FDIC Issues Final Rule Allowing Individuals with Minor Criminal Offenses Greater Access to Employment Opportunities in the Banking Industry

August 17, 2020 | Shannon Shoemaker

On July 24, 2020, the Federal Deposit Insurance Corporation (FDIC) approved a final rule that will narrow the scope of criminal offenses that require an individual to go through the Section 19 application process to obtain written consent from the FDIC before they may work in the banking industry. The final rule will take effect 30 days after it is published in the Federal Register.

Under Section 19 of the Federal Deposit Insurance Act (FDIA), banks are prohibited from hiring, without the prior written consent of the FDIC, any person who has been convicted of a crime involving dishonesty, breach of trust, or money laundering, or who has agreed to enter into a pretrial diversion or similar program in connection with the prosecution for such an offense.

The final rule codifies, with some changes, the FDIC’s Statement of Policy (SOP) which has been in place for the past 20 years. Changes to be made by the final rule include:

    • Excluding all offenses that have been expunged or sealed (under the SOP only certain types of expungements were excluded);
    • Allowing a person with two minor “de minimis” crimes on a criminal record—not including crimes against insured depository institutions and credit unions—to qualify for the de minimis exception (under the SOP only a person with one de minimis crime was excepted);
    • Eliminating the five-year waiting period following a first de minimis conviction and establish a three-year waiting period following a second de minimis conviction (or 18 months for individuals whose misconduct occurred when they were 21 or younger);
    • Increasing the de minimis threshold for small-dollar, simple thefts from $500 to $1,000; and
    • Expanding the de minimis exception for crimes involving the use of false identification to circumvent age-based restrictions from only alcohol-related crimes to any such crimes related to purchases, activities, or premises entry.

 

The Final Rule also makes revisions to procedures for applying for an exception to Section 19 and the procedures for hearings in the event that requests for exceptions are denied.

The FDIC expects the final rule will reduce Section 19 applications for FDIC consent by 30%, reducing regulatory burden on financial institutions and individuals. FDIC Chairman Jelena McWilliams said in a statement accompanying the announcement of the final rule, “Since the beginning of 2017, the FDIC has approved every Section 19 application that would qualify for relief under the final rule without controversy.”

The FDIC believes the regulation will reduce 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 believes that the changes will enhance transparency and accountability while reducing regulatory burden for financial institutions and individuals by narrowing the circumstances under which the FDIC’s written consent is required for a financial institution to hire individuals with minor criminal offenses.

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