Exceptions to Employment Restrictions Under Section 205(d) of the Federal Credit Union Act (“Second Chance IRPS”), 36488-36501 [2019-15706]

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It is DOE’s policy that all comments may be included in the public docket, without change and as received, including any personal information provided in the comments (except information deemed to be exempt from public disclosure). DOE considers public participation to be a very important part of the process for developing energy conservation standards. DOE actively encourages the participation and interaction of the public during the comment period in each stage of the rulemaking process. Interactions with and between members of the public provide a balanced discussion of the issues and assist DOE in the rulemaking process. Anyone who wishes to be added to the DOE mailing list to receive future notices and information about this process or would like to request a public meeting should contact Appliance and Equipment Standards Program staff at (202) 287– 1445 or via email at ApplianceStandardsQuestions@ ee.doe.gov. Signed in Washington, DC, on July 22, 2019. Daniel R. Simmons, Assistant Secretary, Energy Efficiency and Renewable Energy. [FR Doc. 2019–16048 Filed 7–26–19; 8:45 am] BILLING CODE 6450–01–P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Chapter VII RIN 3133–AF02 Exceptions to Employment Restrictions Under Section 205(d) of the Federal Credit Union Act (‘‘Second Chance IRPS’’) National Credit Union Administration (NCUA). ACTION: Proposed interpretive ruling and policy statement 19–1. AGENCY: The NCUA Board (Board) is issuing for public comment a proposal to update and revise its Interpretive Ruling and Policy Statement (IRPS) regarding statutory prohibitions imposed by Section 205(d) of the Federal Credit Union Act (FCU Act). Section 205(d) prohibits, except with the prior written consent of the Board, any person who has been convicted of any criminal offense involving SUMMARY: PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 dishonesty or breach of trust, or who has entered into a pretrial diversion or similar program in connection with a prosecution for such offense, from participating in the affairs of an insured credit union. Based on its experience with IRPS 08–1 since its issuance in 2008, the Board is proposing to rescind current IRPS 08–1 and to issue a revised and updated IRPS to reduce regulatory burden. The Board is proposing to amend and expand the current de minimis exception to reduce the scope and number of offenses that would require an application to the Board. Specifically, the proposed IRPS would not require an application for insufficient funds checks of aggregate moderate value, small dollar simple theft, false identification, simple drug possession, and isolated minor offenses committed by covered persons as young adults. DATES: Comments must be received on or before September 27, 2019. ADDRESSES: You may submit comments by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • NCUA Website: https:// www.ncua.gov/regulation-supervision/ Pages/rules/proposed.aspx. Follow the instructions for submitting comments. • Email: Address to regcomments@ ncua.gov. Include ‘‘[Your name] Comments on Notice of Proposed Guidance Regarding Prohibitions Imposed by Section 205(d) of the Federal Credit Union’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. Public Inspection: You may view all public comments on NCUA’s website at http://www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518–6546 or send an email to OGCMail@ncua.gov. FOR FURTHER INFORMATION CONTACT: Pamela Yu, Special Counsel to the E:\FR\FM\29JYP1.SGM 29JYP1 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules General Counsel, Office of General Counsel, at the above address or telephone (703) 518–6540. SUPPLEMENTARY INFORMATION: I. Introduction II. Background III. Proposed Revisions to the IRPS IV. Regulatory Procedures khammond on DSKBBV9HB2PROD with PROPOSALS I. Introduction The Board recognizes that many Americans face hiring barriers due to a criminal record, a great number of which are not violent or career criminals, but rather people who made poor choices early in life who have since paid their debt to society. Offering second chances to those who are truly penitent is consistent with our nation’s shared values of forgiveness and redemption. In keeping with this spirit of clemency, the Board is seeking to expand career opportunities for those who have demonstrated remorse and responsibility for past indiscretions and wish to set on a path to productive living. Toward that end, the Board is proposing to revise its guidance regarding prohibitions imposed by Section 205(d) of the FCU Act. Section 205(d) of the FCU Act prohibits, without the prior written consent of the Board, a person convicted of any criminal offense involving dishonesty or breach of trust, or who has entered into a pretrial diversion or similar program in connection with a prosecution for such offense, from becoming or continuing as an institution-affiliated party, or otherwise participating, directly or indirectly, in the conduct of the affairs of an insured credit union. In August 2008, the Board issued final IRPS 08–1, to provide direction and guidance to federally insured credit unions and those persons who may be affected by Section 205(d) because of a prior criminal conviction or pretrial diversion program participation by describing the actions that are prohibited under the statute and establishing the procedures for applying for Board consent on a case-by-case basis.1 The IRPS has not been revised since 2008 and, based on its experience with the IRPS over the past decade, the Board is proposing to update and revise the guidance to reduce regulatory burden while protecting federally insured credit unions from risk by convicted persons. The Board encourages interested parties to provide their input and comments on all aspects of the proposal. 1 73 FR 48399 (Aug. 19, 2008). VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 II. Background Under Section 205(d)(1) of the FCU Act, except with the prior written consent of the Board, a person who has been convicted of any criminal offense involving dishonesty or breach of trust, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense may not: • Become, or continue as, an institution-affiliated party with respect to any insured credit union; or • Otherwise participate, directly or indirectly, in the conduct of the affairs of any insured credit union. Section 205(d)(1)(B) further provides that an insured credit union may not allow any person described above to participate in the affairs of the credit union without Board consent. Section 205(d)(2) imposes a ten-year ban against the Board’s consent for a person convicted of certain crimes enumerated in Title 18 of the United States Code, absent a motion by the Board and approval by the sentencing court. Finally, Section 205(d)(3) states that ‘‘whoever knowingly violates’’ (d)(1)(A) or (d)(1)(B) commits a felony, punishable by up to five years in jail and a fine of up to $1,000,000 a day. Recognizing that certain offenses are so minor and occurred so far in the past so as to not currently present a substantial risk to the insured credit union, IRPS 08–1 excludes certain de minimis offenses from the need to obtain consent from the Board. However, several recent applications requesting the Board’s consent pursuant to Section 205(d) involved fairly minor, low-risk, erstwhile, and isolated offenses that did not fall within the current de minimis exception.2 In light of these recent cases, the substantial passage of time since IRPS 08–1 was adopted, and importantly, the Board’s commitment to opening a path forward for those seeking redemption for past criminal activities, the Board has determined it is appropriate to now consider revisions to IRPS 08–1. In proposing these amendments to IRPS 08–1, the Board is, once again, mindful of a corresponding Statement of Policy (SOP) issued by the Federal Deposit Insurance Corporation (FDIC) to determine whether similar or other changes should be made to IRPS 08–1 to improve consistency between the prudential regulators and to reduce 2 For example, in several recent cases, the offense