The risk that financial firms’ nondisclosure agreements with employees might scare employees away from reporting violations of federal consumer financial protection law – with such intimidation being a violation itself – is discussed in a circular announced Wednesday by the federal agency charged with administering the law’s requirements.
The Consumer Financial Protection Bureau (CFPB), in Circular 2024-04 on whistleblower protections under Section 1057 of the Consumer Financial Protection Act (CFPA), said financial firms that require employees to sign sweeping nondisclosure agreements may risk violating the statute if those agreements do not clearly permit employees to communicate or cooperate with law enforcement. The bureau said the circular was sent to law enforcement agencies and regulators.
Noting that confidentiality agreements often specify that the employer may file a lawsuit or terminate an employee for violating the terms of the agreement, the CFPB said its Circular 2024-04 gives examples of “particularly egregious circumstances” that would typically violate the law.
It said, for example, that if 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, employees may see this as a threat against whistleblowing.
“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 said.
Circular 2024-04 states that Section 1057 of the CFPA provides anti-retaliation protections for covered employees and their representatives who provide information to the CFPB or any other federal, state, or local law enforcement agency regarding potential violations of laws and rules that are subject to the CFPB’s jurisdiction. These apply, it states, to covered persons:
- providing or being about to provide information to the employer, the CFPB, or any other state, local, or federal government authority or law enforcement agency relating to a violation of, or any act or omission that the employee reasonably believes to be a violation of, a law subject to the CFPB’s jurisdiction or prescribed by the CFPB;
- testifying or intending to testify about such a potential violation;
- objecting to or refusing to participate in any activity, policy, practice, or assigned task that the employee reasonably believes to be such a violation; or
- filing any lawsuit or instituting any other proceeding under any federal consumer financial law.
The circular also notes that Section 1057 details how someone who thinks they’ve been fired or otherwise discriminated against in violation of the law’s whistleblower protections may file a complaint with the Department of Labor (DOL). It added the CFPB also has independent authority to enforce Section 1057, outside “limited circumstances.”
The bureau noted that those who wish to report a potential violation of federal consumer financial protection law may do so by sending an email to whistleblower@cfpb.gov.