rublin_burt_102_recodelnero_daniel_2Guest Commentary

By Burt M. Rublin, Partner, and Daniel L. Delnero, Associate, Ballard Spahr LLP

Prior restraints on speech are highly disfavored and presumptively unconstitutional. See Tory v. Cochran, 544 U.S. 734, 738 (2005) (“Prior restraints on speech and publication are the most serious and the least tolerable infringement on First Amendment rights.”). Yet the Consumer Financial Protection Bureau (CFPB) proposed exactly that in its Proposed Rule Relating to Disclosure of Records and Information (Proposed Rule), CFPB-2016-0039, 81 Fed. Reg. 58310 (Aug. 24, 2016). CFPB seeks to prohibit the recipient of a civil investigative demand (CID) or letter from the agency providing notice and opportunity to respond and advise (NORA letters) from disclosing the CID or NORA letter to third parties without prior written consent of a high-ranking CFPB official.  In effect, this would constitute a “gag” rule that would stifle constitutionally protected speech.

The proposed gag rule is not only ill-advised as a matter of public policy, it is also unconstitutional both as a prior restraint on speech and a content-based restriction.  It would be subject to strict scrutiny, and the CFPB would have to show a compelling government interest to justify it, which it could not.  Indeed, CFPB has not claimed, nor could it claim, that the absence of a similar gag rule since the creation of CFPB has hindered or impaired its effectiveness.

We are not aware of any case law permitting a prior restraint—particularly a content-based prior restraint—grounded on government’s general desire to keep an investigation secret.  While it is appropriate that CFPB and other governmental bodies be prohibited from making public disclosures concerning the targets of their investigations, there is no justification for preventing investigatory targets from disclosing an investigation of themselves if they are so inclined.

In fact, other federal agencies, such as the SEC and FTC, do not prohibit recipients of CIDs or subpoenas from disclosing them; grand-jury witnesses have no secrecy obligation; and even the non-disclosure of an FBI national security letter, which is used primarily in terrorism cases, is conditioned upon certification by a senior FBI official that non-disclosure is necessary for public safety and that the recipient has been advised of the opportunity for judicial review.  18 U.S.C. § 2709(c)(1).  If adopted, the proposed gag rule is likely to be challenged in court and found to be unconstitutional.

In addition to being a content-based prior restraint, the proposed restriction is also problematic in that it would vest individual government officials with unfettered, broad discretion to allow or prohibit speech. An investigatory target may have myriad reasons for disclosing a CID or NORA letter.  For instance, there may be contractual obligations or other business reasons for a CID recipient to disclose it to current or prospective business partners.  Or the recipient may seek to criticize CFPB’s actions or position, seek trade association, public or congressional support for opposition to CFPB’s potentially overreaching investigation, soften the impact of an impending fine or lawsuit, or warn other members of the industry.  Those are all legitimate reasons for an entity to disclose a CID, but they are also reasons why CFPB may prefer to keep its issuance of a CID confidential.

The proposed gag rule would authorize a CFPB official to forbid a disclosure by a private entity or person that might not be in CFPB’s interest. That official would be operating under a significant conflict of interest that would inevitably affect the official’s decision.

This conflict of interest is particularly acute given CFPB’s admitted practice of utilizing consent orders to regulate industry practice.  Consent orders typically result from a CID issued to a single member of an industry, and thereafter CFPB expects all remaining industry members to likewise follow the terms of the initial privately-negotiated consent order.  When new rules arise through case law, regulation, or statutes, members of an industry have an opportunity to weigh in through amicus briefs, public comments, congressional hearings, and lobbying.  Unless the existence of a CID is made public, however, the broader industry does not have an opportunity to express its views before the terms of a consent order are finalized.

CFPB may prefer that the industry not have an opportunity to lobby against entry into a consent order, and the proposed gag rule would allow CFPB to deprive the industry of its ability to do so by silencing the CID recipient and keeping the investigation secret.  It would also prevent neutral experts such as academics and think tanks from providing their input and analysis into the pros and cons of CFPB’s proposed changes to or limitations upon industry practice.  The public could therefore be harmed by CFPB’s implementation of new restrictions on industry conduct that could have been improved if other industry participants or neutral experts had learned of the investigation and had been afforded an opportunity to offer their perspective beforehand.

The proposed gag rule has justifiably been criticized by a wide array of groups across the ideological spectrum, ranging from the ACLU to the ABA Business Law Section and the U.S. Chamber of Commerce.  CFPB Director Richard Cordray has often stated that “sunlight is the best disinfectant,” and this maxim also applies to ensuring that CFPB’s investigatory targets can reveal potential abuses by CFPB of its sweeping investigative and enforcement powers.