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"Legal experts warned the Consumer Financial Protection Bureau that its proposal to force companies under investigation to keep quiet about the probe might violate free speech rights." "The proposed rule would keep investors, shareholders and the public in the dark about federal investigations..."
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CFPB’s Proposal to Silence Companies Under Investigation Draws Criticism
By Yuka Hayashi | VIEW ONLINE
Legal experts warned the Consumer Financial Protection Bureau that its proposal to force companies under investigation to keep quiet about the probe might violate free speech rights.
The reactions came during the public comment period for the watchdog agency’s proposed regulation, which broadly updates rules and procedures for the confidential treatment of information obtained through the bureau’s supervision and enforcement actions, as well as the public’s access to information under disclosure rules.
Among the 27 comments submitted to the bureau, the American Civil Liberties Union and a group within the American Bar Association criticized a provision within the regulation that would prohibit individuals and companies from disclosing confidential investigative information. Such information includes civil investigative demands—CIDs—or notice and opportunity to respond and advise letters, or NORA.
The proposed step would restrict companies from discussing information on a wide range of issues connected to any bureau investigation, including the existence of the investigation itself. A company planning to disclose the information with external entities would have to get approval to do so from a senior CFPB official.
“Our legal system…presumes that ordinary citizens are free to discuss government activities and presumes that government efforts to restrain such speech are unconstitutional,” wrote William Johnston, chairman of the American Bar Association’s Business Law Section, adding that the proposal presents “severe First Amendment problems.” Ms. Johnston said his comment represents his section’s view and not necessarily that of the entire association.
Legal experts said federal agencies like the Securities and Exchange Commission don’t impose such restrictions on the subjects of their investigations or others who have received information related to an investigation.
“While most regulated entities may prefer to remain silent about their receipt of CIDs and NORA letters, others may have good reasons (even contractual or ethical reasons) to share them with third parties such as investors or potential investors,” wrote Arthur B. Spitzer, legal director at the ACLU who also saw “serious First Amendment problems” with the proposal.
The criticism of the proposed policy comes as the CFPB faces challenges to its authority five years after it was created in the aftermath of the financial crisis. Earlier this month, a federal appeals court declared that the agency’s structure, which gives unusual independence to its director, is unconstitutional, and ordered its powers be curbed. The CFPB, which has been under attack from Republican lawmakers and the financial industry, is expected to appeal the decision from a panel of judges appointed by Republican presidents, experts say.
Most of the public comments submitted to the CFPB before Monday’s deadline were related to a provision that allowed the bureau to share confidential supervisory information about a company with domestic and foreign government agencies. Trade groups said that provision overstepped the bureau’s authority granted by Congress, while state regulators praised it as improving their access to information.
The proposed rules also aim to streamline procedures used by the public to obtain information from the CFPB under the Freedom of Information Act.
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CFPB seeks to silence investigation targets, drawing fire on free speech
By Lorraine Woellert \ VIEW ONLINE
The CFPB wants to silence companies under investigation and is seeking greater freedom to share confidential information gathered as a result of those inquiries.
The bureau's proposal, part of a little-noticed update to its rules on records collection, drew unanimous fire from a broad coalition of financial companies, as well as from the American Bar Association and the American Civil Liberties Union, which called it unconstitutional.
The plan would prohibit targets of civil investigative demands or notice and opportunity to respond and advise letters — CIDs and NORA letters — from disclosing the receipt of such notifications. Legal experts called the proposal a restraint on free speech and warned that it could run afoul of laws that require companies to disclose material information to shareholders.
ACLU Legal Director Art Spitzer likened the proposal to National Security Letters, a product of the Patriot Act that give the FBI the power to collect customer records held by banks, telephone companies and internet service providers without a customer's knowledge.
"It's like the National Security Letter gag orders, except the compelling government interest is nowhere near what it is in a national security case," Spitzer said in an interview. "I'm not sure I see any compelling government interest."
On a practical level, the proposed rule would keep investors, shareholders and the public in the dark about federal investigations that might have a material impact on a company's operations. It also would give the bureau freedom to embark on "unwarranted fishing expeditions," said Jeb Hensarling, chairman of the House Financial Services Committee.
"Because of the potential for government abuse and First Amendment due process implications, Congress has typically limited such arrangements to investigations with national security implications," Hensarling wrote in a letter.
The bureau also drew criticism for a proposal that would allow it to share privileged information with any "federal, state, or foreign governmental authority, or an entity exercising governmental authority" whenever "it is relevant to the exercise of the agency's statutory or regulatory authority."
That provision could pierce attorney-client privilege, a "bedrock legal principle of our free society", and hobble companies seeking advice on regulatory compliance, said Linda Klein, president of the American Bar Association.
A CFPB spokesman declined to comment.
The proposal is an attempt by the bureau to clarify rules regarding the treatment of confidential investigative information.
Other financial regulators limit public disclosure of confidential information outside of the agency but don't distinguish between supervisory materials and enforcement materials. Current CFPB regulations make both categories confidential.