More than two dozen organizations dedicated to improving employment opportunities for people with a criminal record have written to the FDIC urging that it give regulated financial institutions greater latitude to hire qualified people without having to ask the FDIC’s permission.  The occasion is the FDIC’s proposal to reduce to a formal rule its longstanding policy on employment of convicted individuals by banks, a proposal that suggests the FDIC may be open to giving banks more hiring autonomy by relaxing several controversial provisions.  For 20 years, the FDIC has kept a tight grip on banks, requiring them to obtain a waiver before they may hire anyone with a record even in an entry-level non-professional position.  In operation, this policy has been an effective bar to bank employment for most people with a conviction record (and even for some who have never been convicted).

The letter, organized by the National Employment Law Project and the Leadership Conference on Civil and Human Rights, points out that FDIC’s exclusionary policy is not required by its enabling statute, and urges the agency to bring its policy on hiring waivers into line with national efforts to further reintegration, in several different ways, some of which are discussed below.  The letter cites the bipartisan federal Fair Chance Act and corresponding reforms in states across the country (as reported by CCRC), as well as many letters from bank industry leaders urging the FDIC to relax its rigid policy that has frustrated efforts to diversify the financial sector’s work force.

The comment below provides some background for the FDIC’s proposal, and comments on where some relaxation of its present policy is likely.  It concludes with a note about the generally confusing and inconsistent treatment of state relief mechanisms like expungement and pardon in federal laws and regulations, suggesting that this is an area sorely in need of further study and proposals for reform.

For background, Section 19 of the Federal Deposit Insurance Act prohibits people who have been convicted of a “crime of dishonesty, breach of trust, or money laundering” or other specified financial crimes from working in a bank or other “insured depository institution” without the “prior written consent” of the FDIC.  12 U.S.C. § 1829(a).  The requirement of FDIC approval extends not only to convicted persons, but also to any person who has “agreed to enter into a pretrial diversion or similar program in connection with the prosecution for such offense.”  § 1829(a)(1)(A)(i).

Since the 1990’s, the FDIC has by policy defined very broadly the category of crimes requiring it to issue a waiver (even anomalously including illegal sale of drugs in this category).  It has extended its waiver requirement to pre-trial diversion or similar diversionary dispositions (as the statute itself appears to require), as well as to convictions that have been pardoned, set-aside, or sealed.  It has also narrowly defined the category of “de minimis” offenses that it excepts from the waiver requirement, and even as to these offenses it requires a five-year waiting period before a waiver may be sought.  The FDIC also excepts convictions that have been “completely expunged,” but its definition of offenses falling into this category (that they may not be used by the state for any purpose, including even in subsequent prosecutions) excludes many if not most state expungements.

Moreover, the FDIC has not made it easy to obtain a waiver, effectively limiting waivers to situations where a bank itself is willing to go to bat for a potential employee.  In the past 12 years, only about 1200 waiver applications have even been filed, and only about half of these were approved.  While any individual interested in working for a bank may in theory apply to the FDIC for a waiver, almost the only waivers granted are to applicants who are sponsored by a bank.  In practice, this means that a recent MBA recipient being recruited as a loan officer trainee in a bank’s mortgage department may succeed in getting a waiver, but a person seeking employment as a teller or receptionist may not.  Avoiding the need to secure a waiver from a distant federal bureaucracy in order to qualify for bank employment is therefore of paramount importance to anyone interested in an entry-level professional or non-professional bank job, because they cannot ordinarily count on the bank’s running interference for them with the FDIC.

Therefore, the organizations’ letter urges the FDIC to narrow the category of criminal records that preclude bank employment without FDIC permission, and to streamline the waiver process both for banks and individuals, in several ways.  Notably, the letter addresses at length two issues on which the FDIC specifically sought comment.  First, as to whether the agency should impose time limits for considering various types of convictions, the letter recommends excluding from the waiver requirement cases where  at least 7 years have elapsed since conviction, or 5 years since release from incarceration—and sooner for offenses committed at age 21 or younger.  Second, as to whether the agency should modify its “complete expungement” policy, the letter recommends that the agency recognize all expungements and sealings, as well as convictions that have been set aside or dismissed.  The letter also urges the FDIC to more narrowly define “dishonesty” offenses requiring a waiver, expand the exception for drug offenses, and limit consideration of diversionary dispositions, among other recommendations.

Over the years since the FDIC originally issued its policy in 1998, it has repeatedly declined to make any significant changes.  The history of the FDIC’s successive revisions to the policy, which is rehearsed in its present proposal, shows the agency stubbornly resisting calls from the banking industry itself for relaxation of its employment bars and waiver rules.  For example, in 2018 the FDIC declined to abandon the five-year waiting period for those convicted of de minimis crimes (itself a vanishingly small category), and refused to relax its grip on pretrial diversionary dispositions specifically intended by states to avoid collateral consequences.  The FDIC has also turned a deaf ear to calls to incorporate relief mechanisms provided by state law, and has defined both of its exceptions (for de minimis crimes and expunged convictions) in such a narrow way that very few can take advantage of them.

One may hope that this time will be different, and that the range of convictions requiring a waiver will be significantly reduced.  Expansion of the de minimis category and incorporation of a “look-back” or “wash-out” period for older convictions seem the two most likely changes, though the inclusion of drug sales in the category of crimes of dishonesty also seems ripe for reconsideration.  While the FDIC may be unwilling to back away from its policy on diversionary dispositions since the statute itself appears to specifically cover them, or expand the narrow definition of expungement that is subscribed to by so many other federal agencies, the letter helpfully points out why Congress should amend these aspects of the law, which so clearly run against the present tide of bipartisan reforms.

NOTE:  The FDIC’s definition of “complete expungement,” discussed above, so completely ignores the actual effect of state record relief laws that it has encouraged us to take a look at the way different federal laws and regulations incorporate state relief mechanisms like expungement and pardon.  This has not been a subject of close examination by Congress for more than thirty years, since its 1986 amendment of the Federal Firearms Act to recognize state relief in the wake of the Supreme Court’s 1983 decision in Dickerson v. New Banner Institute, 460 U.S. 103 (1983), which upheld a federal “felon in possession” conviction based on a guilty plea that had been expunged under Iowa law.  Despite Congress’ specific intent to give effect to state relief in firearms prosecutions (or perhaps because of it), since then federal agencies have gone their separate ways in recognizing state relief, with some giving effect to pardon but not expungement (HUD, ICE), some going in the opposite direction (U.S. Sentencing Commission, FDIC), and some recognizing both (TSA).  Even where federal agencies recognize expungement, they define it so narrowly that most state laws would not qualify.

We believe that the confusing and inconsistent approach by federal agencies to state record relief merits a closer analysis, which we plan to undertake in the future, if only to clarify terminology.  In the meantime, we have revised the Federal profile in the Restoration of Rights Project to include a detailed discussion of the various ways that federal law recognizes state relief, from firearms dispossession to deportation.