On December 23, 2022, President Biden signed the “James M. Inhofe National Defense Authorization Act for Fiscal Year 2023” which, among many other things, amends Section 19 of the Federal Deposit Insurance Act, 12 U.S.C. Section 1829 (“FDIA”), to reduce hiring barriers across the financial services sector. The category of crimes for which an FDIC-insured financial institution can reject a job applicant or terminate an employee has been significantly narrowed.
Some background: Section 19 requires financial institutions to conduct criminal background checks on job candidates, regardless of whether state or local laws limit consideration of criminal histories in hiring. The Fair Hiring in Banking provisions remove some barriers for financial institutions to hire individuals who may have committed criminal offenses in the past but have since been rehabilitated, providing needed flexibility in hiring and recruitment. The provisions go beyond the 2020 FDIC rule changes by amending Section 19 of the FDIA to create exceptions to hire individuals convicted of certain criminal offenses without consent review by the FDIC.
The narrowing of the category of crimes for which an FDIC-insured financial institution can reject a job applicant or terminate an employee could potentially impact the background screening process for financial sector candidates in several ways.
First – and most importantly, the background screening process for candidates in financial services has become more complex because of the narrowed category of crimes. Previously, FDIC-insured financial institutions were able to consider a broad range of criminal offenses when evaluating job applicants or current employees. With the narrowing of the category of crimes, financial sector employers may need to be more careful and precise in their approach to background screening in order to ensure that they are complying with the new regulations.
Additionally, financial services employers may need to reevaluate their screening criteria in light of the new regulations. Depending on the nature of the crimes that have been excluded from the category of offenses for which an employer can reject a job applicant or terminate an employee, financial sector employers may need to adjust their screening criteria to ensure that they are not unfairly excluding qualified candidates or unfairly terminating current employees.
Financial sector employers may need to be more transparent with job applicants and current employees about the background screening process and the criteria that they use to evaluate candidates. With the narrowing of the category of crimes, it may be more important for financial sector employers to communicate clearly with candidates and employees about the background screening process and the criteria that they use to evaluate individuals. This can help to build trust and confidence among job applicants and current employees, and can also help to ensure that the screening process is fair and unbiased.
In today’s challenging labor market, FDIC-member banks and NCUA-insured credit unions may see some advantages in loosened restrictions on hiring individuals with criminal records. Being able to expand a possible hiring pool to candidates that were not previously qualified to work at an FDIC-insured financial institution broadens the talent pool and allows financial services companies to consider a wider range of candidates.
Financial institutions should review their policies, practices, and forms to ensure that, when scrutinizing applicants and employees, they consider the exclusion of certain older offenses and records of expungement, sealing, or dismissal.
Background screening firms like Cisive can help update your pre-employment screening program to meet your evolving needs. To support compliance, review your background screening policy regularly with legal counsel for regulatory changes that may affect your organization. Be sure to contact your background screening provider if your screening needs have changed in light of the amended law.
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