The Consumer Financial Protection Bureau’s Ombudsman’s Office recently suggested a shortcoming of the Bureau’s policy to involve enforcement attorneys at every stage of supervisory examinations. In its 2012 annual report to the director, released Nov. 15, the Ombudsman “recommended that the CFPB review the policy.”
“As a new agency, the CFPB…decided to make supervision and enforcement an integrated process within one CFPB division, and to involve enforcement attorneys at the beginning, middle, and end of the supervision examination,” the Ombudsman explained. “From [its] research, the Ombudsman heard … the benefits of the policy, such as efficiency of process, as well as drawbacks, such as the potential for the policy to be a barrier to a free exchange during the examination.”
But the drawbacks are even more far reaching than a simple limitation on “free exchange.”
As suggested by the Bureau’s proposed rule on the treatment of privileged information, the Bureau maintains that it can require a bank to yield privileged communication it has had with its lawyer. “Congress did provide that all the powers and duties of the prudential regulators…would be granted to the Bureau, and this grant of authority encompasses the ability to receive privileged information from supervised entities,” the CFPB asserts in the proposed rule.
What does that mean for banks? It means that if a bank decided to discontinue a product after consulting its lawyer, the Bureau’s attorney could access communications about the bank’s practices. In particular, the Bureau’s lawyer could gain access to the work and mental impressions of the bank’s lawyer. The Bureau’s lawyer would thus have an advantage, if a disagreement ended up in the courtroom.
However, even though the presence of the CFPB’s lawyer makes the examination look like the first step in a legal battle, the Ombudsman does little to address the issue. The report makes nothing more than an empty request that the Bureau “review” its policy, which leaves little hope for change from the Bureau.
(In this letter to the CFPB, the American Bar Association argues the CFPB does not have the authority to require privileged information from banks.)