[Congressional Record Volume 160, Number 120 (Tuesday, July 29, 2014)]
[House]
[Pages H6998-H7002]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        EXAMINATION AND SUPERVISORY PRIVILEGE PARITY ACT OF 2014

  Mrs. CAPITO. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 5062) to amend the Consumer Financial Protection Act of 2010 
to specify that privilege is maintained when information is shared by 
certain nondepository covered persons with Federal and State financial 
regulators, and for other purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 5062

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Examination and Supervisory 
     Privilege Parity Act of 2014''.

     SEC. 2. PRIVILEGE OF INFORMATION SHARED BY CERTAIN 
                   NONDEPOSITORY COVERED PERSONS.

       Section 1024(b)(3) of the Consumer Financial Protection Act 
     of 2010 (12 U.S.C. 5514(b)(3)) is amended--
       (1) by striking ``regulators and the State bank regulatory 
     authorities'' and inserting ``regulators, the State bank 
     regulatory authorities, and the State agencies that licence, 
     supervise, or examine the offering of consumer financial 
     products or services''; and
       (2) by adding at the end the following: ``The sharing of 
     information with such regulators, authorities, and agencies 
     shall not be construed as waiving, destroying, or otherwise 
     affecting any privilege or confidentiality such person may 
     claim with respect to such information under Federal or State 
     law as to any person or entity other than such Bureau, 
     agency, supervisor, or authority.''.

  The SPEAKER pro tempore (Mr. Rodney Davis of Illinois). Pursuant to 
the rule, the gentlewoman from West Virginia (Mrs. Capito) and the 
gentleman from Colorado (Mr. Perlmutter) each will control 20 minutes.
  The Chair recognizes the gentlewoman from West Virginia.


                             General Leave

  Mrs. CAPITO. Mr. Speaker, I ask unanimous consent that all Members 
have 5 legislative days within which to revise and extend their remarks 
and submit any extraneous materials for the Record on H.R. 5062, as 
amended, currently under consideration.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentlewoman from West Virginia?
  There was no objection.
  Mrs. CAPITO. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, this bill is very similar to the previous bill that we 
just passed. I rise in support of H.R. 5062, the Examination and 
Supervisory Privilege Parity Act of 2014--we always want to have a 
nice, long name for everything--and congratulate my colleagues on the 
Financial Services Committee, Mr. Perlmutter and Mr. Barr, for their 
hard work on advancing this legislation.
  This bill clarifies that the sharing of information between Federal 
banking regulators and State agencies that license, supervise, or 
examine the offering of consumer financial products or services will 
not be construed as waiving, destroying, or otherwise affecting any 
privilege or confidentiality right that a person could claim.
  Americans are familiar with the concept of privilege. Under current 
law, legal privilege exists with respect to certain communications, so 
long as they are not shared with a third party. Attorney-client 
privilege, for example, is destroyed if the client shares what he 
communicated to his attorney with his colleague at work.
  This legislation provides assurance for financial institutions that 
privileged information shared between Federal banking regulators and 
State regulatory agencies will be protected and remain confidential.
  This will encourage a greater amount of sharing between institutions 
and their regulators and will allow our Nation's financial regulators 
to do their jobs to ensure that our financial institutions are 
operating lawfully while, at the same time, able to offer consumer 
credit products that are critical to Americans to finance their 
everyday purchases and start small businesses.
  The Examination and Supervisory Privilege Parity Act is a simple 
bipartisan bill that clarifies that this is not always the case. I, 
again, congratulate Mr. Barr and Mr. Perlmutter on their work, and I 
would reserve the balance of my time.
  Mr. PERLMUTTER. Mr. Speaker, I yield myself as much time as I might 
consume.
  Mr. Speaker, I rise in support of H.R. 5062, the Examination and 
Supervisory Privilege Parity Act, which is difficult to say, but easy 
to understand. It is to provide for full cooperation, discourse, and 
communication among regulators while, at the same time, preserving some 
confidentiality and protections for those whose books and records are 
being reviewed. I want to thank my friend, Congressman Barr, for 
working with me on this legislation.
  This legislation accomplishes two important things. First, it reduces 
regulatory burden by ensuring Federal regulators; the CFPB; State 
banking agencies; and, now, nonbank agencies may coordinate their 
respective examination schedules. Two, it provides parity to ensure 
privilege is not compromised when regulated entities turn over 
sensitive information to their regulators and when that information is 
subsequently shared among State and Federal agencies.
  The Dodd-Frank legislation empowered the Consumer Financial 
Protection Bureau to regulate, supervise, and examine providers of 
consumer credit and financial products. Among these companies, nonbank 
financial institutions are typically State-licensed, and their primary 
regulator is often the State banking commissioner.