in question met four of the five de minimis criteria but did not qualify for the exception because the potential—but not actual—punishment exceeded the standard set forth by the IRPS, the de minimis exception was not available. See BD–02–18 (Oct. 18, 2018); BD–01–19 (Mar. 14, 2019). PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 36489 regulatory burden. Section 19 of the Federal Deposit Insurance Act (FDIA) contains a prohibition provision similar to Section 205(d) of the FCU Act. In 1998, the FDIC implemented an SOP regarding prohibitions imposed by Section 19 of the FDIA, and it has subsequently modified and updated its guidance on several occasions.3 In the past, the NCUA has drawn on the FDIC’s SOP for guidance on this topic. In 2018, the FDIC updated and revised its SOP to expand its de minimis exception and to make other clarifying changes.4 In the Board’s view, it is beneficial to both institutions and covered individuals for the NCUA’s Section 205(d) requirements to be reasonably consistent, to the extent possible, with the FDIC’s Section 19 requirements. Consistent guidelines between our sister agencies with respect to these parallel statutory provisions will help streamline the application process, particularly for those individuals seeking consent from both the NCUA and the FDIC to allow for potential employment at federally insured financial institutions. III. Proposed Revisions to the IRPS In addition to some minor grammatical, formatting, and clarifying changes, the Board proposes to revise the IRPS as described in detail below. A. Background IRPS 08–1 currently provides background regarding Section 205(d)’s prohibition, and discusses its purpose to provide requirements, direction and guidance to federally insured credit unions and individuals covered by the statutory ban. The background section would be revised to make clear that IRPS 19–1 supersedes and replaces IRPS 08–1. B. Scope 1. Persons Covered The scope section of the proposed IRPS would be modified to clarify the persons covered by the Section 205(d) prohibition. Under the statute, the prohibition applies to institutionaffiliated parties, as defined by Section 206(r) of the FCU Act,5 and others who are participants in the conduct of the affairs of an insured credit union.6 3 The FDIC has revised its SOP multiple times since its implementation in 1998. See 63 FR 66177 (Dec. 1, 1998); 72 FR 73823 (Dec. 28, 2007); 73 FR 5270 (Jan. 29, 2008); 76 FR 28031 (May 13, 2011); 77 FR 74847 (Dec. 18, 2012); 83 FR 38143 (Aug. 3, 2018). 4 83 FR 38143 (Aug. 3, 2018). 5 12 U.S.C. 1786(r). 6 12 U.S.C. 1785(d). E:\FR\FM\29JYP1.SGM 29JYP1 khammond on DSKBBV9HB2PROD with PROPOSALS 36490 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules Under Section 206(r), independent contractors are considered institutionaffiliated parties if they knowingly or recklessly participate in violations, unsafe or unsound practices or breaches of fiduciary duty which are likely to cause significant loss to, or a significant adverse effect on, an insured credit union. IRPS 08–1’s inclusion of the statutory definition of independent contractors, as contained in Section 206(r), is confusing and unnecessary in determining whether Section 205(d) would apply at the time the individual commenced work for, or participated in the affairs of, the credit union. Accordingly, proposed IRPS 19–1 would delete reference to certain language in the definition of ‘‘independent contractor’’ contained in 12 U.S.C. 1786(r) that is unnecessary to determine whether Section 205(d) applies. It would clarify that an independent contractor typically does not have a relationship with the insured credit union other than the specific activity for which the insured credit union has contracted, and that the relevant factor in determining whether an independent contractor is covered by Section 205(d)’s prohibition is whether the independent contractor influences or controls the management or affairs of that credit union. A person who does not meet the statutory definition of institutionaffiliated party, as contained in Section 206(r), is nevertheless prohibited by Section 205(d) if he or she is considered to be participating, directly or indirectly, in the conduct of the affairs of an insured credit union. Proposed IRPS 19–1 would update and clarify how the NCUA will determine whether a person qualifies as a participant in the affairs of an insured credit union. Currently, the NCUA does not define what constitutes participation in the conduct of the affairs of an insured credit union, but rather analyzes each individual’s conduct on a case-by-case basis. The Board continues to maintain that participants in the affairs of a credit union is a term of art that defies precise definition. However, proposed IRPS 19– 1 reiterates the NCUA’s current position that agency and court decisions will inform its determination and that, generally, participation will depend upon the degree of influence or control over the management or affairs of the insured credit union. 2. Offenses Covered Proposed IRPS 19–1 would clarify that, in order for an application to be considered by the Board, the case must be considered final by the procedures of the applicable jurisdiction. In other VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 words, all of the sentencing requirements associated with a conviction or conditions imposed by the pretrial diversion or similar program, including, but not limited to, imprisonment, fines, condition of rehabilitation, and probation requirements, must be completed before the Board will deliberate a consent application. 3. Offenses Not Covered De minimis offenses. Proposed IRPS 19–1 would reduce burden on credit unions and covered individuals by modifying the current exception for de minimis offenses: First, by updating the general criteria for the exception; and second, by substantially expanding the scope of the exception to include additional offenses to qualify as de minimis offenses. Under the current rule, where the covered offense is considered de minimis, approval is automatically granted, and an application for the Board’s consent is not be required. Under the NCUA’s current policy in IRPS 08–1, a covered offense is considered de minimis if it meets all of the following five criteria: (1) There is only one conviction or entry into a pretrial diversion program of record for a covered offense; (2) the offense was punishable by imprisonment for a term of less than one year and/or a fine of less than $1,000, and the punishment imposed by the court did not include incarceration; (3) the conviction or pretrial diversion program was entered at least five years prior to the date an application would otherwise be required; (4) the offense did not involve an insured depository institution or insured credit union; and (5) the Board or any other Federal financial institution regulatory agency has not previously denied consent under Section 205(d) of the FCU Act or Section 19 of the FDIA, respectively, for the same conviction or participation in a pretrial diversion program. Proposed IRPS 19–1 would modify the de minimis offenses exception by updating this general criteria to better align with developments in criminal reform and sentencing guidelines that have occurred since IRPS 08–1 was first adopted in 2008. Specifically, the potential punishment and/or fine provision (criterion (2)) would be updated to allow the following offenses to meet that de minimis criterion: Those punishable by imprisonment for a term of one year or less and/or a fine of $2,500 or less, and those punishable by three days or less of jail time. Proposed IRPS 19–1 would also add a definition of ‘‘jail time’’ to clarify the PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 circumstances under which a lesser crime would qualify as de minimis. The NCUA is aware that various jurisdictions take different approaches to confinement depending on the nature of the crime (e.g., house arrest, home detention, ankle monitor, voice curfew, work release etc.). The new definition would clarify that the term ‘‘jail time’’ includes any significant restraint on an individual’s freedom of movement, including confinement to a specific facility or building on a continuous basis where the person may leave