The Consumer Financial Protection Bureau yesterday issued a warning to law enforcement agencies and other regulators that companies requiring employees to sign broad confidentiality agreements can potentially violate the Consumer Financial Protection Act. There is a section of the CFPA that protects whistleblower employees, and any action that dissuades employees from reporting suspected violations of federal consumer financial law could impede the CFPB’s ability to enforce these laws.
The big picture: Confidentiality agreements are common in many industries, including among debt buyers, fintech companies, collection agencies, banks, credit unions, and consumer finance companies. These agreements often aim to protect trade secrets and sensitive information. However, the CFPB points out that such agreements, depending on their wording and the context in which they are used, may lead employees to believe they could face legal action or other adverse consequences if they report potential legal violations to government authorities.
Zoom in: Section 1057 of the CFPA explicitly prohibits covered persons from retaliating against employees who report suspected legal violations. This includes not only direct actions like termination but also more subtle forms of discrimination, such as threats of lawsuits or other penalties that could deter whistleblowers. The CFPB emphasizes that even the threat of legal action can be seen as a violation of whistleblower protections, particularly if confidentiality agreements are so broadly worded that they could be interpreted as forbidding communication with regulatory authorities.
What’s new: The CFPB’s circular highlights the risk that broad confidentiality agreements pose to both whistleblower protections and the enforcement of federal consumer financial laws. The agency warns that these agreements, if not carefully crafted to allow for lawful whistleblowing, could undermine public policy efforts to prevent illegal and unethical behavior.
The bottom line: Companies operating in the credit and collection industry, as well as other sectors covered by the CFPA, should review their confidentiality agreements to ensure they do not inadvertently threaten or dissuade employees from reporting suspected violations to regulatory bodies. Clear language that explicitly allows for communication with government agencies can help mitigate the risk of violating whistleblower protections.
The last word: “The law enforcement community uncovers serious wrongdoing by financial firms through whistleblower tips,” said CFPB Director Rohit Chopra. “Companies should not censor or muzzle employees through nondisclosure agreements that deter whistleblowers from coming forward to law enforcement.”