[[Page H6999]]

  However, in 15 States, such entities are overseen by a nonbank 
agency, such as the attorney general, the Department of Consumer and 
Regulatory Affairs, or a dedicated consumer credit commissioner.
  The bill extends the same protections that apply to all consumer 
creditors to ensure an effective and equitable examination and 
investigatory process.
  Under the Federal Deposit Insurance Act, similar protections exist 
for banks which benefit from express legal protection that provides the 
confidence and legal certainty to turn over privileged information and 
documents at the request of their regulators.
  This protection encourages regulated entities to comply with the 
examinations and mitigates their anxiety about disclosing sensitive 
proprietary information to regulators. Sharing of information will not 
waive attorney-client, work product, or other privileges recognized 
under Federal or State law.
  Let me be clear, a firm cannot turn over any information to their 
regulators they choose to benefit from the extension of privilege and 
shield themselves from third-party lawsuits. Privilege of information 
only extends to the information requested by the regulators during the 
course of supervisory examinations per State and Federal law.
  Additionally, the bill codifies the CFPB guidance bulletin and 
regulation that says the ``confidential treatment of information that 
would provide that any person's submission of information to the Bureau 
in the course of the Bureau's supervisory or regulatory processes will 
not waive any privilege such person may claim with respect to such 
information.''
  They go on to state that the rule is intended to ``provide 
protections for the confidentiality of privileged information 
substantively identical to the statutory provisions that apply to the 
submission of privileged information to the prudential regulators and 
State and foreign bank regulators.''
  However, this bill will extend protections to nonbank State 
regulators, such as the attorney general in Colorado and those 
regulated entities.
  I am a strong supporter and believer in the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, but I also know certain technical 
fixes need to be made. That is why I urge passage of this bill 
introduced by my friend, Mr. Barr.
  With that, I will reserve the balance of my time.
  Mrs. CAPITO. Mr. Speaker, I now yield such time as he may consume to 
the gentleman from Kentucky (Mr. Barr), the author of the bill and a 
great member of the Financial Services Committee.
  Mr. BARR. Mr. Speaker, I thank the gentlewoman for yielding, and I 
appreciate her leadership as the chairman of the Financial Institutions 
Subcommittee and for her support of this important legislation.
  Mr. Speaker, I rise in support of H.R. 5062, the Examination and 
Supervisory Privilege Parity Act, and I want to thank the gentleman 
from Colorado, my friend, Mr. Perlmutter, for working with me in a 
bipartisan fashion to introduce and advance this legislation.
  In central Kentucky, one of our signature industries is the auto 
manufacturing industry, and no place exemplifies this proud fact more 
than Toyota Motor Manufacturing of Kentucky and the plant that is 
located in my district in Georgetown, Kentucky.
  With over 7,300 Toyota team members and their families dependent on 
these high-quality jobs in that facility, I am committed to doing 
everything I can to support these Kentucky workers. This legislation 
does that.
  H.R. 5062 is, as my friend from Colorado said, a technical fix, but 
it is an important piece of legislation because it helps automobile 
finance companies like Toyota Financial Services, which finances over 
two-thirds of new vehicle sales for Toyota customers.
  This legislation assures these consumer lenders that when they 
provide confidential and privileged information to their regulators in 
the course of supervision, the customary privilege or confidentiality 
of that information is not waived when shared with the State regulatory 
agencies.
  This is necessary because the unintended fragmented structure of 
current law leaves privileged and confidential status of this 
information in question, and that poses a significant risk to auto 
finance companies.
  Consumer access to finance is vital for new car sales and a healthy 
car market, and a healthy car market is good for the 7,300 automobile 
manufacturing workers in central Kentucky and all around America.
  Mr. Speaker, I urge support for this legislation which, again, simply 
guaranties that when the Consumer Financial Protection Bureau asks for 
confidential and privileged information from a captive finance company 
and then shares that information with a State regulator, that 
information shared will continue to be treated as privileged and 
confidential. I urge support for this legislation.
  Mr. PERLMUTTER. Mr. Speaker, I first would like to introduce into the 
Record, speaking of Toyota, a letter dated July 14, to myself and to 
Mr. Barr; a letter from the Financial Services Roundtable dated July 
29, 2014; a letter from Honda dated July 15; a letter from the 
Conference of State Bank Supervisors dated July 15; and a letter from 
the American Financial Services Association dated July 25.


