter is worrying some banks, specifically those who have already turned over privileged information, or are poised to do so.
While banks agree publicly with the bureau's analysis that sharing information is not a waiver of privilege, privately some have doubts that the argument would protect them in court. If they have to rely on the bureau's legal argument as a defense against subpoenas, the last thing banks want is a Congressional record suggesting there are holes in that argument, sources said.
The CFPB has argued that banks have nothing to worry about.
In a bulletin issued last month, CFPB General Counsel Len Kennedy said the bureau is the same as any other bank regulator. When a bank turns over privileged information to the Federal Reserve, Federal Deposit Insurance Corp. or the Office of the Comptroller of the Currency, it is not considered a waiver of privilege, nor would it be when they turn information over to the bureau.
Banks operated for years without the protection in statute because the regulatory policy was always upheld by the courts. But conflicting legal decisions in the early 2000s prompted Congress to put the policy into law in 2006.
When the CFPB was created by the Dodd-Frank Act, however, legislators failed to add the bureau to the list of banking regulators for which privilege is exempted.
Cordray said several times last month that the agency would support an amendment that would fix what he called an oversight if it would allay industry concerns. But he made clear at a press briefing with reporters on Jan. 13 that he doesn't think it's necessary.
"If the banks want to get us listed in the statute, we would welcome that. It would put this entirely at rest," he said. "I personally don't think it's needed. It didn't exist for the other banking agencies until fairly recently."
