On August 3, 2018, the Federal Deposit Insurance Corporation (FDIC) published its final rule on proposed modifications to the Statement of Policy under Section 19 of the Federal Deposit Insurance Act (FDIA). Section 19 prohibits, without prior written consent from the FDIC, the employment of any person who has either been convicted of, or who has entered a pretrial diversion program (program entry) for, a crime involving dishonesty, breach of trust or money laundering.

The final rule contains certain modifications that are intended to expand the FDIC’s de minimis criteria, under which the FDIC’s written consent is not required.  Currently, a covered offense is deemed de minimis if: (1) there is only one conviction or program entry; (2) the offense was punishable by imprisonment for a term of one year or less and/or a fine of $2,500 or less and the individual served three days or less of jail time; (3) the conviction or program entry was entered at least five years prior to the application; and (4) the offense did not involve a bank or insured credit union.

Under the modified final rule, the definition of “jail time” has been expanded to include significant restraint on individual’s freedom of movement (including confinement to a facility) and additional de minimis exceptions have been added:

1. A conviction or program entry that occurred when the individual was 21 years of
age or younger;
2. Multiple conviction(s) or program entry(ies) for writing “bad” or insufficient funds
check(s) if there is no other conviction or program entry and the aggregate value
of all “bad” checks is $1,000 or less;
3. A conviction or program entry for small dollar, simple theft (less than $500);
4. A conviction or program entry for the use of a fake, false or altered form of
identification for the purpose of obtaining alcohol.

Awareness of the new Section 19 exclusions is significant because while FDIC institutions often apply Section 19 to disqualify applicants with criminal histories (as filing consent applications are neither a sure thing nor quick process), Section 19 generally conflicts with federal, state, and local anti-discrimination laws regarding the use of arrest or criminal history information as a basis to refuse employment. As a result, FDIC institutions must be careful and thorough in their application of Section 19. This is particularly important because the final rule expands the de minimis exceptions, which ostensibly was undertaken to bring Section 19 in line with such anti-discrimination laws.

As a result, although Section 19 may serve as the basis for a defense to a claim of hiring discrimination, the defense will be undermined if Section 19 was not properly applied.

In response to this rule, we recommend FDIC institutions review and update internal policies and to ensure Section 19 de minimis exceptions are properly taken into account when evaluating candidates for employment.

What do I do to comply with these “new” Rules? CowanPerry PC is available to discuss how these Rules apply to your business and what we can do to make sure your company policies are compliant with these changes. If you have any questions please contact, either Douglas W. Densmore, one of our Banking attorneys, at 540.777.3458 or e-mail ddensmore@cowanperry.com or Eric D. Chapman, one of our Labor and Employment attorneys, at 540.443.3861 or e-mail: echapman@cowanperry.com.