                             Toyota Motor North America, Inc.,

                                    Washington, DC, July 14, 2014.
     Hon. Ed Perlmutter,
     Longworth House Office Building,
     Washington, DC.
     Hon. Andy Barr,
     Longworth House Office Building,
     Washington, DC.
       Dear Congressmen Perlmutter and Barr: On behalf of the over 
     30,000 Toyota Team members in the U.S., thank you for 
     introducing H.R. 5062, the Examination and Supervisory 
     Privilege Parity Act of 2014. We appreciate your commitment 
     to common sense regulatory reform.
       Consumer access to finance is the life blood of new car 
     sales. To maintain competitiveness, automobile manufacturers 
     must have a strong vehicle finance division. These ``captive 
     finance companies'', like Toyota Financial Services, provide 
     tailored financing options to our customers, whether they be 
     individual consumers or franchised dealers. As a captive, 
     Toyota Financial Services exist solely to support the auto 
     manufacturer in selling vehicles and are designed to maintain 
     a long-term, positive, customer relationship with the 
     consumer.
       As you know, the Dodd-Frank Act placed captive finance 
     companies under the jurisdiction of the newly created 
     Consumer Financial Protection Bureau (CFPB). However, in a 
     technical oversight, the Act did not extend the traditional 
     protections of privilege over nonpublic, proprietary 
     information--often disclosed in the course of supervision--to 
     either the CFPB or the state agencies that jointly oversee 
     captive finance companies under the CFPB's jurisdiction.
       A strong supervisory privilege plays an important role in 
     supporting an effective and open examination process. 
     Straightforward communications between regulators and the 
     regulated entities are critical, and are made possible by the 
     extension of privilege. Once lost, privilege cannot be 
     restored.
       H.R. 5062 corrects this oversight by simply guaranteeing 
     that when captive finance companies produce information to 
     the CFPB, the privileged status of that information is 
     preserved when the CFPB shares the information with state 
     regulation agencies.
       At Toyota, we support H.R. 5062 and appreciate your taking 
     the time to learn about this issue.
           Sincerely,
                                                  Stephen Ciccone,
     Group Vice President, Government Affairs.
                                  ____



                                Financial Services Roundtable,

                                    Washington, DC, July 29, 2014.
     Hon. Ed Perlmutter,
     House of Representatives,
     Washington, DC.
     Hon. Andy Barr,
     House of Representatives,
     Washington, DC.
       Dear Representatives Perlmutter and Barr: The Financial 
     Services Roundtable (FSR) commends your sponsorship of H.R. 
     5062, ``The Examination and Supervisory Privilege Parity Act 
     of 2014'', which seeks to ensure the protection of shared 
     privileged information. FSR supports this legislation and 
     urges the House to pass it at the earliest possible date.
       The legislation provides assurance for financial 
     institutions that privileged information shared between 
     federal banking regulators and state regulatory agencies will 
     be protected and remain confidential. While the Consumer 
     Financial Protection Bureau (CFPB) has acted to protect 
     confidential information obtained through the supervisory 
     process, this legislation provides additional assurance that 
     when the CFPB shares supervisory information with federal and 
     state regulators--including any state agency that licenses, 
     supervises or examines the offering of consumer financial 
     products or services, that the confidential nature of the 
     information will be protected.
       We strongly support H.R. 5062 and urge its passage. Thank 
     you for the consideration, and please do not hesitate to 
     contact me if you would like to discuss this matter further.
           Sincerely,
     Francis Creighton,

