Under Section 19 of the Federal Deposit Insurance Act (FDIA), financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) must conduct criminal background checks on job candidates, regardless of state and local laws that restrict hiring decisions based on criminal backgrounds. Section 19 also prevents financial institutions from hiring candidates who have been convicted of crimes involving “dishonesty, breach of trust, or money laundering” without obtaining a written waiver from the FDIC.
In 2020, the FDIC eased these restrictions by expanding what it considers “de minimis” and “expunged” offenses, which are exempt from needing FDIC approval.
Now, Section 5705 of the National Defense Authorization Act (NDAA) for Fiscal year 2023, titled “Fair Hiring in Banking” further expands the types of convictions that do not require FDIC approval.
Specifically, an FDIC waiver is not required to employ an individual with a conviction involving dishonesty, breach of trust, or money laundering if:
- It has been 7 or more years since the offense occurred,
- The individual was incarcerated for the offense, and it has been at least 5 years since their release,
- The individual committed the offense when they were 21 years old or younger, and it has been at least 30 months the since the sentencing,
- The conviction has been expunged, sealed, or dismissed,
- The offense was punishable by a term of three years or less and the FDIC determines by rule that the offense is de minimis, or
- The FDIC designates it as a lesser offense (including the use of a fake ID, shoplifting, trespass, fare evasion, driving with an expired license or tag, and such other low-risk offenses as the Corporation may designate) and 1 year or more has passed since the applicable conviction or program entry.
The provisions also require the FDIC to perform an “individualized assessment” when reviewing waiver applicants and 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” and “employment history, letters of recommendation and the completion of any substance abuse or job preparation programs.”
The Fair Hiring in Banking provisions remove some barriers to employment for applicants with these criminal backgrounds, and reduce the administrative burden on financial institutions seeking to hire them.
Employers in the finance and banking industry should review these provisions closely and adjust hiring protocol accordingly to ensure compliance, as they narrow FDIC-insured banks’ ability to disqualify applicants convicted of covered offenses with minimal legal risk.
