CFPB Warns Against Potentially Illegal Confidentiality Agreements that Deter Whistleblowers

CFPB Warns Against Potentially Illegal Confidentiality Agreements that Deter Whistleblowers

According to an article by the Ballard Spahr firm, the Consumer Financial Protection Bureau (CFPB) issued a warning in July 2024 regarding potentially illegal confidentiality agreements that could violate federal law if they imply possible retaliation against employees who report perceived wrongdoing. 

Such agreements might compromise the CFPB’s ability to protect consumers by deterring employees from cooperating with investigations. The Bureau noted Section 1057 of the Consumer Financial Protection Act, which prohibits discrimination against employees who provide information about potential legal violations, testify, object to unlawful practices, or file lawsuits under federal consumer financial law.

In the warning, CFPB Director Rohit Chopra emphasized the importance of whistleblower tips in uncovering financial wrongdoing and warned against nondisclosure agreements discouraging employees from reporting to law enforcement. The CFPB acknowledged that confidentiality agreements can serve legitimate purposes, such as protecting trade secrets. However, if these agreements are worded to make employees fear legal or employment repercussions for reporting suspected violations, they could be illegal.

Despite the CFPB’s stance, the authors disagreed with the broad interpretation of Section 1057(a), particularly concerning whether the provision applies to standard confidentiality agreements signed during employment. 

Regardless, financial institutions are advised to review their confidentiality agreements to ensure they do not discourage employees from reporting to government agencies, including the CFPB, SEC, and DOJ.