[[Page H7000]]

       Executive Vice President, Government Affairs, Financial 
     Services Roundtable.
                                  ____



                                    Honda North America, Inc.,

                                    Washington, DC, July 15, 2014.
     Hon. Shelley Moore Capito,
     Chairwoman, Subcommittee on Financial Institutions and 
         Consumer Credit, Committee on Financial Services, 
         Washington, DC.
     Hon. Gregory W. Meeks,
     Ranking Member, Subcommittee on Financial Institutions and 
         Consumer Credit, Committee on Financial Services, 
         Washington, DC.
       Dear Chairwoman Capito and Ranking Member Meeks: Thank you 
     and the Subcommittee on Financial Institutions and Consumer 
     Credit for considering H.R. 5062, the Examination and 
     Supervisory Privilege Parity Act of 2014, introduced by 
     Congressmen Ed Perlmutter and Andy Barr during today's 
     hearing entitled, ``Examining Regulatory Relief Proposals for 
     Community Financial Institutions Part II.'' Honda supports 
     H.R. 5062 because its passage would ensure the protection of 
     privileged supervisory information shared with and by the 
     Consumer Financial Protection Bureau (CFPB) for nondepository 
     financial institutions.
       The Dodd-Frank Wall Street Reform and Consumer Protection 
     Act (the ``Act'') gave the CFPB the authority to regulate and 
     supervise a number of institutions that provide consumer 
     financial products or services, and to the extent the CFPB 
     may finalize its ``larger participant'' rule for the auto 
     finance market (expected in 2015), we anticipate these 
     institutions will include captive vehicle finance companies 
     like Honda. However, state agencies also regulate captive 
     vehicle finance companies, and it is important to preserve 
     the privilege of supervisory information that regulated 
     entities share with the CFPB, particularly because the CFPB 
     is expected to share such information and coordinate 
     examinations with state regulatory agencies.
       Although Congress passed H.R. 4014 in late 2012 (P.L. 112-
     215) to address the privilege issue, that law only protects 
     the privilege of information in those states where state bank 
     supervisors regulate the consumer financial product or 
     service. However, there are 15 states where a state agency, 
     other than a state bank supervisor, has jurisdiction over the 
     offering of consumer financial products or services; for 
     example, in Texas, the governing body is the Office of the 
     Consumer Credit Commissioner (OCCC). As a result of these 
     differences in regulatory regimes, a question remains as to 
     whether the sharing of supervisory information with those 
     types of agencies would result in a waiver of privilege. H.R. 
     5062 would clarify that such sharing between the CFPB and 
     prudential regulators, state bank regulatory authorities, as 
     well as other state agencies that license, supervise, or 
     examine the offering of consumer financial products or 
     services, would not be ``construed as waiving, destroying, or 
     otherwise affecting any privilege'' a financial institution 
     could claim. With the CFPB working to develop its supervisory 
     program for ``larger participants'' in the auto lending 
     market, it has become critical to establish parity for the 
     protection of privileged information among all financial 
     institutions.
       We hope that the Subcommittee and the Full Committee on 
     Financial Services can take immediate action on H.R. 5062. 
     Thank you again for your consideration. If you need any 
     additional information, please contact me.
           Sincerely,

                                                Tara Hairston,

                                  Government & Industry Relations,
     Honda North America, Inc.
                                  ____