temporarily only to perform specific functions or during specified time periods or both. However, the Board does not intend the term to include individuals on probation or parole who may be restricted to a particular jurisdiction, or who must report occasionally to an individual or to a specified location. Additional applications of the de minimis exception. Proposed IRPS 19– 1 would also significantly expand the scope of the exception to include additional offenses to qualify as de minimis offenses. The Board intends to meaningfully expand the scope of the exception, thereby eliminating the need to submit an application for certain lowrisk, isolated offenses. This expansion would result in a significant reduction in regulatory burdens to credit unions, covered individuals, and the agency, while continuing to mitigate the risk to insured credit unions posed by convicted persons. Age at time of covered offense. The Board recognizes that isolated, youthful mistakes may be worthy of forgiveness and second chances. Individuals who committed minor offenses when they were still at an impressionable age deserve a greater opportunity for redemption. Accordingly, the Board proposes a new age-based exception to the filing requirement. Under the proposal, a person with a covered conviction or program entry that occurred when the individual was 21 years of age or younger at the time of the conviction or program entry, and who otherwise meets the general de minimis criteria, will qualify for this de minimis exception if: (1) The conviction or program entry was entered at least 30 months 7 prior to the date an application would otherwise be required and (2) all sentencing or program requirements have been met prior to the date an application would otherwise be required. Convictions or program entries for insufficient funds checks. The Board also proposes to expand the de minimis 7 Or, E:\FR\FM\29JYP1.SGM half the regular 5-year period. 29JYP1 khammond on DSKBBV9HB2PROD with PROPOSALS Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules exception to cover certain convictions for ‘‘bad’’ or insufficient funds checks. In the Board’s view, certain bad check offenses generally are low-risk and can be treated as de minimis. Thus, under proposed IRPS 19–1, convictions or pretrial diversion program entries of record based on the writing of ‘‘bad’’ or insufficient funds check(s) will be considered a de minimis offense and will not be considered as having involved an insured depository institution or insured credit union if the following conditions apply: • There is no other conviction or pretrial diversion program entry subject to Section 205(d); • The aggregate total face value of all ‘‘bad’’ or insufficient funds check(s) cited across all the conviction(s) or program entry or entries for bad or insufficient checks is $1,000 or less; and • No insured depository institution or insured credit union was a payee on any of the ‘‘bad’’ or insufficient funds checks that were the basis of the conviction(s) or program entry or entries. Offenses that meet the above criteria would not require an application for the Board’s consent. Convictions or program entries for small-dollar, simple theft. A substantial number of applications that have come before the Board since 2008 have involved convictions or program entries for relatively minor, low-risk, smalldollar, simple theft (for example, shoplifting, retail theft, etc.). Based on a historical review of Section 205(d) applications, the Board granted its consent to the vast majority of those covered individuals with small-dollar, simple theft convictions, or program entries. Treating this category of offenses as de minimis would streamline the application process, without creating undue or substantial risk to insured credit unions. Accordingly, under proposed IRPS 19–1, a conviction or pretrial diversion program entry based on a simple theft of goods, services and/or currency (or other monetary instrument) is considered de minimis where the following conditions are met: • The aggregate value of the currency, goods, and/or services taken was $500 or less at the time of conviction or program entry; and • The person has no other conviction or program entry described in Section 205(d); and • It has been five years since the conviction or program entry (or 30 months in the case of a person 21 years or younger at the time of the conviction or program entry); and VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 • It does not involve an insured depository institution or insured credit union. For purposes of the exception, simple theft does not include the offenses of burglary, forgery, robbery, identity theft, or fraud. These crimes would continue to require an application for the Board’s consent, unless otherwise qualifying as de minimis. Convictions or program entries for the use of a fake identification card. Under proposed IRPS 19–1, the use of a fake, false, or altered identification card by a person under the legal age to obtain or purchase alcohol, or to enter a premises where alcohol is served and age appropriate identification is required, would be considered de minimis, provided there is no other conviction or program entry for the covered offense. The Board has determined that covered individuals with convictions for the use of fake identification pose little risk to insured credit unions. Convictions or program entries for simple misdemeanor drug possession. There are a host of significant extrajudicial consequences for individuals with nonviolent drug possession convictions, including not only employment bans but the loss of Federal financial aid, eviction from public housing, disqualification from occupational licenses, loss of voting rights, and denial of public assistance. Moreover, research shows that drug convictions are a disproportionate burden on people of color. In addition, the Board recognizes that some uncertainty and confusion exists with respect to marijuana-related offenses, with marijuana now legal in many states but still illegal at the Federal level.8 While not discounting the public health implications of illegal drug use and possession, the Board maintains that covered persons with single convictions or program entries for simple drug possession pose minimal risk to insured credit unions. Thus, proposed IRPS 19–1 would classify as de minimis those convictions or entries for drug offenses meeting the following conditions: • The person has no other conviction or program entry described in Section 205(d); and • The single conviction or program entry for simple possession of a 8 Marijuana laws are rapidly evolving across all 50 states. Multiple states have legalized or decriminalized marijuana in some form at the state level. However, marijuana remains a Schedule I drug under the Federal Controlled Substances Act. See 21 U.S.C. 812(b)(1). Further information about marijuana legalization may be found online at https://disa.com/map-of-marijuana-legality-bystate. PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 36491 controlled substance was classified as a misdemeanor and did not involve the illegal distribution (including an intent to distribute), sale, trafficking, or manufacture of a controlled substance or other related offense; and • It has been five years since the conviction or program entry (or 30 months in the case of a person 21 years or younger at the time of the conviction or program entry). Convictions or program entries for intent to distribute, illegal distribution, illegal sale or trafficking of a controlled substance, or illegal manufacture of a controlled substance would continue to require an application for the Board’s consent, unless otherwise qualifying as de minimis. Proposed IRPS 19–1 would continue to require that any person who meets the de minimis criteria must be covered by a fidelity bond to the same extent as other employees in similar positions. In addition, that person must disclose the presence of the conviction or pretrial diversion program entry to all insured credit unions or insured depository institutions in the affairs of which he or she intends to participate. In addition, consistent with current agency policy, no conviction or pretrial diversion program entry for a violation of the Title 18 sections set