Hiring Restrictions Loosened for Banks

​Banks and credit unions may need to modify their hiring protocols in light of a new federal law that relaxes restrictions on financial institutions hiring people with criminal histories.

The fair hiring in banking provisions were included in the James M. Inhofe National Defense Authorization Act for Fiscal Year 2023, which President Joe Biden signed on Dec. 23, 2022.

Under Section 19 of the Federal Deposit Insurance Act, banks and credit unions generally cannot hire a person convicted of any crime involving dishonesty, breach of trust or money laundering.

However, under the new provisions, these restrictions no longer apply if:

• There is an order of expungement, sealing or dismissal in regard to the person's conviction.
• It has been seven years or more since the offense occurred.
• The individual was incarcerated with respect to the offense, and it has been five years or more since the individual was released from incarceration.
• The person was 21 years old or younger when they committed the offense.

The new law also expands the list of lower-risk crimes that are exempted from the hiring restrictions. The exemptions now include:

• Offenses that were punishable by three years or less in prison.
• Writing insufficient-fund checks valued at $2,000 or less.
• Lesser offenses, like the use of a fake ID, shoplifting, trespass, fare evasion or driving with an expired license or tag, if at least one year has passed since the conviction.

The new law defines the term "criminal offense involving dishonesty" as a crime in which a person cheats, defrauds or wrongfully takes property belonging to someone else. It does not include drug possession or misdemeanors committed more than one year before the date on which an individual files a consent application.

Practical Steps

In light of the new rules, "banks and credit unions should assess their existing policies, procedures and decision matrices to ensure that they do not automatically exclude candidates who no longer need to be automatically excluded," said Scott Paler, an attorney with DeWitt in Madison, Wis. "If federal law no longer requires an employer to automatically disqualify a candidate, the employer will no longer enjoy a free pass to reject the candidate. It may face fresh exposure under state or local law if it does."

"The new standards will require a change in standards, forms, etc., and will take some time to get used to, but fewer candidates will be disqualified," said Jonathan Shapiro, an attorney with Littler in New York City. "Over time, once impacted employers have revised their standards and get used to applying the new standards, the adjudication process should get easier."

Banks and credit unions must revisit their hiring criteria and meaningfully engage in individualized assessments before disqualifying applicants based on criminal history, said Richard Millisor, an attorney with Fisher Phillips in Cleveland. "Such an individualized assessment should include evidence of rehabilitation, age at the time of conviction, time elapsed from the conviction, relationship of the offense to the responsibilities of the job, subsequent employment history and other relevant mitigating evidence," he said.

For banks and credit unions trying to fill lots of open positions, the looser hiring rules may be helpful.

"While the new law may be welcome relief for banks and credit unions for hiring otherwise qualified applicants in a tight job market that were previously disqualified from considering, the new law, counterintuitively, will create another level of complexity—or at least diligence—to applicant screening and onboarding for banks and credit unions," Millisor said.

"It will certainly position employers to hire a few more applicants than before," Paler said. "However, for employers that prefer to err on the side of disqualifying candidates with criminal history, this rule change will likely make the screening process more uncertain, more protracted and more risky."

State Laws

The biggest risk would likely arise in jurisdictions that have Fair Chance Acts or ban-the-box laws that limit the type of criminal history information employers can consider, Paler noted. At least 12 states and Washington, D.C., have laws that prohibit private employers from asking questions about criminal convictions or arrest records on job applications, according to the National Conference of State Legislatures.

"A growing number of municipalities and states have adopted so-called fair chance laws that may preclude considering expunged, sealed or dismissed criminal records from hiring decisions, or at a minimum, mandate various individualized assessments before disqualifying candidates based on such records," Millisor said.

"The regulatory safe harbor for banks and credit unions has now shrunk, so they need to make sure that they evaluate state and local restrictions before disqualifying a candidate," Shapiro said.

Employers should consider additional training for their HR and recruiting teams "to ensure they are up to speed on state and local laws dealing with criminal histories," said Kelly Cardin, an attorney with Ogletree Deakins in New York City.