Dodd-Frank financial reform legislation affords bank employees whistleblower protection

Iowa Banking Law Dickinson Law Firm Des Moines, Iowa

Posted on 07/16/2010 at 12:12 PM by The Newsroom

Many financial institutions already have codes of ethics or other employee policies that prohibit retaliation against employees that blow the whistle when they are aware of, or asked to participate in, fraudulent or illegal conduct. Now even those that do not have such a policy will have to refrain from retaliatory action against whistleblowers, thanks to Section 1057 of the Dodd-Frank financial industry reform legislation, which passed yesterday. The whistleblower protection provisions in the law create a new private right of action for whistleblowers who work for entities such as banks that provide “consumer financial products.”  Under the act, an entity may not retaliate against an employee for disclosing to the bank, to the newly-established Consumer Financial Protection Bureau (Bureau), or to any other state, local or federal government authority or law enforcement agency any act or omission the employee reasonably believes violates Title X of the bill or any other law that is subject to the jurisdiction of the Bureau.  Protected conduct also includes testifying in any proceeding under Title X, causing a proceeding under any federal consumer financial law, or objecting to or refusing to participate in any activity or task an employee reasonably believes violates a rule or law under the jurisdiction of the Bureau. Section 1002 provides that “consumer financial products” are those financial products offered or provided for use by consumers primarily for personal, family, or household purposes.  The Summary Report from the Senate also suggests that other products or services that are central to consumers are also included in this definition, such as the servicing of mortgage loans and debt collection services where the financial service being provided is the result of a contract between the lender and the servicer or debt collector. Under the act, a prevailing employee may be reinstated and paid both back pay and compensatory damages.  It is especially noteworthy that attorney fees, litigation costs, and witness fees may also have to be borne by the employer if the employee prevails, a fact that makes taking on such claims attractive to the plaintiff’s bar. In a somewhat unusual twist, the burden of proof favors the employee.  All an employee must do to win is to show by a preponderance of the evidence that the employee’s actions contributed to unfavorable action against the employee.  In other words, if the employee’s actions in any way contributed to negative action against the employee, the employer can only avoid liability by providing clear and convincing evidence that regardless of the employee’s conduct, the outcome would have been the same. Employers that don’t have a policy in place should consider adopting one that takes into account the provisions set forth in the new law, and, as a matter of good governance, encourage employees to step forward whenever potential violations may be occurring or about to occur.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

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