out in 12 U.S.C. 1785(d)(2) can qualify under any of the de minimis exceptions to filing. Expunged convictions. Under the NCUA’s current policy, a conviction that has been ‘‘completely expunged’’ is not considered a conviction of record and will not require an application for the NCUA Board’s consent under Section 205(d). However, the Board is aware that it is sometimes unclear whether certain state set-aside provisions constitute a complete expungement for Section 205(d) purposes (for example, where or the conviction may still be revealed under certain circumstances or otherwise remains on the individual’s record). Accordingly, proposed IRPS 19–1 would clarify the circumstances under which a conviction would be deemed expunged for purposes of Section 205(d). Specifically, the Board proposes to clarify that if an order of expungement has been issued in regard to a conviction or program entry and is intended by the language in the order itself, or in the legislative provisions under which the order was issued, to be a complete expungement, then the jurisdiction, either in the order or the underlying legislative provisions, cannot allow the conviction or program entry to be used for any subsequent purpose. This includes, but is not E:\FR\FM\29JYP1.SGM 29JYP1 36492 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules khammond on DSKBBV9HB2PROD with PROPOSALS limited to, an evaluation of a person’s fitness or character. Under proposed IRPS 19–1, the failure to destroy or seal the records would not prevent the expungement from being considered complete for purposes of Section 205(d). Expungements of pretrial diversion or similar program entries would be treated the same as expungements for convictions. Moreover, under proposed IRPS 19–1, convictions set aside or reversed after the applicant has competed sentencing would be treated consistent with pretrial diversions programs unless the court records reflect that the underlying conviction was set aside based on a finding on the merits that such conviction was wrongful. C. Duty Imposed on Credit Unions Section 205(d) imposes a duty upon every federally insured credit union to make a reasonable inquiry regarding the history of every applicant for employment, including taking appropriate steps to avoid hiring or permitting the participation of convicted persons. Under the NCUA’s current policy, federally insured credit unions should, at a minimum, establish a screening process to obtain information about convictions and program entries from job applicants. However, the current policy is unclear as to what steps a credit union should or must take when it learns about a job applicant’s de minimis offense. Thus, proposed IRPS 19–1 would clarify that when a credit union learns that a prospective employee has a prior conviction or program entry for a de minimis offense, the credit union should document in its files that an application is not required because the covered offense is considered de minimis and meets the criteria for the exception. The proposal would also allow for extensions of conditional offers of employment to prospective employees requiring the Board’s consent under Section 205(d). While the Board endeavors to promptly consider all consent applications, it also recognizes that the lapse in time necessary to process an application is inconvenient and burdensome to both credit unions and prospective employees. Thus, under proposed IRPS 19–1, a credit union may extend a conditional offer of employment contingent on the completion of a satisfactory background check to determine if the applicant is barred by Section 205(d). If a conditional offer is extended, however, the job applicant may not commence work for or be employed by the credit union until the applicant is determined VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 to not be barred under Section 205(d) or receives consent from the Board. D. Procedures for Requesting the Board’s Consent Under Section 205(d) Proposed IRPS 19–1 would not modify the current procedures for requesting the Board’s consent under Section 205(d). It would, however, add language to clarify the distinction between a credit union-sponsored application filed by the institution on behalf of a covered individual and an individual application filed on a covered person’s own behalf. Generally, an application must be filed by an insured credit union on behalf of a person (credit union-sponsored application) unless the Board, for substantial good cause, grants a waiver of that requirement and allows the person to file an application in their own right (individual application). In most cases, a credit union-sponsored application is for a particular person, in a particular job, at a particular credit union. On the other hand, an individual application is typically requesting a blanket waiver for the applicant to be employed or participate in the conduct of the affairs of any insured credit union. As discussed in more detail below, the Section 205(d) application form would also be revised to more clearly distinguish between the two types of applications and the supporting information required for each. Additionally, the proposed IRPS would clarify that the appropriate regional office for submission of a credit union-sponsored application is the program office that oversees the credit union (i.e., the program office covering the state where the credit union’s home office is located, or the Office of National Examinations and Supervision), and the appropriate regional office for an individual application and waiver of the credit union-sponsored filing requirement is the program office covering the state where the person resides. The Board is also considering whether delegating responsibility for reviewing certain applications could further streamline the application process and reduce burdens on credit unions and applicants. The Board is particularly interested in receiving public comment on this topic and encourages stakeholders to provide input on this aspect of the proposal. E. Application Form Proposed IRPS 19–1 also revises and updates the application form that is required to be used to submit a Section 205(d) consent request, ‘‘Application to PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 Request Consent Pursuant to Section 205(d),’’ to reflect the changes in this proposal and to conform to current regulatory requirements. The modified Section 205(d) application form would also more clearly delineate between the two types of applications (credit unionsponsored versus individual) and the supporting documentation required for each. IV. Regulatory Procedures A. Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities. A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined for purposes of the RFA to include credit unions with assets less than $100 million) and publishes its certification and a short, explanatory statement in the Federal Register together with the rule. Proposed IRPS 19–1 would provide regulatory relief by decreasing the number of covered offenses that will require an application to the Board. The NCUA certifies that proposed IRPS 19–1 will not have a significant economic impact on a substantial number of small credit unions. B. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (PRA) applies to information collection requirements in which an agency creates a new paperwork burden on regulated entities or modifies an existing burden.9 For purposes of the PRA, a paperwork burden may take the form of a reporting, disclosure, or recordkeeping requirement, each referred to as an information collection. The NCUA may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. Proposed IRPS 19–1 will amend the current exceptions for de minimis offenses by expanding the scope, thereby eliminating the need to submit an application for certain low-risk, isolated offenses. This amendment would reduce the number of respondents applying for consent from three to one. The proposed IRPS 9 44 E:\FR\FM\29JYP1.SGM U.S.C. 3507(d); 5 CFR part 1320. 