Congress Eases Criminal Offense Restrictions for Employment With Financial Institutions

Included in the defense spending bill signed by President Biden in December 2022 is a section with key provisions for financial institutions that will ease restrictions on hiring candidates with criminal records. Section 5705 in the National Defense Authorization Act (NDAA) for Fiscal Year 2023, titled “Fair Hiring in Banking,” further narrows convictions that would constitute a bar to employment under Section 19 of the Federal Deposit Insurance Act (FDIA) absent a written waiver by the Federal Deposit Insurance Corporation (FDIC). A representative for the FDIC confirmed that the changes are effective now and will be implemented by the FDIC in 2023.

Background

Section 19 generally prohibits any person who has been convicted of a crime of “dishonesty or a breach of trust or money laundering or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense” from working in banking without first obtaining written consent from the FDIC.

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. In July 2020, the FDIC issued a final rule that loosened the prohibitions in Section 19 by, among other things, expanding what are considered “de minimis” offenses and expanding the definition of “expungement” to include an order to seal a criminal record or a record relating to a pretrial diversion program.

Older Offenses

The Fair Hiring in Banking provisions go even further, providing that a waiver is not needed if it has been seven years or more since the offense occurred or if 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 need for a waiver also does not apply to conduct that an individual committed before the age of 21 and if it has been at least thirty months since the sentencing.

De Minimis Offenses

The provisions further permit the FDIC to exempt other “de minimis offenses” that they may determine by rule. Those rules must include a requirement that the offense “was punishable by a term of three years or less.” Applicable de minimis offenses may include offenses for writing bad checks so long as the aggregate value of all the bad checks is $2,000 or less. The FDIC may further designate other “lesser offenses” to be exempt if one year or more has passed since conviction, “including the use of a fake ID, shoplifting, trespass, fare evasion, driving with an expired license or tag, and such other low-risk offenses.”

Consent Applications

According to the provision, when reviewing an application to allow an individual with an applicable criminal conviction to work for a bank, the FDIC must make an “an individualized assessment.” This assessment must take “into account evidence of rehabilitation, the applicant’s age at the time of the conviction or program entry, the time that has elapsed since conviction or program entry, and the relationship of individual’s offense to the responsibilities of the applicable position.” They must further consider the individual’s employment history, letters of recommendation, and the completion of any substance abuse or job preparation programs.

Key Takeaways

The Fair Hiring in Banking provisions clear 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. Further, 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 burdensome consent review by the FDIC.

While the federal laws preempt conflicting state and local laws, the Fair Hiring in Banking provisions are in line with the growing number of jurisdictions across the country that have prohibited or limited consideration of job candidates’ criminal histories in the hiring process. Those measures, such as so-called ban-the-box laws, have been imposed in part to promote rehabilitation and concerns that considering criminal histories in hiring disproportionately affects individuals in protected classes.

Ogletree Deakins will continue to monitor developments related to the Fair Hiring in Banking provisions and will post updates on the Background Checks and Employment Law blogs as additional information becomes available. Additional information on federal and state background check requirements is available in the firm’s OD Comply: Background Checks subscription materials, which are updated and provided to OD Comply^™ subscribers as the law changes. Important information for employers is also available via the firm’s webinar and podcast programs.