On December 15, 2011, the CFPB published a press release and a bulletin encouraging “whistleblowers” to either e-mail or call the Bureau with information about “potential violations of federal consumer financial laws.” The announcement itself is not much of a surprise, since section 1057 of Dodd-Frank creates protections for persons who report, or refuse to participate in, violations of the federal consumer financial protection laws administered by the CFPB.
What is surprising is that the CFPB has completely ignored one of the central issues that surrounded the SEC’s adoption of its own whistleblower rules under Dodd-Frank earlier this year. In connection with the SEC’s rulemaking, many commenters expressed concern that the SEC was encouraging whistleblowers to report alleged violations directly to the government rather than using available internal reporting methods, the consequence of which would be to undermine the effectiveness of companies’ internal reporting processes and to create governmental enforcement action where the alleged problems could be resolved more quickly and easily internally. The SEC acknowledged these concerns by designing a series of incentives in its regulations to encourage the internal reporting of violations, and discussed this issue at length in its Federal Register release adopting its final whistleblower rule (see pages 90-92 of the linked document).
By contrast, the CFPB’s news release and whistleblower bulletin do not even mention the importance of encouraging internal reporting of potential violations of consumer protection laws. Instead, the Bureau encourages employees to report directly to it rather than addressing such matters through their employer’s legal and compliance groups. By failing to acknowledge and address this critical issue, the CFPB has not only ignored the extensive dialogue that occurred in connection with the SEC’s recent rulemaking, but has also invited employees to bypass the internal reporting and compliance mechanisms of financial institutions and report their suspicions directly to the Bureau.
While this will probably increase the volume of tips the Bureau receives, it is not good policy, for the same reasons discussed by the SEC. The goal of consumer protection is better served by encouraging violations of the law to be reported and handled internally, and government enforcement should come into play only if a financial institution refuses to correct a violation after an employee reports it. By ignoring this important issue, I am afraid that the CFPB has sought to increase its own intake of “tips” at the expense of internal reporting processes that could resolve most alleged problems more quickly and less expensively, and without the use of scarce government resources.