29JYP1 khammond on DSKBBV9HB2PROD with PROPOSALS Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules requires credit unions to document when an application is not required because the covered offense is considered de minimis. This new recordkeeping requirement is minimal and would only impact those credit unions or individuals who would otherwise have submitted an application for consent. These program changes would revise the information collection requirement currently approved OMB control number 3133–0203, as follows: Title of Information Collection: IRPS 19–1, Guidance Regarding Prohibitions Imposed by Section 205(d) of the Federal Credit Union Act. Estimated Number of Respondents: 3. Estimated Annual Frequency of Response: 1.33. Estimated Total Annual Reponses: 4. Estimated Hours per Response: 0.75. Estimated Total Annual Burden Hours: 3. Affected Public: Private Sector: Notfor-profit institutions; Individual or Household. The NCUA invites comments on: (a) Whether the collections of information are necessary for the proper performance of the agencies’ functions, including whether the information has practical utility; (b) the accuracy of the estimates of the burden of the information collections, including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility, and clarity of the information to be collected; (d) ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. All comments are a matter of public record. Comments regarding the information collection requirements should be sent to (1) Dawn Wolfgang, NCUA PRA Clearance Officer, National Credit Union Administration, 1775 Duke Street, Suite 6016, Alexandria, Virginia 22314, or Fax No. 703–519– 8572, or Email at PRAcomments@ ncua.gov and the (2) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for NCUA, New Executive Office Building, Room 10235, Washington, DC 20503, or email at OIRA_Submission@OMB.EOP.gov. C. Executive Order 13132 Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. The NCUA, an VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 independent regulatory agency, as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. Proposed IRPS 19–1 would not have a substantial direct effect on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. As such, the NCUA has determined that proposed IRPS 19–1 does not constitute a policy that has federalism implications for purposes of the executive order. D. Assessment of Federal Regulations and Policies on Families The NCUA has determined that proposed IRPS 19–1 will not affect family well-being within the meaning of Section 654 of the Treasury and General Government Appropriations Act of 1999.10 Authority: 12 U.S.C. 1752a, 1756, 1766, 1785. By the National Credit Union Administration Board, on July 18, 2019. Gerard Poliquin, Secretary of the Board. Interpretive Ruling and Policy Statement 19–1 Exceptions to Employment Restrictions Under Section 205(d) of the Federal Credit Union Act (‘‘Second Chance IRPS’’) I. Background This Interpretive Ruling and Policy Statement (IRPS) provides requirements, direction, and guidance to federally insured credit unions (insured credit unions) and individuals regarding the prohibition imposed by operation of law by Section 205(d) of the Federal Credit Union Act (FCU Act), 12 U.S.C. 1785(d). Section 205(d)(1) provides that, except with the prior written consent of the National Credit Union Administration (NCUA) Board, a person who has been convicted of any criminal offense involving dishonesty or breach of trust, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense may not: • Become, or continue as, an institution-affiliated party with respect to any insured credit union; or • Otherwise participate, directly or indirectly, in the conduct of the affairs of any insured credit union. Section 205(d)(1)(B) further provides that an insured credit union may not allow any person described above to engage in any conduct or to continue any relationship prohibited by Section PO 00000 10 Public Law 105–277, 112 Stat. 2681 (1998). Frm 00014 Fmt 4702 Sfmt 4702 36493 205(d). The statute imposes a ten-year ban against the NCUA Board granting consent for a person convicted of certain crimes enumerated in Title 18 of the United States Code. In order for the NCUA Board to grant consent during the ten-year period, the NCUA Board must file a motion with, and obtain the approval of, the sentencing court. Finally, Section 205(d)(3) states that ‘‘whoever knowingly violates’’ (d)(1)(A) or (d)(1)(B) is committing a felony, punishable by up to five years in jail and a fine of up to $1,000,000 a day. This IRPS provides guidance to credit unions and individuals regarding who is subject to the prohibition provision of Section 205(d). The IRPS defines what offenses come within the prohibition provision of Section 205(d) and thus require an application for the NCUA Board’s consent to participate in the affairs of an insured credit union. The IRPS also identifies certain offenses that will be excluded from Section 205(d) and do not require the NCUA Board’s consent. In order to assist those who may need the consent of the NCUA Board to participate in the affairs of an insured credit union, the IRPS explains the procedures to request such consent, specifies the application form that must be used, clarifies the duty imposed on credit unions by Section 205(d), and identifies the factors the NCUA Board will consider in deciding whether to provide such consent. Finally, the IRPS explains how an applicant could appeal a decision by the NCUA Board denying an application for its consent. This IRPS supersedes and replaces former IRPS 08–1.11 II. Policies and Procedures Regarding Prohibitions Imposed by Section 205(d) A. Scope of Section 205(d) of the FCU Act 1. Persons Covered by Section 205(d) Section 205(d) of the FCU Act applies to institution-affiliated parties, as defined by Section 206(r) of the FCU Act, 12 U.S.C. 1786(r), and others who are participants in the conduct of the affairs of a federally insured credit union. This IRPS applies only to insured credit unions, their institutionaffiliated parties, and those participating in the affairs of an insured credit union. (a) Institution-affiliated parties. Institution-affiliated parties include any committee member, director, officer, or employee of, or agent for, and insured credit union; any consultant, joint venture partner, and any other person as determined by the Board (by regulation or on a case-by-case basis) 11 73 E:\FR\FM\29JYP1.SGM FR 48399 (Aug. 19, 2008). 29JYP1 khammond on DSKBBV9HB2PROD with PROPOSALS 36494 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules who participates in the conduct of the affairs of an insured credit union; or any independent contractor (including any attorney, appraiser, or accountant). Therefore, all officials, committee members and employees of an insured credit union fall within the scope of Section 205(d) of the FCU Act. Additionally, anyone the NCUA determines to be a de facto employee, applying generally applicable standards of employment law, will also be subject to Section 205(d). Typically, an independent contractor does not have a relationship with the insured credit union other than the activity for which the insured credit union has contracted. As a general rule, an independent contractor who influences or controls the management or affairs of an insured credit union, would be covered by Section 205(d). In addition, a ‘‘person’’ for purposes of Section 205(d) means an individual, and does not include a corporation, firm or other business entity. (b) Participants in the affairs of an insured credit union. A person who does not meet the definition of institution-affiliated party is nevertheless prohibited by Section 205(d) if he or she is considered to be participating, directly or indirectly, in the conduct of the affairs of an insured credit union. Whether persons who are not institution-affiliated parties are covered depends upon their degree of influence or control over the management or affairs of an insured institution. Those who exercise major policymaking functions of an insured institution would be deemed participants in the affairs of that institution and covered by Section 205(d). Participants in the affairs of a credit union is a term of art and is not capable of more precise definition. The NCUA does not define what constitutes participation in the conduct of the affairs of an insured credit union but will analyze each individual’s conduct on a case-by-case basis and make a determination. Agency and court decisions will provide the guide as to what standards will be applied. As a general proposition, however, participation will depend upon the degree of influence or control over the management or affairs of the insured credit union. Those who exercise major policymaking functions at an insured credit union would fall within this category. 