The FHBA, which became effective on December 23, 2022, introduces important revisions to Section 19 and Section 205(d), creating exemptions for individuals with certain criminal offenses from the hiring restrictions previously imposed on FDIC-insured banks and NCUA-insured credit unions. These changes will take full effect on October 1, 2024, and have been previously written about in our March 2023 White Paper titled Fair Hiring in Banking - Important Amendments to Background Checks in the Banking Industry.

Previously, Section 19 prohibited a person convicted of any criminal offense involving dishonesty, breach of trust, or money laundering from participating in the affairs of an FDIC-insured depository institution without prior written consent from the FDIC. The updated regulations will provide broader opportunities for individuals with criminal backgrounds to participate in the banking industry, with specific exceptions for:

• Older offenses (seven or more years since the offense, or five years post-incarceration).
• Offenses committed by individuals aged 21 or younger, if more than 30 months have passed since sentencing.
• Offenses that have been expunged, sealed, or dismissed.
• Designated lesser offenses such as shoplifting, trespassing, and driving with expired licenses, if one year has passed since conviction or program entry.
• Misdemeanor offenses involving dishonesty committed more than one year before filing a consent application with the FDIC.
• Criminal offenses involving dishonesty that also involve the possession of controlled substances.

The final rule largely aligns with the proposed rule, following a period of public comment, and reinforces compliance requirements for insured financial institutions. Banks and credit unions must conduct a "reasonable, documented inquiry" to ensure that individuals with covered offenses are not hired, with penalties for violations reaching up to $1,000,000 per day.

Additional details regarding these updated regulations can be found in this Littler article on FDIC Section 19 updates.

FDIC-insured institutions must review and update their applicant screening and adjudication policies to ensure compliance by October 1, 2024.

Posted: September 9, 2024

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