The Consumer Financial Protection Bureau (CFPB or Bureau) wants to silence
companies being investigated by the Bureau and is seeking greater freedom
to share confidential information gathered as a result of those inquiries
with governmental authorities.
Legal analysts cautioned the CFPB that its proposed rule to silence companies
being investigated by the Bureau might potentially infringe on free speech
rights. The warnings from the legal community were submitted during the
window of public comment for the CFPB’s proposed regulatory change.
Of the comments received, the most critical were from American Civil Liberties
Union (ACLU) and American Bar Association’s (ABA) Business Law Section
who denounced a particular provision within the proposed regulation that
would restrict both individuals and companies from publicly divulging
confidential information related to CFPB investigations. This information
includes civil investigative demands (CIDs) or notice and opportunity
to respond and advise letters (NORAs).
The proposed provision of the regulation would restrict companies from
discussing information connected to any Bureau investigation, including
the existence of an investigation itself. Representatives from the legal
community noted that other federal agencies like the Securities and Exchange
Commission (SEC) had not established any similar prohibitions on companies
under their scope of regulation or other entities with knowledge of ongoing
William Johnston, chairman of the ABA’s Business Law Section, emphasized
that First Amendment legal precedent historically protects public discussion
of government action and that courts operate on the presumption that government
attempts to restrict this class of speech violate the constitution. Additionally,
Arthur B. Spitzer, legal director of the ACLU, commented that companies
under CFPB investigation might have a compelling fiduciary or moral reason
to share such information with certain outside entities, including current
and future investors.
The chairman of the House Financial Services Committee, Jeb Hensarling,
also criticized the Bureau in a letter saying, "Because of the potential
for government abuse and First Amendment due process implications, Congress
has typically limited such arrangements to investigations with national
While the CFPB responded that they take concerns seriously, it is unclear
how the critique will change the current direction of the Bureau. The
proposed rules would prevent companies from discussing wide-ranging issues
about ongoing investigations. Moreover, any information formally requested
to be shared with unrelated third parties would have to be approved by
senior CFPB executives.
The majority of the public comments received by the CFPB also addressed
a provision that authorized the Bureau to share confidential and privileged
information of a company with both U.S. and foreign government authorities.
Trade group representatives contend that the provision exceeded the limits
of the CFPB’s Congressionally-granted authority. Linda Klein, president
of the American Bar Association, said that the provision could have a
profoundly adverse effect on the attorney-client privilege of companies
seeking legal advice for their regulatory issues.
The criticism of the CFPB comes at a time when the authority of the Bureau
has come under direct fire. In early October 2016, a federal appellate
court held that the Bureau’s internal organization framework, which
granted its director with an unprecedented degree of independence, was
unconstitutional because the President was not allowed the authority to
remove him from his position. According to legal experts, the CFPB plans
to appeal the decision amidst continuing criticism from the financial
sector and members of Congress.
The proposed regulatory framework is an attempt by the Bureau to clarify
rules regarding the treatment of confidential investigative information.
Contact Geraci Law Firm at (949) 298-8050 today, or
contact Jenny Park for more information.