Archive for March, 2012
On January 4, 2012, the Consumer Financial Protection Bureau (“CFPB”) issued a Bulletin declaring that, upon request, CFPB supervised institutions must disclose privileged materials to it, but those institutions need not fear waiver of privilege. Despite the CFPB’s self-serving assurance that a waiver of privilege will not occur, it is important that officers and directors of CFPB supervised institutions have some understanding of the risk associated with producing privileged information to the CFPB.
Financial institutions and their counsel have sought protection from disclosure by asserting one or more of the following privileges: (i) attorney-client privilege, (ii) work-product privilege, (iii) self-assessment privilege and (iv) accountant-client privilege. When a privilege attaches, the materials and communications are generally immune from discovery unless the privilege has been waived. A privilege may be waived in a number of ways, but it occurs most commonly when a client voluntarily discloses the privileged information to a third-party. For financial institutions required to disclose materials to their regulators, the possibility that a court could waive the aforementioned privileges because of previous disclosures to their regulators caused concern among supervised institutions and their counsel.
Federal Statute Enacted to Protect Privilege
To alleviate this concern, Congress enacted a Federal statute in 2006 that allows supervised institutions to submit privileged materials to their regulators without waiving privilege. Specifically, 12 U.S.C. § 1828(x) states that:
[t]he submission of information to any Federal banking agency, State banking supervisor, or foreign banking authority for any purpose in the course of any supervisory or regulatory process of such agency, supervisor, or authority shall not be construed as waiving, destroying, or otherwise affecting any privilege such person may claim with respect to such information under Federal or State law as to any person or entity other than such agency, supervisor, or authority.
The term “Federal banking agency” is currently defined as “the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, or the Federal Deposit Insurance Corporation.” 12 U.S.C. § 1813(z). Thus, as long as a disclosure is made to the OCC, Federal Reserve, or FDIC “for any purpose in the course of any supervisory or regulatory process,” the supervised institution will not waive any privilege attached to the disclosed materials.
The Dodd-Frank Act Creates Uncertainty
When Congress enacted the Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), it did not amend the definition of “Federal banking agency” to include the CFPB. Without this statutory protection, depository institutions and their affiliates subject to examination by the CFPB are faced with a difficult decision when asked by the CFPB to produce privilege materials or communications: (i) produce the requested material and risk that a court in a future proceeding will hold that the disclosure waived the privilege and, as a result, compel the institutions to produce the privileged material in those proceedings, or (ii) refuse to produce the privileged material and face an enforcement action by the CFPB.
The CFPB Bulletin
The Bulletin issued by the CFPB assures institutions that disclosure of privileged materials will not result in a waiver of privilege for two reasons: (i) the disclosure of privileged material would not be voluntary and, thus, could not waive privilege, and (ii) “Congress intended the [CFPB's] examination authority to be equivalent to that of the prudential regulators” and, as such, the CFPB is authorized to receive information without effecting privilege to the same extent as the OCC, Federal Reserve and FDIC. For these reasons, the CFPB declared that it will pursue all available remedies under 12 U.S.C. § 5565 if a CFPB supervised institution refuses to provide privileged information responsive to a CFPB supervisory request.
The Bulletin also explains that the CFPB recognizes the importance of this issue and “is prepared to take all reasonable and appropriate steps to assist supervised institutions in rebutting any claim that they have waived privileges by providing information to the [CFPB].” Ultimately, while the Bulletin issued by the CFPB is helpful to CFPB supervised institutions and may reduce the risk of waiving privilege, the Bulletin is not a legal regulation, court decision or a substitute for an amendment to the Federal Deposit Insurance Act (“FDIA”) to expressly include the CFPB as a “Federal banking agency,” which would conclusively resolve the uncertainty.