                                               Conference of State


                                             Bank Supervisors,

                                    Washington, DC, July 15, 2014.
     Representative Ed Perlmutter,
     Longworth House Office Building,
     Washington, DC.
     Representative Andy Barr,
     Longworth House Office Building,
     Washington, DC.
       Dear Representatives Perlmutter and Barr: On behalf of the 
     Conference of State Bank Supervisors (``CSBS''), I am writing 
     to express our support of your bill, H.R. 5062, which ensures 
     privileged information is protected when shared with and 
     among regulators. As state regulators responsible for 
     overseeing a variety of depository and non-depository 
     financial services providers, our members strongly support 
     your effort to ensure consistent treatment across regulated 
     entities and regulatory agencies.
       Effective and efficient financial regulation requires 
     collaboration between state and federal regulators. 
     Information sharing is the lynchpin of this partnership. The 
     creation of the Consumer Financial Protection Bureau 
     (``CFPB'') with jurisdiction over an array of entities 
     regulated at both the federal and state level makes this 
     coordination and uniform treatment of information even more 
     critical. By correcting current gaps in the law, this bill 
     improves regulators' ability to coordinate and provides 
     regulated entities with greater confidence that privileged 
     information provided to regulators retains federal and state 
     legal protections.
       As you and your colleagues consider this bill, CSBS 
     recommends improving the bill by adding confidentiality to 
     the covered information protection. Not all states confer 
     privilege upon information shared with regulators. Instead, 
     such information is usually treated as confidential under 
     state law. By adding ``and confidentiality'' after 
     ``privilege'' the bill will address all intended scenarios 
     for protection of sensitive information.
       CSBS is committed to working with you to ensure that H.R. 
     5062 becomes law and urge you and your colleagues to pass the 
     bill.
           Sincerely,
                                                     John W. Ryan,
     President & CEO.
                                  ____

                                                American Financial


                                         Services Association,

                                                    July 25, 2014.
     Re H.R. 5062, ``Examination and Supervisory Privilege Parity 
         Act of 2014''

     Hon. Ed Perlmutter,
     House of Representatives,
     Washington, DC.
     Hon. Andy Barr,
     House of Representatives,
     Washington, DC.
       Dear Congressmen: On behalf of the American Financial 
     Services Association (AFSA) and our more than 350 members, 
     write in support of your legislation, H.R. 5062, the 
     ``Examination and Supervisory Privilege Parity Act of 2014.'' 
     We applaud your efforts to ensure that the nonpublic, 
     proprietary information of nonbank consumer finance companies 
     remains privileged, wherever applicable, throughout the 
     course of supervision at the federal and state levels. AFSA 
     believes this to be a key step in promoting a candid and 
     efficient supervisory relationship between financial 
     regulators and the entities they oversee.


                  Background on Supervisory Privilege

       A strong supervisory privilege plays an important role in 
     supporting an effective and open examination process. 
     Straightforward communications between regulators and the 
     regulated entities are critical, and are made possible by the 
     maintenance of privilege. There is precedent for this degree 
     of protection in the longtime practice by bank regulators of 
     asserting the confidentiality of records related to entities 
     under their supervision, and resisting the efforts of third-
     party litigants to discover such information.


      Status of the Nonpublic, Proprietary Information of Nonbanks

       In establishing the Consumer Financial Protection Bureau 
     (CFPB), Congress neglected to extend bank supervisors' 
     historical protections over privileged information to either 
     the CFPB or the state regulators of nonbanks, with whom the 
     Bureau is expected to share information and coordinate 
     examinations. Therefore, the proprietary information of 
     nonbank consumer finance companies does not enjoy the same 
     legal protections as that of banks when disclosed during the 
     course of supervision or other regulatory processes.
       Recognizing the importance of promoting effective 
     supervision, Congress enacted H.R. 4014 in December 2012 to 
     protect privileged information disclosed to the CFPB by 
     covered persons. H.R. 4014 amended the Federal Deposit 
     Insurance Act (FDI Act) to add the CFPB to the list of 
     federal regulators with whom no applicable privilege is 
     waived when disclosing privileged information by or about a 
     company under supervision. The FDI Act also permits 
     enumerated agencies to share such privileged information with 
     ``state bank supervisors'' without waiving the privilege. 
     However, in the case of a nonbank institution, federal law 
     currently provides comprehensive protection of existing 
     privilege if and only if the company does business 
     exclusively in states where it is regulated by state bank 
     supervisors, per se.


