The Federal Deposit Insurance Corporation (FDIC) announced on July 24 the approval of a final rule that will ease restrictions on banks’ hiring process for individuals with certain criminal offenses on their records. The final rule codifies and revises the current and longstanding FDIC Statement of Policy on this topic and will be effective 30 days after its publication in the Federal Register.
Section 19 of the Federal Deposit Insurance Act prohibits, without the FDIC’s prior consent, any person from being affiliated with, or participating in the affairs of, an insured depository institution who has been convicted of a crime of dishonesty or breach of trust or money laundering, or who has entered a pretrial diversion or similar program in connection with the prosecution of such an offense. The FDIC’s final rule makes some useful and burden-reducing changes to current FDIC policies and practices:
- Under the final rule, all individuals whose covered offenses have been expunged—rather than only certain types of expungements—will be exempt from submitting an application to the FDIC.
- The final rule also revises the de minimis exception in several ways (note, however, that offenses that are subject to the 10-year prohibition period in subsection 19(a)(2) will not qualify for the de minimis exception):
- It expands the scope of the de minimis exception for certain qualifying offenses involving the use or possession of false or fake identification by persons under the age of 21.
- It eliminates the waiting periods for applicants who have had only one qualifying covered offense.
- It allows a person with two, rather than one, de minimis crimes to qualify for the de minimis exception, and decreases the waiting period for individuals with two such offenses to three years (or 18 months for those who were 21 years or younger at the time of their misconduct).
- It increases the de minimis threshold for small-dollar, simple thefts from $500 to $1,000.
- The final rule addresses Section 19 application procedures. It clarifies when and how an application must be filed, the application types available, and how the FDIC will evaluate an application. In addition, the final rule also formalizes the process for denials of applications and the required one-year waiting period for refiling of applications that have previously been denied.
According to the FDIC, the final rule promotes key public policy objectives by reducing barriers for individuals who have paid their debt to society and reformed their conduct and who may wish to gain employment with a financial institution, while at the same time protecting the integrity of the banking system. The FDIC also says that the final rule enhances transparency and accountability, and reduces regulatory burden for financial institutions and individuals. These changes will narrow the circumstances under which the FDIC’s written consent is required for a financial institution to hire individuals with minor criminal offenses. In turn, the FDIC expects that the number of applications for relief from the Section 19 prohibitions will be reduced. As FDIC Chairman Jelena McWilliams stated: “Since the beginning of 2017, the FDIC has approved every Section 19 application that would qualify for relief under the final rule without controversy.”