CFPB circular focuses on whistleblowing guidelines for financial institutions
The Consumer Financial Protection Bureau (CFPB) is blowing a whistle, so to speak, about whistleblowing.
On Wednesday, the bureau issued a circular to law enforcement agencies and regulators explaining how companies may be breaking the law by requiring employees to sign broad nondisclosure agreements that could deter whistleblowing.
Officials said the circular explains how imposing sweeping nondisclosure agreements that do not clearly permit communication with law enforcement may intimidate employees from disclosing misconduct or cooperating with investigations.
CFPB director Rohit Chopra said this protocol could impede investigations and potentially violate federal whistleblower protections.
“The law enforcement community uncovers serious wrongdoing by financial firms through whistleblower tips,” Chopra said in a news release. “Companies should not censor or muzzle employees through nondisclosure agreements that deter whistleblowers from coming forward to law enforcement.”
The bureau reiterated whistleblowing plays an important role in addressing illegal and unethical misconduct.
In the Consumer Financial Protection Act (CFPA), Congress included a provision specifically protecting whistleblowers from retaliation for reporting violations of consumer financial protection laws.
“Although nondisclosure agreements can be entered into for legitimate purposes, such as ensuring the protection of confidential trade secrets, such agreements, depending on how they are worded and the context, could lead employees to believe they would face lawsuits or other retaliation for reporting suspected misconduct to governmental authorities,” officials said.
The CFPB said its circular — available online here — explains that financial institutions may violate the CFPA when they require employees in certain circumstances to sign broad nondisclosure agreements, or other types of agreements that contain confidentiality requirements, if the agreements do not clearly permit communications or cooperation with law enforcement.
“Confidentiality agreements often specify that the employer may file a lawsuit or terminate an employee for violating the terms of the agreement,” officials said.
The bureau also pointed out its circular highlights particularly egregious circumstances that would typically violate the law.
“One example is when an employer demands a confidentiality agreement during an internal investigation, warning employees not to discuss the relevant matters with any external parties and saying they may be subject to legal penalties for doing so,” officials said.
“If an employee involved in or aware of an investigation must sign such an agreement, they may see it as a threat against whistleblowing,” the CFPB continued. “An employer can significantly reduce the risk of violating whistleblower protections by ensuring that its agreements expressly permit employees to communicate freely with government enforcement agencies and to cooperate in government investigations.”
The CFPB mentioned this action builds on prior efforts to affirm whistleblower protections and collect reports of misconduct.
The bureau previously streamlined how workers in the technology industry can submit tips about potential violations of federal consumer financial laws.
The CFPB added that its efforts also align with a broader federal effort to protect whistleblowers and ensure corporate accountability.
For example, officials said the Securities and Exchange Commission has pursued enforcement actions against companies that violated its whistleblower protection rules when those companies required their employees or clients to sign overly restrictive confidentiality agreements.