          Current Law Provides Uneven Protections for Nonbanks

       Across the country, nonbank consumer finance companies do 
     not always fall under the jurisdiction of state bank 
     supervisors. In fact, there are at least 15 states where an 
     agency other than the state bank supervisor currently has 
     either partial or full jurisdiction over nonbanks offering 
     consumer credit in that state. This exposes such entities to 
     significant legal risk, given the uncertainty surrounding 
     whether privilege will withstand the transfer of information 
     by the CFPB to, and among, state agencies not specifically 
     referenced in federal law. Such uncertainty will necessarily 
     chill communications between the CFPB and the companies it 
     supervises, undermining the agency's effectiveness.
       With the CFPB conducting examinations of state-regulated 
     nondepository financial institutions, it is imperative for 
     Congress to extend all applicable privileges to the range of 
     institutions subject to supervision by the Bureau. Congress 
     should ensure that the same protections apply to all consumer 
     creditors to ensure an effective and equitable examination 
     and investigatory process.


                 AFSA Urges Congress to Enact H.R. 5062

       H.R. 5062 would amend the Consumer Financial Protection Act 
     of 2010 to specify that privilege is maintained when 
     information is shared by certain nondepository covered 
     persons with federal and state financial regulators. AFSA 
     believes this bill will achieve parity in the statutory 
     treatment of nonpublic, proprietary information disclosed by 
     nondepository financial institutions with that of their 
     depository peers, and will thereby promote greater candor 
     with regulators and more efficient regulation. AFSA urges 
     Congress to advance this legislation at the soonest possible 
     opportunity, as covered persons face greater risk to the 
     sanctity of their proprietary information as they disclose 
     more documents to the CFPB with each passing day.

[[Page H7001]]

       AFSA looks forward to working with you to address this 
     matter. If you have any questions, please contact me.
           Sincerely,

                                                 Bill Himpler,

                                         Executive Vice President,
                          American Financial Services Association.

                              {time}  1415

  Mr. PERLMUTTER. Since there are no other speakers on the majority 
side of the aisle, I will close as well.
  Mr. Speaker, this is very similar to the bill we just heard. It 
really is trying to do two things. One, add the cooperation among 
Federal and State regulators and potential companies, individuals who 
might be under examination by those regulators, so that the individual 
or company who is providing information to the regulators knows that 
that information maintains protections and confidentiality and 
privilege in those respects. So we are seeking additional cooperation 
and additional communication.
  This bill that Congressman Barr and I have introduced I think gets to 
those two key goals. Again, the purpose is so that the regulators 
understand what it is that they are examining and have as much 
information as possible, and that they get full cooperation from those 
that are being examined. So I thank my friend for introducing this 
bill.
  With that, I yield back the balance of my time.
  Mrs. CAPITO. Mr. Speaker, I again would like to thank the sponsors of 
the legislation, Mr. Barr and Mr. Perlmutter, for working together to 
seek a fix that will result in good things for the coordination aspect 
of the State regulators and Federal regulators. I encourage passage of 
the bill.
  With that, I yield back the balance of my time.
  Mr. PERLMUTTER. Mr. Speaker, I submit the following letter of support 
of H.R. 5062.

                                                    July 25, 2013.
     Re Supervisory Privilege for Nondepository Consumer Lenders

     Hon. Tim Johnson,
     Chairman, Senate Banking Committee, Washington, DC.
     Hon. Mike Crapo,
     Ranking Member, Senate Banking Committee, Washington, DC.
     Hon. Jeb Hensarling,
     Chairman, House Financial Services Committee, Washington, DC.
     Hon. Maxine Waters,
     Ranking Member, House Financial Services Committee, 
         Washington, DC.
       Dear Chairmen and Ranking Members: The American Financial 
     Services Association (``AFSA'') and the undersigned 
     automobile finance companies ask for your support to ensure 
     the privilege protection for state licensed and regulated 
     nondepository consumer lenders under the jurisdiction of the 
     Consumer Financial Protection Bureau (``CFPB'' or ``Bureau'') 
     is fully extended to all such companies and their privileged 
     information--regardless of which state agency happens to be 
     their regulator.


