Washington, D.C. – Bank Policy Institute (BPI) yesterday submitted recommendations to the Federal Deposit Insurance Corporation (FDIC) in response to a request for public comment pertaining to Section 19 of the Federal Deposit Insurance Act. Section 19 prohibits, without the FDIC’s prior written consent, a financial institution from hiring any individual who will participate in the conduct of the affairs of a bank if that individual was convicted of a crime involving dishonesty, breach of trust or money laundering, or entered a pretrial diversion program as a result of these crimes. The FDIC may grant waivers to individual candidates and has established a category of de minimis offenses for which such a waiver is deemed to be automatically granted without an application. In practice, due to individuals’ reluctance to submit applications as well as the uncertainty associated with waiting for the FDIC’s decision, qualified candidates who do not meet the de minimis criteria are often unable to take advantage of employment opportunities in the banking sector. BPI’s letter supports the statue’s intent to promote banks’ safety and soundness but recommends that the means to achieve these ends be appropriately calibrated so as not to act as an overly-restrictive bar that would preclude highly-qualified candidates from employment.
“In setting its policies related to Section 19, the FDIC has rightly recognized that it doesn’t make sense to disqualify people from working in the banking industry if they’ve committed minor crimes in the past; they deserve a second chance,” stated BPI CEO Greg Baer. “Our recommendations would provide more of these individuals the opportunity to pursue a career in the banking industry.”
In the letter, BPI recommends four improvements to the FDIC’s existing policies that would preserve the intent of the statute while expanding banks’ ability to hire:
- The FDIC should clarify that what constitutes “reasonable inquiry” may vary depending upon the size, complexity and resources of the bank, and should further clarify that some banks may reasonably conclude that subjecting applicants to a fingerprint background check is a necessary element of a process that constitutes a “reasonable inquiry.” Banks are required to conduct a “reasonable inquiry” of candidates for purposes of complying with Section 19, but the FDIC’s practical expectations are unclear due to variations of a bank’s size, complexity and resources.
- The scope of de minimis exceptions from the application requirement should be adjusted to expand employment opportunities. Those who have committed minor crimes resulting in fewer than 30 days in jail or those who have committed a petty theft valued at less than $1,000 should be eligible for automatic consent from the FDIC, and the FDIC should clarify what constitutes a “reasonable inquiry” when official court records failed to adequately record the history or dollar value of the crime.
- The FDIC should modify the definition of “complete expungement” to apply to situations where official criminal offense records have been made non-public, such as in cases where an individual’s records have been sealed under state law.
- The FDIC should encourage individuals to submit waiver applications by streamlining the process, making the information and resources relating to the application process more readily accessible and shortening the application processing time.
The letter also recommends that the FDIC commit to a periodic re-evaluation and empirical analysis of the rule’s effects on individuals and banks. These modest but important changes would expand access to employment in the banking sector while remaining consistent with the statute and appropriate safety and soundness goals.
About the Bank Policy Institute. The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.
Follow us on Twitter @BankPolicy and www.bpi.com and subscribe to our BPInsights weekly newsletter (at the bottom of our homepage), which summarizes our latest research, comment letters, and blog posts, and links to notable developments of the week.