New Rule Allows Banks to Hire More People with Criminal Records

Roy Maurer By Roy Maurer August 17, 2020
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​Banking employers can more easily hire job candidates with minor criminal records under a new rule issued by the Federal Deposit Insurance Corporation (FDIC).

The rule, which goes into effect Aug. 23, codifies internal standard operating procedure at the financial insurance agency.

Under Section 19 of the Federal Deposit Insurance Act, FDIC-insured banks are prohibited from hiring any person who has been convicted of a crime involving "dishonesty, breach of trust, or money laundering," unless they obtain consent from the FDIC. The new rule limits the instances in which a bank would have to get that written approval.

"The changes narrow the scope of crimes subject to Section 19, enabling more individuals to work for banks without going through the Section 19 application process, without increasing risk to the Deposit Insurance Fund," FDIC Chairwoman Jelena McWilliams said. "While not major in scope, the changes in the final rule will have a major impact on individuals who no longer need to obtain written consent from the FDIC in order to work for a bank."

The FDIC expects the new rule will reduce the regulatory burden on financial institutions and job candidates. The agency receives roughly 100 waiver applications annually, and the rule change could cut that number by around 30 percent, McWilliams said.

"Many FDIC-member banks are likely to be pleased with the further loosening of Section 19 restrictions on hiring employees with criminal records," said Jonathan Shapiro, co-chair of the Financial Services Industry Group at Littler in New York City.

It's been unusual that the agency's guidance on Section 19 has been implemented internally but not in its published regulations, Shapiro said. Incorporating that internal procedure into the FDIC's regulations will make the process more transparent and readily accessible, and increase certainty concerning the application process, he said.

Shapiro added that banking employers should also be aware that the rule narrows the regulatory safe harbor that has allowed member banks to easily disqualify, with minimal legal risk, applicants and employees who have been convicted of a covered offense.

Rule Changes

Specifically, the final rule:

  • Excludes all offenses that have been expunged or sealed rather than only certain types of expungements. "This change will be very beneficial to FDIC-member banks since, until now, it has been unclear whether certain expungements under state law qualify for the exemption from the Section 19 prohibition," Shapiro said.
  • Allows a person with two, rather than one, "de minimis" crimes to qualify for the de minimis exception. De minimis in this case means crimes deemed minor or insignificant.
  • Eliminates the five-year waiting period following a first de minimis conviction and establishes a three-year waiting period following a second de minimis conviction. "With this change, certain very recent convictions for minor crimes will automatically be considered de minimis, and not disqualifying, and therefore outside a bank's regulatory safe harbor," Shapiro said.
  • Increases the de minimis threshold for small-dollar, simple thefts from $500 to $1,000.

Shapiro advised FDIC-member banks modify their policies, practices and forms to ensure that the expanded Section 19 de minimis exceptions and clarified definitions are considered when reviewing job applicants.

The Big Picture

The number of Americans with criminal records makes second-chance hiring vitally important, said Lauren-Brooke Eisen, director of the Justice Program at the Brennan Center for Justice at New York University School of Law in New York City.

Overall, 77 million people have criminal records in the United States, according to the FBI. "People with a criminal record face a number of challenges getting a job, from suspicious employers to rules that prevent them from obtaining occupational licenses," Eisen said. "There are over 45,000 state laws and regulations that impose negative consequences on those who have been convicted of a crime, creating barriers to reintegrating into society. Thankfully, industry leaders and politicians have started to expand hiring opportunities for people with a criminal record."

Eisen said that the FDIC rule is a good first step, but encouraged the agency to "more proactively expand job opportunities for people with a record," including further expanding the de minimis exceptions and ensuring that individuals with criminal and civil fee and fine debt are not unfairly barred from employment at FDIC-insured banks.

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