Banks are pushing the U.S. Consumer Financial Protection Bureau to limit information-sharing with states out of concern that attorneys general could file lawsuits based on private data collected by the agency’s examiners.
The dispute, part of the financial industry’s efforts to limit the reach of the Dodd-Frank overhaul of rules for Wall Street, revolves around a regulation on disclosure of records and information that the agency issued on July 21, its first official day of work. The rule said sharing some confidential data with states may “serve the public interest.”
Such cooperation could upend the traditional relationships between large banks and their federal regulators, notably the Office of the Comptroller of the Currency. The OCC has used its authority to prevent state law enforcement officials from obtaining information from national banks including JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC)
“The bureau is suggesting anything we provide will go straight to the state attorneys general,” said L. Richard Fischer, a banking lawyer with Morrison Foerster LLC who represents the American Bankers Association and the Financial Services Roundtable. Providing data to states “will terrorize large banks,” Fischer said.
The consumer bureau took public comments on the rule through Sept. 26, suggesting it may revise the policy.
Fischer said that the banks’ concerns center on the confidential nature of the examination process. For example, he said, if the bureau’s bank examiners found potential violations of federal consumer law, they might write a report directing the firm’s board to make changes and redress wrongs, all out of the public eye.
If the bureau alerted attorneys general, however, states could file lawsuits or subpoena the data, Fischer said. Potentially, he said, private lawsuits could follow.
Supporters of the bureau’s policy said the regulation is only fleshing out the mandate of Dodd-Frank for closer ties between federal and state officials on matters of consumer finance.
“There is no indication that the CFPB will act irresponsibly in what they share with attorneys general,” James Tierney, a former Maine attorney general who is director of the National State Attorneys General Program at Columbia University. “Statements to the contrary are no more than saber-rattling in order to frighten clients and markets.”
Tierney said that now that Dodd-Frank is being implemented, banks are “trying to reverse the law in practice” under the guise of preserving the integrity of the supervisory process.
“The fight over this law simply has not stopped,” Tierney said.
Roy Cooper, the attorney general of North Carolina, said that part of the bureau’s new rule includes requirements that the states keep whatever data they get confidential.
“So if the bureau chooses to share information with states, we have to accept those rules,” Cooper said in an interview.
Cooper, who ended a stint as chairman of the National Association of Attorneys general in June, said that while the organization wants to protect consumers it “has never maintained that state attorneys general have a role in supervisory issues.” He added that figuring out the exact information the bureau would share “is still a work in progress.”
A close relationship with state attorneys general was a signature effort of Elizabeth Warren, the adviser to President Barack Obama who set up the consumer bureau. Obama has nominated Richard Cordray, a former Ohio attorney general, to be the agency’s first director.
In April, the bureau and the states signed a cooperation agreement that included a commitment to share information “to inform enforcement policies and priorities.” The bureau in August began sharing information gleaned from its new consumer complaint system with some state attorneys general through the Consumer Sentinel network run by the Federal Trade Commission. Dodd-Frank allows, but does not require, the bureau to share that information.
JPMorgan chief executive officer Jamie Dimon has said that greater enforcement by states will limit the bank’s ability to serve customers.
The new regulation on data has opened the possibility that attorneys general will have access to the normally “quiet” supervisory process, Wayne Abernathy, an executive vice president at the American Bankers Association, said in an interview.
“Bank regulators live and breathe the issue of how delicate confidence can be in a bank, or in a banking system,” Abernathy said.
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