2. Offenses Covered by Section 205(d) Except as indicated in subsection 3, below, an application requesting the consent of the NCUA Board under Section 205(d) is required where any VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 adult, or minor treated as an adult, has received a conviction by a court of competent jurisdiction for any criminal offense involving dishonesty or breach of trust (a covered offense), or where such person has entered a pretrial diversion or similar program regarding a covered offense. Before an application is considered by the NCUA Board, all of the sentencing requirements associated with a conviction or conditions imposed by the pretrial diversion or similar program, including but not limited to, imprisonment, fines, condition of rehabilitation, and probation requirements, must be completed, and the case must be considered final by the procedures of the applicable jurisdiction. The following definitions apply: Conviction. There must be a conviction of record. Section 205(d) does not apply to arrests, pending cases not brought to trial, acquittals, or any conviction which has been reversed on appeal. A conviction with regard to which an appeal is pending will require an application until or unless reversed. A conviction for which a pardon has been granted will require an application. Pretrial Diversion or Similar Program. A pretrial diversion program, whether formal or informal, is characterized by a suspension or eventual dismissal of charges or criminal prosecution upon agreement by the accused to treatment, rehabilitation, restitution, or other noncriminal or non-punitive alternatives. Whether a program constitutes a pretrial diversion is determined by relevant federal, state or local law, and, if not so designated under applicable law then the determination on whether it is a pretrial diversion or similar program will be made by the NCUA Board on a case-by-case basis. Dishonesty or Breach of Trust. The conviction or entry into a pretrial diversion program must have been for a criminal offense involving dishonesty or breach of trust. ‘‘Dishonesty’’ means directly or indirectly to cheat or defraud; to cheat or defraud for monetary gain or its equivalent; or wrongfully to take property belonging to another in violation of any criminal statute. Dishonesty includes acts involving want of integrity, lack of probity, or a disposition to distort, cheat, or act deceitfully or fraudulently, and may include crimes which federal, state or local laws define as dishonest. ‘‘Breach of trust’’ means a wrongful act, use, misappropriation or omission with respect to any property or fund which has been committed to a person in a fiduciary or official capacity, or the PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 misuse of one’s official or fiduciary position to engage in a wrongful act, use, misappropriation or omission. Whether a crime involves dishonesty or breach of trust will be determined from the statutory elements of the crime itself. All convictions or pretrial diversion program entries for offenses concerning the illegal manufacture, sale, distribution of or trafficking in controlled substances shall require an application for the NCUA Board’s consent under Section 205(d) unless they fall within the provisions for the de minimis offenses set out below. 3. Offenses Not Covered by Section 205(d) De minimis offenses. In general. Approval is automatically granted and an application for the NCUA Board’s consent under Section 205(d) will not be required where the covered offense is considered de minimis, because it meets all of the following criteria: • There is only one conviction or entry into a pretrial diversion program of record for a covered offense; • 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 time. The NCUA Board considers jail time to include any significant restraint on an individual’s freedom of movement which includes, as part of the restriction, confinement to a specific facility or building on a continuous basis where the person may leave temporarily only to perform specific functions or during specified time periods or both. However, this definition is not intended to include those on probation or parole who may be restricted to a particular jurisdiction, or who must report occasionally to an individual or to a specified location; • The conviction or pretrial diversion program was entered at least five years prior to the date an application would otherwise be required; • The offense did not involve an insured depository institution 12 or insured credit union; and • The NCUA Board or any other federal financial institution regulatory agency has not previously denied consent under Section 205(d) of the FCU Act or Section 19 of the FDIA, respectively, for the same conviction or participation in a pretrial diversion program. Additional applications of the de minimis offenses exception to filing. 12 For purposes of this IRPS, the term ‘‘insured depository institution’’ means any bank or savings association the deposits of which are insured by the FDIC. See 12 U.S.C. 1813(c)(2). E:\FR\FM\29JYP1.SGM 29JYP1 khammond on DSKBBV9HB2PROD with PROPOSALS Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules Age at time of covered offense. If the actions that resulted in a covered conviction or pretrial diversion program entry of record all occur when the individual was 21 years of age or younger, then the subsequent conviction or program entry, that otherwise meets the general de minimis criteria in (a)(1) above will be considered de minimis if the conviction or program entry was entered at least 30 months prior to the date an application would otherwise be required and all sentencing or program requirements have been met. Convictions or program entries for insufficient funds checks. Convictions or pretrial diversion program entries of record based on the writing of ‘‘bad’’ or insufficient funds check(s) will be considered a de minimis offense and will not be considered as having involved an insured depository institution or insured credit union if the following applies: • There is no other conviction or pretrial diversion program entry subject to Section 205(d) and the aggregate total face value of all ‘‘bad’’ or insufficient funds check(s) cited across all the conviction(s) or program entry or entries for bad or insufficient checks is $1,000 or less and; • No insured depository institution or insured credit union was a payee on any of the ‘‘bad’’ or insufficient funds checks that were the basis of the conviction(s) or program entry or entries. Convictions or program entries for small-dollar, simple theft. A conviction or pretrial diversion program entry based on a simple theft of goods, services and/or currency (or other monetary instrument) where the aggregate value of the currency, goods, and/or services taken was $500 or less at the time of conviction or program entry, where the person has no other conviction or program entry described in Section 205(d), and where it has been five years since the conviction or program entry (or 30 months in the case of a person 21 years or younger at the time of the conviction or program entry) and which does not involve an insured depository institution or insured credit union is considered de minimis. Simple theft excludes burglary, forgery, robbery, identity theft, and fraud. Convictions or program entries for the use of a fake, false, or altered identification card. The use of a fake, false, or altered identification card used by a person under the legal age for the purpose of obtaining or purchasing alcohol, or used for the purpose of entering a premises where alcohol is served but for which age appropriate identification is required, provided that VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 there is no other conviction or pretrial diversion program entry for the covered offense, will be considered de minimis. Convictions or program entries for simple