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…
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
[email protected].
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.