                    The Dodd-Frank Act and Privilege

       While the Dodd-Frank Act (``Act'') granted the CFPB 
     authority to regulate and supervise a wide range of 
     depository institutions and nondepository consumer lenders, 
     the Act neglected to extend the historical protections over 
     privileged information submitted to bank supervisors, during 
     the course of supervision, to either the CFPB or certain 
     state agencies with whom the Bureau is expected to share 
     information and coordinate examinations.


                           A Flawed Solution

       The enactment of H.R. 4014 during the 112th Congress sought 
     to resolve the problem by amending the Federal Deposit 
     Insurance Act (``FDI Act'') to add the CFPB to the list of 
     federal regulators approved to share information without 
     waiving any applicable privilege. The FDI Act also permits 
     enumerated agencies to share privileged information with 
     ``state bank supervisors'' without waiving privilege. 
     However, in the case of a nondepository consumer lender, H.R. 
     4014 provides comprehensive protection of privilege if and 
     only if the company does business exclusively in states where 
     it is regulated by state bank supervisors.
       Nondepository consumer lenders, however, do not always fall 
     under the jurisdiction of state bank supervisors. According 
     to an informal survey conducted by AFSA, there are at least 
     15 states where a state agency other than the state bank 
     supervisor currently has either partial or full jurisdiction 
     over the financial activities of nonbanks doing business in 
     that state. For example, in Texas, the Office of the Consumer 
     Credit Commissioner regulates nondepository consumer lenders, 
     and in Colorado, the state Attorney General regulates such 
     entities. In addition, states periodically reorganize their 
     regulatory regimes--raising the issue of whether a 
     nondepository consumer lender currently under a state's 
     banking agency would be protected if the state changes its 
     regulatory regime in the future.
       We ask that nondepository consumer lenders are universally 
     afforded the customary and historical protections of 
     privilege when the CFPB and other regulators share such 
     privileged information with any applicable state agency with 
     supervisory oversight over such companies. Our goal is to 
     provide parity among financial institutions of all types, and 
     we do not seek to advantage any class of creditor.


                       The Necessity of Privilege

       It is important to emphasize the critical role that 
     privilege plays in supporting a more effective and 
     transparent supervisory process between regulators and 
     regulated entities, as effective examinations are enhanced by 
     the privilege. Indeed, the Court of Appeals for the D.C. 
     Circuit expounded as follows:
       The bank examination privilege is firmly rooted in 
     practical necessity. Bank safety and soundness supervision is 
     an iterative process of comment by the regulators and 
     response by the bank. The success of the supervision 
     therefore depends vitally upon the quality of communication 
     between the regulated banking firm and the bank regulatory 
     agency. This relationship is both extensive and informal. It 
     is extensive in that bank examiners concern themselves with 
     all manner of a bank's affairs. . . Because bank supervision 
     is relatively informal and more or less continuous, so too 
     must be the flow of communication between the bank and the 
     regulatory agency Bank management must be open and 
     forthcoming in response to the inquiries of bank examiners, 
     and the examiners must in turn be frank in expressing their 
     concerns about the bank. These conditions simply could not be 
     met as well if communications between the bank and its 
     regulators were not privileged. (Emphasis added.)
       We believe the same policy should apply to all consumer 
     creditors to ensure effective and equitable examination and 
     investigatory processes.


