Dive Brief:

• The Federal Deposit Insurance Corporation proposed a rule to incorporate the Fair Hiring in Banking Act into its regulations. The proposal, published in the Federal Register Tuesday, would allow people formerly convicted of certain older or misdemeanor offenses to work for federally insured institutions without needing a consent application.
• The rule makes significant changes to the Federal Deposit Insurance Act, which, in part, governs who can work at the more than 4,600 FDIC-insured financial institutions in the U.S. FDIC estimated the rule will affect up to 76 financial institutions annually.
• The proposed rule follows the National Credit Union Administration Board’s proposal to adopt the Fair Hiring in Banking Act, along with the NCUA’s “Second Chance” interpretive policy statement, released last week.

Dive Insight:

The proposed revisions will make it easier for people with older or sealed convictions, simple misdemeanor drug possession convictions or people convicted of certain lesser offenses to seek employment at federally insured financial institutions without those institutions needing prior approval.

The rule marks a notable shift in prior policy by excluding simple drug possessions and intent to distribute. It also says that a misdemeanor criminal offense committed more than a year before an individual files a consent application, excluding any period of incarceration, will not be considered a “criminal offense involving dishonesty.” Previously, FDIC-insured institutions would need to submit a consent application for any convictions or pre-trial diversions involving controlled substances.

FDIC said its revisions will align its regulations with the FHBA and other banking regulators. The agency said the revisions also “continue to recognize that a drug-related offense could potentially involve dishonesty, breach of trust, or money laundering.”

The agency said the revisions don’t affect the ability to consider drug-related offenses “as they pertain to the suitability of an individual” and, as such, are governed by other statutes.

The rule’s exception for expungement, sealing and dismissal of convictions provides a two-pronged test for institutions or individuals who want to know if they would still need a consent application under the revised rule. 

For a conviction to be considered expunged, sealed or dismissed, which then would not require a consent application, it needs an “order of expungement, sealing, or dismissal that has been issued in regard to the conviction in connection with such offense.” It also must be clear from the order’s language that the issuing jurisdiction intended for the conviction to be destroyed or sealed from record, even if other legal exceptions allow the expunged records to be used for character evaluation purposes.   

FDIC received an average of nine bank-sponsored consent applications and 67 applications from individuals between 2020-22.

The agency said the revisions would reduce the number of applications that need to be filed and could potentially increase the amount of labor available.