Protecting consumers requires protecting and incentivizing whistleblowers, too

Following a contentious, partisan vote on his nomination, newly minted Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra has a unique opportunity to define his legacy and expand the agency’s impact, all while mending bipartisan fences. It all comes down to whistleblowers.

In his first major act, Chopra should publicly endorse a new bill introduced by Sen. Catherine Cortez Masto (D-N.M.) ­­­— the Financial Compensation for CFPB Whistleblowers Act — that would transform the CFPB’s barely-known and rarely-used reporting mechanisms with a full-fledged whistleblower reward program. Following the highly successful SEC model, the bill would encourage whistleblowers to come forward and bolster the agency’s critical work to ensure banks, lenders and other financial companies treat their customers fairly.

Formed in the wake of the 2008 economic crisis with broad support from consumer, labor and civil rights organizations, the CFPB safeguards all of us from dishonest or predatory practices by powerful industries. But some Republicans have called for the agency’s abolishment and voiced loud resistance to Chopra’s nomination.

Unlike the confirmation fight, however, the proposed whistleblower program should have strong bipartisan consensus. The proposed whistleblower program actually traces back to Chopra’s Trump-appointed predecessor, Kathleen L. Kraninger. As CFPB director during the Trump administration, Kraninger publicly pushed for similar legislation that ultimately stalled in Congress. Further, similar whistleblower programs at the SEC, CFTC and IRS have typically enjoyed support across party lines, most notably from Sen. Chuck Grassley (R-Iowa), who has long been a champion for whistleblowers on Capitol Hill.

Any successful whistleblower program must include two elements: security and financial incentives. Although they are increasingly common, retaliation protections alone, while critical, are simply not enough; retaliation remains very real, whether through termination, marginalization, harassment or blacklisting. This reality makes many would-be whistleblowers unwilling to risk coming forward, which is why monetary awards are also necessary. Rewards help to offset the costs of coming forward and confidentiality helps to minimize them, making both components equally vital to any successful whistleblower program.

At present, the CFPB’s reporting mechanism guarantees neither.

Cortez Masto’s measure, if enacted, would remedy that. It directs the CFPB to award tipsters who provide high-quality, original information that leads to successful enforcement actions. In cases involving over $1 million in sanctions, whistleblowers could generally share in 10 to 30 percent of the funds, and for smaller recoveries, any single whistleblower could receive the greater of 10 percent or $50,000. The CFPB’s program would also reduce reporting barriers with confidentiality protections and the option to proceed anonymously.

Closely modeled after the SEC’s ultra-successful whistleblower reward program, which just last month surpassed $1 billion in rewards, this legislation would transform the CFPB’s enforcement activities.

The SEC’s record of success leaves no doubt: When properly incentivized and protected, whistleblowers play an indispensable role in exposing fraud, abuse and other misconduct. As SEC Chair Gary Gensler recently acknowledged, “the assistance that whistleblowers provide is crucial to the SEC’s ability to enforce the rules of the road for our capital markets.” The numbers tell the tale. In less than a decade, more than 200 whistleblowers have helped the SEC obtain roughly $5 billion in financial penalties.

The proposed CFPB whistleblower program will have a similar transformative effect on the bureau’s enforcement efforts. Like the SEC, the CFPB focuses on rooting out fraudulent and abusive practices that are easily concealed from the public. The secret, deceptive nature of financial fraud makes it notoriously difficult to detect and prosecute. This is precisely where whistleblowers bring the greatest value. Unlike in a formal government investigation, whistleblowers gather evidence and candid admissions while wrongdoers’ guards are down. This is the kind of explosive evidence that turns otherwise complex and slogging investigations into slam dunks.

Put simply, with the help of well-placed whistleblowers, the CFPB will shut down more scams and protect more consumers.  

For Chopra, the timing could not be better. Immediately on the heels of his acrimonious confirmation, Chopra has a rare opportunity to garner bipartisan support. He should endorse the proposed whistleblower program immediately and do everything he can to get Sen. Cortez Mastro’s bill through Congress. Without question, this whistleblower program would be a career-defining move for Chopra — one that will have a far-reaching impact well beyond any individual rule or enforcement action advanced during his tenure. The opportunity is there. He just needs to seize it.

Hallie Noecker and Chris McLamb are attorneys in the whistleblower group at Constantine Cannon LLP.