Courts may disagree with the CFPB’s analysis and conclusion
While courts have not directly addressed whether a disclosure of privileged material to the CFPB waives the privilege as to the same information in a subsequent civil case, the case law in similar contexts illustrates that a court could easily disagree with the CFPB’s Bulletin. To predict how a court may rule, we look to the how courts have addressed this issue in the context of other federal agencies that, like the CFPB, do not have a statute explicitly protecting disclosure of privileged material. A review of these decisions provides little comfort to CFPB supervised institutions as courts have reached inconsistent, even contradicting, results in their analysis of whether disclosure of privileged material to a federal agency waives privilege. In fact, the majority rule articulated in Westinghouse Elec. Corp. v. Republic of the Philippines, 951 F.2d 1414 (3d Cir. 1991), holds that privilege is waived following disclosure of privileged data to federal agencies.
Officer and directors of CFPB supervised institutions need to understand that producing privileged documents to the CFPB could waive the institutions right to later assert privilege as to those documents. Until the FDIA is amended to include the CFPB as a “Federal banking agency,” entities supervised by the CFPB must take proactive measures to protect the privilege in order to limit the possibility that a future court will deem the disclosure to the CFPB a waiver of privilege. To respond to a request by the CFPB for materials, we recommend, at a minimum, the following:
- Immediately consult with your counsel to determine what response, if any, is appropriate in the circumstance;
- Request a written demand from the CFPB that (i) clearly identifies the privileged material, (ii) clarifies that the institution’s disclosure of the material is not voluntary, and (iii) clarifies that the disclosure is made in the course of the CFPB’s supervisory and examination powers; and
Require the CFPB to certify that it will treat the information confidentially and not disclose the privileged information to third parties without the consent of the supervised institution or a court order compelling the CFPB to produce the material.
March 15, 2012 marks the deadline for financial institutions to ensure that automated teller machines (ATMs) are accessible to blind customers in accordance with 2010 updates to the Americans with Disabilities Act (ADA). The 2010 ADA Accessibility Standards impose new requirements to ensure use of ATM machines by blind and visually impaired individuals. The Department of Justice’s (DoJ) Final Rule sets out detailed standards for ATMs concerning physical access and communications, including:
-Height and reach requirements;
-Sufficient perimeter floor space;
-Braille instructions to initiate voice guidance;
-Input device controls that are tactilely discernible;
-Function key requirements; and
-Display screen and privacy screen requirements.
ATM owners that are non-compliant on March 15 could face fines. However, some operators of cash machines are facing unanticipated difficulties making the necessary changes. Backlog at major ATM manufacturers means that some banks simply can’t meet the deadline despite their efforts. Financial institutions facing supplier delays should document their efforts to meet the deadline and consult with counsel about how to best deal with the challenges of meeting the 2010 Standards. While structural elements have been grandfathered by the DoJ under safe harbor provisions, auxiliary aids, including voice guidance and Braille instructions, are mandated for every machine, which may mean changes to software and hardware in existing machines is required. A recent article in the Wall Street Journal cites supplier delays and financial constraints as the top reasons many banks’ ATMs won’t be compliant by March 15. Financial institutions with older ATM equipment may be faced with the cost of replacing the machines or taking them out of service altogether.
For more information on the application of the 2010 Standards to ATM machines, please contact one of the attorneys in our Financial Services division.
On March 2, FinCEN issued FIN-2012-A002 (the “Guidance”) which is directed at (of all things) in-house and outside counsel. The Guidance suggests that Banks should remind their outside and in-house counsel of the requirement to maintain the confidentiality of Suspicious Activity Reports. FinCEN states that it is aware that an increasing number of private parties, who are not authorized to know of the existence of filed SARs, are seeking SARs from financial institutions for use in civil litigation and other matters. FinCEN indicates that outside counsel, in particular, may not be aware of the obligation to keep the content and existence of a SAR confidential. The Guidance reminds banks that civil and criminal penalties can be imposed for improper disclosure of SARs or even the existence of a SAR, up to imprisonment for 5 years. Penalties could be imposed on attorneys who reveal this information and may also be assessed against the bank itself.
Any institution which receives a subpoena or other demand for information concerning the existence or content of a SAR should contact FinCEN’s Office of Chief Counsel at (703) 905-3590 and may need to inform its primary federal regulator of the demand.