WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) has issued a circular alerting law enforcement agencies and regulators about the potential illegality of broad nondisclosure agreements (NDAs) that deter whistleblowing. These agreements, if not clearly permitting communication with law enforcement, could violate federal whistleblower protections.
CFPB Director Rohit Chopra emphasized the importance of whistleblowing in uncovering misconduct within financial firms. “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.”
Whistleblowers play a crucial role in exposing illegal and unethical actions. The Consumer Financial Protection Act (CFPA) includes provisions that protect whistleblowers from retaliation when they report violations of consumer financial protection laws. While NDAs can be used for legitimate reasons, such as protecting trade secrets, overly broad agreements can make employees fear legal or retaliatory consequences for reporting misconduct.
The CFPB’s circular explains that financial institutions may breach the CFPA when they require employees to sign NDAs that do not explicitly allow communication with law enforcement. These agreements often threaten employees with lawsuits or termination for disclosing information.
The circular highlights particularly egregious cases. For example, if an employer demands a confidentiality agreement during an internal investigation and warns employees not to discuss the investigation externally, employees may interpret this as a threat against whistleblowing. Companies can minimize the risk of violating whistleblower protections by ensuring their agreements clearly allow employees to communicate with government agencies and cooperate in investigations.
This guidance aims to protect the integrity of law enforcement investigations and ensure that employees feel safe to report wrongdoing without fear of reprisal.
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