FDIC plan would make it easier for banks to hire ex-cons

WASHINGTON — The Federal Deposit Insurance Corp. Tuesday voted unanimously to issue a proposal that would codify the agency’s longstanding guidance allowing applicants with minor criminal records to work in the banking industry.

Under the Federal Deposit Insurance Act of 1950 — a revision of the original 1933 law that created the agency — an individual “convicted of any criminal offense involving dishonesty, breach of trust, or money laundering" is banned from "participating, directly or indirectly, in the conduct of the affairs of any insured depository institution” without prior written consent from the FDIC.

But while the purpose of the law is meant to bar those guilty of violating public trust from operating in the banking industry, FDIC Chair Jelena McWilliams said that the breadth of the ban has made it difficult for those guilty of minor criminal offenses — or even those who have not been convicted — from obtaining gainful employment in the banking industry.

“Since joining the FDIC, I have heard a number of stories about individuals that have committed minor criminal violations when they were young [being] barred from banking ever since,” McWilliams said. “Civil rights organizations, financial institutions, civic organizations, faith-based organizations and numerous individuals have come forward to discuss the need to reform Section 19.”

FDIC member and former chairman Martin Gruenberg concurred with the need for the move, saying in his comments that he is “supportive of this [proposed rule]” and he thinks the agency “would benefit greatly from robust comment on it.”

Andrew Harrer/Bloomberg

The FDIC’s existing guidance was first developed in 1998 to clarify what kinds of convictions are covered by Section 19, and that guidance has been revisited on four occasions since then, most recently in July 2018.

In its guidance, the FDIC outlines the kinds of convictions and circumstances that would warrant an automatic exemption from Section 19 restrictions. Among those circumstances covered by the de minimis provision are single convictions; convictions punishable by less than one year in prison and/or a $2,500 fine; convictions related to bad checks under certain circumstances; convictions related to the presentation of false or altered identification by individuals under the age of 21 under certain circumstances.

The FDIC board will invite comment on the entire guidance-turned-regulation for 60 days from publication in the Federal Register, with particular questions on the potential expansion of the de minimis provision to consider convictions that have been expunged and the applicability of Section 19 to convictions related to altered or false identification.

Several banks have been vocal about the need for Section 19 reform, including JPMorgan Chase, which last month announced the formation of a policy initiative aimed at creating opportunities for rehabilitating convicts and a pilot program in Chicago to bring former convicts into its own workforce.

“Giving more people a second chance allows businesses to step up and do their part to reduce recidivism, hire talented workers, and strengthen the economy,” JPMorgan Chase Chairman and CEO Jamie Dimon said in a statement announcing the program.

During the meeting, the FDIC separately issued a proposal that attempts to address a court ruling in the Madden v. Midland Funding case which poses legal challenges for institutions transferring debts to third parties. The court ruled that a usury law in the buyer's state can apply.

To bypass that restriction, the FDIC issued a proposal that clarifies when a bank sells a loan, the same interest rate can survive to both ends of the transaction. The Office of the Comptroller of the Currency issued a similar proposal on Monday.