                   Partial Privilege is No Privilege

       The CFPB operates under a rather rigid document called the 
     Enforcement Action Process, which provides that an 
     investigation begins with a civil investigative demand (CID), 
     ``which can easily be 20 or 30 pages long, [and] request 
     almost every imaginable relevant piece of documentary 
     evidence.'' Companies typically have ten days to draft an 
     initial response, and companies like automobile finance 
     companies that operate under all 50 state regulatory regimes 
     could be compelled to provide information that, while 
     privileged in some states in which the company is licensed, 
     would not be in other states.
       Once lost, privilege cannot be restored, leaving formerly 
     privileged documents produced to the CFPB subject to 
     discovery by third parties. Moreover, the consequences of 
     privilege waiver can be significantly compounded if a court 
     rules that the privilege was waived not only as to the 
     individual document or documents actually produced to the 
     CFPB, but as to all information relating to that subject 
     matter. The following example illustrates the point: in 
     responding to a CID issued by the CFPB, an automobile finance 
     company might feel compelled to produce an otherwise 
     privileged internal memorandum on Topic X; the CFPB shares 
     this memorandum with non-banking regulators in States A, B 
     and C, all of which regulate the finance company. Assume for 
     this hypothetical that the CFPB and States A, B and C all 
     ultimately agree with the memorandum's conclusions on Topic 
     X, and decide to take no action against the finance company. 
     Under the current framework, the privileged nature of that 
     memorandum is likely lost and any private litigant can seek 
     (and possibly obtain) production of the memorandum. This is 
     bad enough, essentially eviscerating the privilege. Worse is 
     the possibility that a court might conclude that not only is 
     the privilege waived as to the memorandum, but also as to all 
     finance company documents relating to the topic in question.


                Congressional Intervention is Paramount

       Even in an instance where the CFPB may agree to respect 
     privilege in all states, it is unclear whether the Bureau 
     could effectuate that protection. For example, although the 
     CFPB promulgated a rule governing privilege, it has not 
     addressed this particular issue regarding gaps in its 
     statutory authority. Further, even if so inclined, it is 
     unclear that the CFPB could assist a company attempting to 
     defend privilege in a law suit brought by a third party 
     attempting to discover privileged material.
       We note that, while the federal banking agencies had 
     similar rules in place, Congress--believing a statute was 
     necessary to safeguard privilege--enacted 12 U.S.C. 1828(x) 
     to ensure that any privileged work product or protected 
     materials that banks disclose in the course of supervision 
     remain privileged as to all other parties.
       We respectfully request that the House Financial Services 
     Committee and the Senate Banking Committee act decisively and 
     without delay to establish parity among all lenders by 
     advancing legislation to reaffirm full privilege protection 
     to all types of financial institutions.
       Thank you for your consideration. Should you need any 
     additional information, please contact AFSA's Executive Vice 
     President, Bill Himpler, at (202) 466-8616 or 
     [email protected].
           Sincerely,
         Katherine Adkins, General Counsel and Vice President, 
           Legal & Compliance, Toyota Financial Services, 
           Torrance, California;

[[Page H7002]]

         Stephen P. Artusi, Vice President and General Counsel, 
           World Omni Financial Corp., Deerfield Beach, Florida;
         Alan Ray Hunn, General Counsel, Nissan Motor Acceptance 
           Corporation, Franklin, Tennessee (Headquarters), 
           Irving, Texas (Operations);
         Doug Johnson, Executive Vice President, Chief Legal 
           Officer, GM Financial, Fort Worth, Texas;
         Katherine M. Kjolhede, Executive Vice President & General 
           Counsel, Ford Motor Credit Company LLC, Dearborn, 
           Michigan;
         Kevin McDonald, Chief Compliance Officer, General Counsel 
           & Secretary, VW Credit, Inc., Herndon, Virginia;
         Catherine M. McEvilly, Compliance Officer, American Honda 
           Finance Corporation, Torrance, California;
         Carol J. Moore, Vice President and Executive General 
           Counsel, Hyundai Capital America, Irvine, California;
         RJ Seaward, Vice President, General Counsel, Harley-
           Davidson Financial Services, Chicago, Illinois;
         Michelle Spreitzer, General Counsel, Mercedes-Benz 
           Financial Services, Farmington Hills, Michigan.

  The SPEAKER pro tempore. The question is on the motion offered by the 
gentlewoman from West Virginia (Mrs. Capito) that the House suspend the 
rules and pass the bill, H.R. 5062, as amended.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill, as amended, was passed.
  The title of the bill was amended so as to read: ``A bill to amend 
the Consumer Financial Protection Act of 2010 to specify that privilege 
and confidentiality are maintained when information is shared by 
certain nondepository covered persons with Federal and State financial 
regulators, and for other purposes.''.
  A motion to reconsider was laid on the table.

                          ____________________