CFPB Issues Warning about Whistleblower Intimidation

The Consumer Financial Protection Bureau (CFPB) issued an advisory warning law enforcement agencies and regulators that companies may be breaking the law by requiring employees to sign broad nondisclosure agreements (NDAs) that could deter whistleblowing.

The advisory is in direct response to a legal question posed by Section 1057 of the Consumer Financial Protection Act (CFPA). Section 1057 gives employees in the financial service industry the right to action against employers who have retaliated against them for disclosing information about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service.

The question presented asks if employers are in violation of Section 1057 if they require employees to sign broad confidentiality agreements which undermine the CFPB’s ability to enforce the law. The CFPB decided that overly broad NDAs are in violation of an employee’s rights under the CFPA.

The History of the CFPB

The Consumer Financial Protection Bureau (CFPB) is a direct result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation was enacted in response to the 2008 financial crisis to prevent such a catastrophe from happening again. One of the core objectives of Dodd-Frank was to establish a strong, independent agency focused solely on consumer financial protection. The CFPB was created to fulfill this role. It has broad authority to regulate and supervise financial institutions, enforce consumer protection laws, and educate consumers about their rights. Essentially, the CFPB is the cornerstone of consumer protection within the Dodd-Frank Act. It’s the agency tasked with ensuring that financial institutions treat consumers fairly and transparently.

The Usage of Broad Non-Disclosure Agreements

Many employers require employees to sign NDAs containing confidentiality provisions that threaten legal action for sharing internal information. While these agreements can serve legitimate purposes, overly broad language can intimidate employees from reporting potential legal violations to law enforcement. In effect, these contracts deceptively undermine employees’ whistleblower rights.

CFPB Director Rohit Chopra explained that “companies should not censor or muzzle employees through nondisclosure agreements that deter whistleblowers from coming forward to law enforcement.” The recent advisory determined that these NDAs are in violation of Section 1057.

Examples of Braod Non-Disclosure Agreements in Tech

Smoothstack, Inc.

The SEC found that a Houston-based tech firm required witnesses in certain internal investigations to sign confidentiality agreements.

These confidentiality agreements contained language warning potential whistleblowers that they could face discipline if they discussed the matters with outside agencies without the prior approval of the company’s legal department. While there were no instances in which the firm prevented employees from communicating with the SEC, a blanket prohibition against witnesses discussing potential violations without prior approval had a chilling effect on whistleblowers.

In their settlement, the Houston firm amended its confidentiality statement to include language specifying that employees are free to report possible violations to the SEC without prior permission or fear of retaliation.

The CFPB’s Efforts to Address Violations

In 2021, the CFPB created a pathway for tech workers to report potential violations of federal consumer financial laws. Individuals working in the tech industry were provided a streamlined process to submit tips directly to the CFPB. The CFPB webpage was completely redesigned based on user research and usability testing. The page included supplementary information about submission mechanisms and descriptions of sought after information. The CFPB welcomes information about potential misconduct from current or former employees, contractors, vendors, and competitor companies.

Protection from Retaliation

The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act ensures that employees who share information regarding potential violations will be equipped with anti-retaliation protections. Employees are protected against retaliation for:

1. Providing information to the employer, the CFPB, or any other state, local, or federal government authority or law enforcement agency relating to a violation of federal consumer financial law;
2. Testifying about a potential violation;
3. Filing any lawsuit or other proceeding under any federal consumer financial law; or
4. Objecting to or refusing to participate in violations of federal consumer financial laws.

The CFPB’s consumer complaint process is available for individuals who have personally encountered problems with consumer financial services or products which are distinct from whistleblower information and law enforcement tips.

Many employers require employees to sign NDAs containing confidentiality provisions that threaten legal action for sharing internal information. While these agreements can serve legitimate purposes, overly broad language can intimidate employees from reporting potential legal violations to law enforcement. In effect, these contracts deceptively undermine employees’ whistleblower rights.

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