CFPB warning on whistleblower protection is a positive step

Joshua Roberts/Bloomberg

More and more U.S. government agencies have taken steps to protect whistleblowers and clear the path for them to help uncover fraud and other misconduct. The Consumer Financial Protection Bureau just became the latest to join the trend. On July 24, the agency issued a press release announcing its release of a circular warning companies away from using broad nondisclosure agreements to prevent employees from becoming whistleblowers.

CFPB Director Rohit Chopra emphasized the critical role whistleblowers play in detecting wrongdoing when he announced the agency's new initiative: 

"The law enforcement community uncovers serious wrongdoing by financial firms through whistleblower tips," Chopra said. "Companies should not censor or muzzle employees through nondisclosure agreements that deter whistleblowers from coming forward to law enforcement."

Thus, the CFPB joins the many other government agencies concerned with protecting employees' ability to blow the whistle. The Securities and Exchange Commission has been the most aggressive on this front, bringing numerous actions to enforce the agency's Whistleblower Protection Rule, which broadly prohibits companies from taking any action to impede or discourage whistleblowers. In the past year alone, this included actions against JP Morgan Securities, Monolith Resources, D.E. Shaw & Co. and CBRE, Inc. for requiring employees, clients or customers to sign agreements that put up roadblocks or flat out prevent them from reporting potential violations to the SEC.

CFPB News & Analysis

CFPB proposes legislation to pay whistleblowers who tip off agency

The agency's effort to engage with lawmakers on a whistleblower award program is one of three initiatives the bureau announced to advance its strategy of preventing consumer harm.

By Kate Berry

March 6

Last month, the Commodity Futures Trading Commission followed suit going after Trafigura Trading for violating the CFTC's analogous whistleblower protection rule by requiring employees to sign employment agreements with broad nondisclosure provisions that prohibited the sharing of Trafigura's confidential information with third parties. According to the CFTC, these provisions did not contain carve-out language expressly permitting communications with law enforcement or regulators such as the CFTC.

And last year, the Federal Trade Commission's Bureau of Competition issued guidance cautioning against the use of contractual provisions and confidentiality agreements that get in the way of individuals speaking freely with the FTC, finding them "contrary to public policy and therefore unenforceable." The FTC pointed to the SEC — along with several other agencies including the National Labor Relations Board, Federal Aviation Administration and the National Highway Transportation Safety Administration — as having reached the same conclusion.

With rapid advances in technology allowing for ever-more sophisticated methods of committing fraud and other wrongdoing, whistleblowers are becoming more important than ever. For example, without whistleblowers' potential insight into how artificial intelligence is used and where it is heading, consumers would be vulnerable to a rash of potential misuse and corruption of this groundbreaking tool.

With the CFPB joining the growing list of top enforcement agencies recognizing the value in whistleblowing, companies should take heed and avoid any provisions in employment and severance agreements that in any way impede or penalize whistleblowers. They would be wise to go one step further and include in these agreements provisions that explicitly permit reporting complaints and concerns to the government without any risk of retaliation or reprimand. Otherwise, they may find themselves in the crosshairs of this newly charged campaign to go after companies that try to silence whistleblowers.