How Michigan Banks Can Protect Itself From Liability For Disclosure of Confidential Customer Information in Response to Documents Only Subpoena

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Legal Blog
Thursday, 02 September 2010 18:12

Gramm-Leach-Bliley Act , 15 U.S.C.A. § 6802(e) (8) allows an adverse party open access to another party's nonpublic financial information held by a financial institution by "judicial process".  Frequently, this is attempted by a "documents only subpoena" which does not require appearance before a court, but frequently appearance before the adverse party's attorney. Banks are genuinely concerned for their own liability to their customers, because the statute does not tell us if such a subpoena is "judicial process".

The issue is simple but the law is not. Without a court order or the consent of the customer, the Bank may be prohibited from disclosing non-public information as a financial institution to a private plaintiff in a civil case without further "judicial process" under the Gramm-Leach-Bliley Act, 15 USC § 6802(e)(8).  The relevant text of the statute is as follows:
Sec. 6802. Obligations with respect to disclosures of personal information

(a) Notice requirements
Except as otherwise provided in this subchapter, a financial institution may not, directly or through any affiliate, disclose to a nonaffiliated third party any nonpublic personal information, unless such financial institution provides or has provided to the consumer a notice that complies with section 6803 of this title.

(e) General exceptions
Subsections (a) and (b) of this section shall not prohibit the disclosure of nonpublic personal information -
(8) to comply with Federal, State, or local laws, rules, and other applicable legal requirements; to comply with a properly authorized civil, criminal, or regulatory investigation or subpoena or summons by Federal, State, or local authorities; or to respond to judicial process or government regulatory authorities having jurisdiction over the financial institution for examination, compliance, or other purposes as authorized by law. [emphasis added].

The language of the exception is in the disjunctive: the exception applies to (1) properly authorized ... subpoena ... by Federal, State or local authorities or (2)  to respond to judicial process or (3) [to] government regulatory authorities having jurisdiction over the institution.

The first and the third exceptions do not apply.  Is a  civil subpoena signed by an attorney alone without the customer's consent or an accompanying court order "judicial process." But it may be inferred as such. There is no authoritative precedent in Michigan that a documents only subpoena is "judicial process" under 15 USC § 6802 (e)(8).

Parties to a divorce or other contentious litigation frequently spare over a subpoena of records and place a bank between them.  One party demands production, the other refuses, the bank requests a consent from its customer and that is refused.   Then neither party seeks the intervention of the court and dig in their heels.

Like almost all other such disputes, the parties usually settle, because either one could go to court and obtain an order.   Parties could simply use other discovery means to obtain the bank records, such as a request to produce records, but they like the emotional effect of a "subpoena for your bank account."   However, where one party insists on a documents only subpoena and the other refuses consent, the Bank is damned if it does and damned if it doesn't.  Moreover, there are the financial, public relations, and management impacts of having to deal with these questions.

The prohibitions mandated by the GLBA are quite simple. The Act unequivocally states that a financial institution simply cannot disclose nonpublic personal information of its consumers to a non-affiliated third party UNLESS:(1) the financial institution clearly and conspicuously discloses to the consumer that such information may be disclosed; (2) the consumer is given the opportunity before the time of disclosure to direct that such information not be disclosed; and (3) the consumer is given an explanation of how he/she can exercise that non-disclosure option. See 15 U.S.C. §6802 (b). When the bank give its customer notice of the subpoena, the customer can decided to exercise the non-disclosure option.

The Michigan Bankers Association has advised its members that a documents only subpoena is really a request for production, and that there is a duty of confidentiality which requires notice by the Bank and a right objection by the customer to protect the customers' accounts.  However, the courts in Michigan have not fleshed out the process or rights after notice of such rights is given.

Counsel in other States suggest that while there is a duty of comply with civil subpoena, banks run the risk of sanctions from their customers Gramm-Leach-Bliley Act.

The Courts in the few States to pass on these disputes, never reach the issue, since by the time the matter is on appeal, the trial court has already issued the needed order for production, nullifying the issue of the initial response of the financial institution

Banks are threatened repeatedly by parties in litigation with claims for sanctions and damages.  When necessary a bank should seek a protective order from the court to quash or enforce the subpoena, but protect the Bank from further liability and costs.

In the case of Etefia v Credit Techonologies, Inc. 245 Mich App 466 (2001) a  subpoena signed by an attorney was held to be equivalent to a court order for purposes of the Fair Credit Reporting Act, 15 USC §1681b(a)(1) [FCRA] In Etefia the financial institution was sued for complying with a documents only subpoena signed by an attorney as a violation of FCRA.   FCRA is only one of many statutes that forbid a bank to release financial information.  Each statute has certain exemptions.   [For instance MCL 488.12 protects customers privacy from any disclosure, "except as provided by law", and then gives no definition for the financial institution as to what is "provided by law".]

There is no Michigan case that deals with the Bank's obligation under the  Gramm-Leach-Bliley Act, [GLBA].  GLBA has exceptions to the protection of financial information, but the exceptions are not the same nor identical to FCRA.

The Office of the Comptroller of the Currency [OCC] beginning in May 2001 [the month after the Etefia decision] promulgated its rules and examination procedures for banks under the title "Privacy of Consumer Financial Information", OCC 2001-26, 12 CFR 40, and repeatedly audit instructions to determine compliance with GLBA. Under GLBA a bank customer has a right to be notified if his account information is sought by subpoena, [except for limited criminal and national security instances.]  If the subpoena is "judicial process" the customer's objection can not bar disclosure.

If a bank were to simply comply with the documents only subpoena and not seek the order of a court, there would be no forum in which to determine if the subpoena is "judicial process" other than by expense litigation in a suit brought by its customer.  It is for this reason that the decision of Marks v Globel Mortgage Group, Inc., SDW Va 2003, 218 FRD 492, is illustrative of the appropriate procedure to be followed.  The Court should rule on the objection to the subpoena.  Once the court rules in favor of the subpoena it is "judicial process".

Under 15 USC §6802, an attorney is not a "Federal, State or local authority".  "Authorities" refer to Federal and State authorities such as Federal Bureau of Investigation, Internal Revenue Service, Michigan Department of Treasury, etc.  Because the language of 15 USC §6802 is in the disjunctive, only the Federal, State and local authorities may issue a subpoena.  The second clause is the exception for non-public litigants, i.e., "judicial process". By treating a "subpoena" in the first clause, did Congress intend that "subpoena" is not "judicial process"?  We just do not yet know. While it is true that a subpoena signed by an attorney is an order of the court, not all orders are judicial process.  The word "judicial" speaks to the office of the Judge of the court, and not to the attorneys of the court.

In our experience, the local Circuit Courts acknowledge that there is an appearance of a conflict in the statutes, and generally grant the banks' motion for its protection.


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