Examination and Supervisory Privilege Parity Act of 2014

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.

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.

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.

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.

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

bhimpler@afsamail.org.

Sincerely,

Katherine Adkins, General Counsel and Vice President,

Legal & Compliance, Toyota Financial Services,

Torrance, California;

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.

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.

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.

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. 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. 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. 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.

I ask unanimous consent that the Senate Committee on Banking, Housing and Urban Affairs be discharged from further consideration of H.R. 5062 and the Senate proceed to its consideration.

I ask unanimous consent that the bill be read a third time and passed and the motion to reconsider be considered made and laid upon the table with no intervening action or debate.