Final rule narrows conditions under which prior consent required to hire workers with minor criminal offenses

A rule narrowing the conditions for required written consent from the regulator to hire individuals with minor criminal offenses on their records was unanimously approved by the board of the federal insurer of bank deposits and released Friday.

Under the final rule, the Federal Deposit Insurance Corp.’s (FDIC) statement of policy on Section 19 of the Federal Deposit Insurance Act (FDIA) will be revised and codified. That section prohibits, without the agency’s consent, any person from working in banking 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 agency said that the final rule exempts all individuals whose covered offenses have been expunged from their records from submitting an application for consent from the FDIC to work in a financial institution again (the de minimis exception). The FDIC said an analysis of applications received from Jan. 1, 2017, through April 30, 2020, found that the change would have reduced the number of applications by approximately 10%.

Additionally, the FDIC said, its new rule:

  • Expands the scope of the de minimis exception for certain qualifying offenses involving the use or possession of false or fake identification, as well as for small-dollar, simple theft offenses;
  • Eliminates the waiting periods for applicants who have had only one qualifying covered offense; and
  • 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).

In separate statements, FDIC Chairman Jelena McWilliams and Board Member Martin Gruenberg said they supported the new 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,” 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.”

McWilliams also asserted that the rule supports ongoing efforts among the federal financial regulators to address the role of supervisory guidance compared to notice-and-comment rulemakings. She said given the consequences of barring individuals from participating in the banking industry, it is sound public policy to codify the Section 19 policy statement through a formal rulemaking.

Gruenberg said the objective of the rule is to expand employment opportunities in the banking industry consistent with the underlying requirements of the statute. However, he urged future vigilance. “It will be important for the FDIC to review periodically the impact of codifying the Section 19 policy and consider further changes as experience warrants,” he said.

The rule takes effect 30 days after publication in the Federal Register.

FDIC Issues Final Rule Revising and Codifying Section 19 to Allow Greater Employment Opportunities for Individuals with Certain Minor Criminal Offenses on Their Records