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CFPB Proposal to Relax Standards for the Discretionary Disclosure of Confidential Supervisory Information

9.1.2016

In a proposed rule set forth in the August 24, 2016 Federal Register, the Consumer Financial Protection Bureau (Bureau) suggests "amendments relating to the disclosure of records and information." While the proposal touches on all five existing Subparts of 12 CFR 1070,1 significant changes related to the disclosure of confidential information appear in Section 43 of Part 1070 and concern all entities under the Bureau's supervision (both depository and non-depository).

Importantly, the Bureau's proposed rule essentially relaxes the standard according to which disclosure of Confidential Supervisory Information (CSI)2 may be made to an "agency." In contrast to the present carve-out that limits the Bureau's discretionary release of supervisory information to only "a Federal or State agency having jurisdiction over a supervised financial institution," the Bureau proposes to consolidate CSI into the broader "Confidential Information"3 category that is currently subject to discretionary release to any "Federal or State agency to the extent that the disclosure of the information is relevant to the exercise of the agency's statutory or regulatory authority (emphasis added)." The Bureau asserts "that retaining discretion to share confidential information in [more expanded] situations [will] better promote the Bureau's mission and overall effectiveness."

At the same time, the Bureau also proposes a new definition of "Agency," which will expand the present use of the term "agency"4 to include "an entity exercising governmental authority." The Bureau states that use of the new definition will "clarify the Bureau's ability to share confidential information with foreign regulators and certain entities that exercise governmental authority, such as registration and disciplinary organizations like state bar associations."

The proposed amendments also transfer authority for the discretionary sharing of information from the agency's General Counsel to the Associate Director for Supervision, Enforcement, and Fair Lending, for the stated primary purpose of increased efficiency. The Bureau asserts that "the vast majority of access requests" pertain to the work performed by this division, and affirms that the Associate Director "will continue to consult with other Bureau stakeholders, including the Legal Division, as necessary."

While the Bureau's proposed approach regarding relaxing of the standards applicable to disclosure of CSI may acknowledge the reach of its authority to non-depository institutions for which there are no associated prudential regulators, the Bureau does not advance such reasoning. Rather, the Bureau relies on a new and "better interpretation" of the underlying provisions of the Dodd-Frank Act from that utilized in its original rulemaking, finding instead a statutory intention to establish "an information-sharing regime with a limited set of other agencies" that have "responsibilities related to consumer financial matters (emphasis added)." Unfortunately, this revised interpretation, which was derived, according to the Bureau, because "the current rule's restrictions have proven overly cumbersome in application [and] pose unnecessary impediments to cooperating with other agencies," conflicts with the plain language of the underlying statute. The relevant statutory text, found at 12 USC 5512(c)(6)(C)(ii), provides that, in addition to the provision of examination reports, "the Bureau may, in its discretion, furnish to a prudential regulator or other agency having jurisdiction over a covered person or service provider any other report or other confidential supervisory information concerning such person . . . (emphasis added)."

Under the proposed amendments, examination reports and other analyses of an entity's business operations that were prepared by the Bureau during the course of its supervisory examination may be subject to sharing with any agency having "responsibilities related to consumer financial matters," such as a state or local consumer agency, even though such agency does not have appropriate jurisdiction.

Comments on the proposed amendments must be received through the normal channel, as specified in the proposal, on or before October 24, 2016.

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1The Subparts address definitions, Freedom of Information Act implementation, requests for information from the Bureau in connection with legal proceedings, protection and disclosure of confidential information, and implementation of the 1974 Privacy Act.

212 CFR 1070.2(i). Such information includes reports of the Bureau's examination and other materials "prepared by, or on behalf of, or for the use of the CFPB . . . in the exercise of" its supervisory authority. Such information is the property of the Bureau. The most significant proposed change to the definition of Confidential Supervisory Information relates to the substitution of the newly defined term of "Agency," as discussed, replacing the more limited application as to a "Federal, State, or foreign government agency."

3Note that, as defined in 12 CFR 1070.2(f), CSI is appropriately a subset of "Confidential Information."

4The term "agency" is currently used in combination with the adjectives "Federal" or "State," or is sometimes also combined with the term "foreign governmental authority."

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