misdemeanor drug possession. A conviction or pretrial diversion program entry based on simple drug possession or illegal possession of a controlled substance where the offense was classified as a misdemeanor at the time of conviction or program entry, where the person has no other conviction or program entry described in Section 205(d), and where it has been five years since the conviction or program entry (or 30 months in the case of a person 21 years or younger at the time of the conviction or program entry) and which does not involve the illegal distribution (including an intent to distribute), sale, trafficking, or manufacture of a controlled substance or other related offense is considered de minimis. Simple possession excludes intent to distribute, illegal distribution, illegal sale or trafficking of a controlled substance, or illegal manufacture of a controlled substance. Any person who meets the foregoing de minimis criteria must be covered by a fidelity bond to the same extent as other employees in similar positions. An insured credit union may not allow any person to participate in its affairs, even if that person has a conviction for what would constitute a de minimis covered offense, if the person cannot obtain required fidelity bond coverage. Any person who meets the foregoing criteria for a de minimis offense must disclose the presence of the conviction or pretrial diversion program entry to all insured credit unions or other insured institutions in the affairs of which he or she intends to participate. Further, no conviction or pretrial diversion program entry for a violation of the Title 18 sections set out in 12 U.S.C. 1785(d)(2) can qualify under any of the de minimis exceptions to filing set out above. Youthful offender adjudgments. An adjudgment by a court against a person as a ‘‘youthful offender’’ under any youth offender law, or any adjudgment as a ‘‘juvenile delinquent’’ by any court having jurisdiction over minors as defined by state law does not require an application for the NCUA Board’s consent. Such adjudications are not considered convictions for criminal offenses. Such adjudications do no constitute a matter covered under Section 205(d) and is not an offense or program entry for determining the applicability of the de minimis offenses exception to the filing of an application. Expunged convictions. A conviction that has been completely expunged is PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 36495 not considered a conviction of record and will not require an application for the NCUA Board’s consent under Section 205(d). If an order of expungement has been issued in regard to a conviction or pretrial diversion program entry and is intended by the language in the order itself, or in the legislative provisions under which the order was issued, to be a complete expungement, then the jurisdiction, either in the order or the underlying legislative provisions, cannot allow the conviction or program entry to be used for any subsequent purpose including, but not limited to, an evaluation of a person’s fitness or character. The failure to destroy or seal the records will not prevent the expungement from being considered complete for the purposes of Section 205(d) in such a case. Expungements of pretrial diversion or similar program entries will be treated the same as those for convictions. Convictions that are set aside or reversed after the applicant has competed sentencing will be treated consistent with pretrial diversions or similar programs unless the court records reflect that the underlying conviction was set aside based on a finding on the merits that such conviction was wrongful. B. Duty Imposed on Credit Unions Section 205(d) imposes a duty upon every insured credit union to make a reasonable inquiry regarding the history of every applicant for employment. The NCUA believes that inquiry should consist of taking steps appropriate under the circumstances, consistent with applicable law, to avoid hiring or permitting participation in its affairs by a person who has a conviction or entry into a pretrial diversion program for a covered offense. At a minimum, each insured credit union should establish a screening process which provides the insured credit union with information concerning any convictions or pretrial diversion programs pertaining to a job applicant. This would include, for example, the completion of a written employment application which requires a listing of all convictions and pretrial diversion program entries. When the credit union learns that a prospective employee has a prior conviction or entered into a pretrial diversion program for a covered offense, the credit union should document in its files that an application is not required because the covered offense is considered de minimis and meets the criteria for the exception, or submit an application requesting the NCUA Board’s consent under Section 205(d) prior to hiring the person or otherwise permitting him or E:\FR\FM\29JYP1.SGM 29JYP1 36496 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules khammond on DSKBBV9HB2PROD with PROPOSALS her to participate in its affairs. In the alternative, for the purposes of Section 205(d), a credit union may extend a conditional offer of employment contingent on the completion of a background check satisfactory to the credit union and to determine if the applicant is barred by Section 205(d). In such a case, the job applicant may not commence work for or be employed by the credit union until such time that the applicant is determined to not be barred under Section 205(d). If an insured credit union discovers that an employee, official, or anyone else who is an institution-affiliated party or who participates, directly or indirectly, in its affairs, is in violation of Section 205(d), the credit union must immediately place that person on a temporary leave of absence from the credit union and file an application seeking the NCUA Board’s consent under Section 205(d). The person must remain on such temporary leave of absence until such time as the NCUA Board has acted on the application. When the NCUA learns that an institution-affiliated party or a person participating in the affairs of an insured credit union should have received the NCUA Board’s consent under Section 205(d) but did not, the NCUA will look at the circumstances of each situation to determine whether the inquiry made by the credit union was reasonable under the circumstances. C. Procedures for Requesting the NCUA Board’s Consent Under Section 205(d) Section 205(d) of the FCU Act serves, by operation of law, as a statutory bar to participation in the affairs of an insured credit union, absent the written consent of the NCUA Board. When an application for the NCUA Board’s consent under Section 205(d) is required, the insured credit union must file a written application using the attached form with the appropriate NCUA Regional Director. The purpose of an application is to provide the applicant an opportunity to demonstrate that, notwithstanding the bar, the person is fit to participate in the conduct of the affairs of an insured credit union without posing a risk to its safety and soundness or impairing public confidence in that institution. Such an application should thoroughly explain the circumstances surrounding the conviction or pretrial diversion program. The applicant may also address the relevant factors and criteria the NCUA Board will consider in determining whether to grant consent, specified below. The burden is upon the applicant to establish that the application warrants approval. VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 The application must be filed by an insured credit union on behalf of a person (credit union-sponsored application) unless the NCUA Board grants a waiver of that requirement and allows the person to file an application in their own right (individual application). Such waivers will be considered on a case-by-case basis where substantial good cause for granting a waiver is shown. The appropriate regional office for a credit union-sponsored application is the program office that oversees the credit union (i.e., the program office covering the state where the credit union’s home office is located, or the Office of National Examinations