Seyfarth Synopsis: On August 3, 2018, the FDIC published its final rule on modifications to the Statement of Policy for Section 19 in an attempt to reduce the number of low risk criminal offenses that result in preclusion of individuals who wish to work for or be engaged by an FDIC-insured financial institution (unless they obtain the written consent of the FDIC).
Section 19 of the Federal Deposit Insurance Act (12 U.S.C. Section 1829) (“Section 19”) prohibits, without the prior written consent of the Federal Deposit Insurance Corporation (the “FDIC), a person convicted of any criminal offense involving dishonesty or breach of trust or money laundering (covered offenses), or who has agreed to enter into a pretrial diversion or similar program (program entry) in connection with a prosecution for such offense, from becoming or continuing as an institution-affiliated party, owning or controlling, directly or indirectly an insured depository institution (insured institution), or otherwise participating, directly or indirectly, in the conduct of the affairs of the insured institution. In addition, the law forbids an insured institution from permitting such a person to engage in any conduct or to continue any relationship prohibited by Section 19.
Section 19 applies, by operation of law, as a statutory bar to participation absent the written consent of the FDIC. Approval is automatically granted and an application will not be required where the covered offense is considered de minimis, because it meets all of the following criteria: (i) There is only one conviction or program entry of record for a covered offense; (ii) 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 (3) days or less of jail time1; (iii) The conviction or program was entered at least five years prior to the date an application would otherwise be required; and; (iv) The offense did not involve an insured depository institution or insured credit union.
Modifications to the Statement of Policy
The FDIC has published its Final Rule on modifications to the Statement of Policy (“SOP”) for Section 19, which took effect on July 19, 2018. The Final Rule includes the following additional applications of the de minimis offenses exception to filing:
- Age at time of covered offense: If the actions that resulted in a covered conviction/program entry of record occurred when an individual was 21 years of age or younger, then the subsequent conviction/program entry meets de minimis criteria. NOTE: The conviction/program entry must have been entered into at least 30 months prior to the date an application would otherwise be required and all sentencing or program requirements must have been met.
- Convictions/program entry for insufficient funds checks: Convictions/program entries of record based on the writing of insufficient funds check(s) will be considered de minimis and will not be considered as having involved an insured depository institution as long as there is no other conviction/program entry subject to Section 19 and the aggregate total face value cited across all the conviction(s)/program entr(ies) is $1,000 or less AND no insured depository institution or insured credit union was a payee on any of the insufficient funds check that were the basis of the conviction(s)/program entr(ies).
- Convictions/program entry for small-dollar, simple theft:2 A conviction/program entry based on a simple theft of goods, services and/or currency where the aggregate value taken was $500 or less will be considered de minimis where the individual has no other conviction/program entry subject to Section 19 AND it has been 5 years since the conviction/program entry AND there is no involvement of an insured financial institution or insured credit union.
- Convictions/program entries for the use of a fake, false, or altered identification card: A conviction/program entry for the use of a fake, false, or altered identification card used by an individual under the legal age for the purpose of obtaining/purchasing alcohol, or used for the purpose of entering a premise where alcohol is served but for which age appropriate identification is required, shall be considered de minimis as long as there is no other conviction/program entry subject to Section 19.
The FDIC also expressly clarified that FDIC-insured institutions may extend conditional offers of employment contingent upon successful background checks and Section 19 screening.
Outlook for FDIC-Insured Institutions
FDIC-insured institutions should review their policies and practices to ensure consideration of new (as well as existing) de minimis exceptions when assessing candidates under Section 19.
1 The FDIC considers jail time to include any significant restraint on an individual’s freedom of movement which includes confinement to a specific facility/building on a continuous basis where the individual may leave temporarily only to perform specific functions or during specified time periods (or both). “Jail time” does not include those on probation or parole who may be restricted to a particular jurisdiction, or who must report to an individual or a specified location periodically.
2 Simple theft excludes burglary, forgery, robbery, identity theft, and fraud.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.