and Supervision). The appropriate regional office for an individual filing for waiver of the credit union-sponsored filing requirement is the program office covering the state where the person resides. When an application is not required because the covered offense is considered de minimis, the credit union should document in its files and be prepared to demonstrate that the covered offense meets the de minimis criteria enumerated above. D. Evaluation of Section 205(d) Applications The essential criteria in assessing an application for consent under Section 205(d) are whether the person has demonstrated his or her fitness to participate in the conduct of the affairs of an insured credit union, and whether the employment, affiliation, or participation by the person in the conduct of the affairs of the insured credit union may constitute a threat to the safety and soundness of the institution or the interests of its members or threaten to impair public confidence in the insured credit union. In evaluating an application, the NCUA Board will consider: 1. The conviction or pretrial diversion program entry and the specific nature and circumstances of the covered offense; 2. Evidence of rehabilitation, including the person’s reputation since the conviction or pretrial diversion program entry, the person’s age at the time of conviction or program entry, and the time which has elapsed since the conviction or program entry; 3. Whether participation, directly or indirectly, by the person in any manner in the conduct of the affairs of the insured credit union constitutes a threat to the safety or soundness of the insured credit union or the interest of its members, or threatens to impair public confidence in the insured credit union; PO 00000 Frm 00017 Fmt 4702 Sfmt 4702 4. The position to be held or the level of participation by the person at the insured credit union; 5. The amount of influence and control the person will be able to exercise over the management or affairs of the insured credit union; 6. The ability of management of the insured credit union to supervise and control the person’s activities; 7. The applicability of the insured institution’s fidelity bond coverage to the person; 8. For state chartered, federally insured credit unions, the opinion or position of the state regulator; and 9. Any additional factors in the specific case that appear relevant. The foregoing criteria will also be applied by the NCUA Board to determine whether the interests of justice are served in seeking an exception in the appropriate court when an application is made to terminate the ten-year ban for certain enumerated offenses in violation of Title 18 of the United States Code prior to its expiration date. NCUA believes such requests will be extremely rare and will be made only upon a showing of compelling reasons. Some applications can be approved without an extensive review because the person will not be in a position to present any substantial risk to the safety and soundness of the insured credit union. Persons who will occupy clerical, maintenance, service or purely administrative positions, generally fall into this category. A more detailed analysis will be performed in the case of persons who will be in a position to influence or control the management or affairs of the insured credit union. Approval by the NCUA Board will be subject to the condition that the person shall be covered by a fidelity bond to the same extent as others in similar positions. In cases in which the NCUA Board has granted a waiver of the credit unionsponsored filing requirement to allow a person to file an application in their own right, approval of the application will be conditioned upon that person disclosing the presence of the conviction(s) or program entry or entries to all insured credit unions or insured depository institutions in the affairs of which he or she wishes to participate. When deemed appropriate, credit union-sponsored applications are to allow the person to work in a specific job at a specific credit union and may also be subject to the condition that the prior consent of the NCUA Board will be required for any proposed significant changes in the person’s duties and/or responsibilities. Such proposed changes E:\FR\FM\29JYP1.SGM 29JYP1 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules khammond on DSKBBV9HB2PROD with PROPOSALS may, in the discretion of the appropriate Regional Director, require a new application for the NCUA Board’s consent. When approval has been granted for a person to participate in the affairs of a particular insured credit union and subsequently that person seeks to participate in the affairs of another insured credit union, approval does not automatically follow. In such cases, another application must be submitted. Moreover, any person who has received consent from the NCUA Board under Section 205(d) and subsequently wishes to become an VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 institution-affiliated party or participate in the affairs of an FDIC-insured institution, he or she must obtain the prior approval of the FDIC pursuant to Section 19 of the FDIA. E. Right To Request a Hearing Following the Denial of an Application Under Section 205(d) If the NCUA Board withholds consent under Section 205(d), the insured credit union (or in the case where a waiver has been granted, the individual that submitted the application) may request a hearing by submitting a written request within 30 days following the PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 36497 date of notification of the NCUA Board’s action. The NCUA Board will apply the process contained in regulations governing prohibitions based on felony convictions, found at part 747, subpart D of Title 12, Code of Federal Regulations, to any request for a hearing. The insured credit union (or in the case where a waiver has been granted, the individual that submitted the application) may also waive a hearing and request that the NCUA Board determine the matter on the basis of written submissions. BILLING CODE 7535–01–P E:\FR\FM\29JYP1.SGM 29JYP1 36498 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules NATIONAL CREDIT UNION ADMINISTRATION APPLICATION TO REQUEST CONSENT PURSUANT TO SECTION 205(d) The estimated total annual burden for this collection of information is estimated to average 3 hours for biographical information. This estimate includes time to gather and maintain data in the required form, to review instructions and to complete the information collection. Send comments regarding this burden estimate or any other aspect of this collection of information including suggestions for reducing this burden to: (1) Dawn Wolfgang, NCUA PRA Clearance Officer, National Credit Union Administration, 1775 Duke Street, Suite 6016, Alexandria, Virginia 22314, or Fax No. 703-519-8572, or Email at PRAcommPRAcomments@ncua.govents@ncua.gov and the (2) Office oflnformation and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for NCUA, New Executive Office Building, Room 10235, Washington, DC 20503, or email at OIRA _Submission, @OlvfB.EOP.gov. An organization or a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Section 205(d)(l) of the Federal Credit Union Act, 12 U.S.C. §1785(d)(l), provides that, except with the prior written consent of the National Credit Union Administration (NCUA) Board, a person who has been convicted of any criminal offense involving dishonesty or breach of trust, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense may not become, or continue as an institution-affiliated party with respect to any insured credit union; or otherwise participate, directly or indirectly, in the conduct of the affairs of any insured credit union. Section 205(d)(1)(B) further provides that an insured credit union may not allow any person described above to engage in any conduct or to continue any relationship prohibited by Section 205(d). Section 205(d)(3) states that "whoever knowingly violates" (d)(l)(A) or (d)(l)(B) is committing a felony, punishable by up to five years in jail and a fine of up to $1,000,000 a day. The statute also prescribes a minimum ten-year prohibition period for certain offenses. The NCUA Board issued Interpretive Ruling and Policy Statement (IRPS) 19-1, entitled Exceptions to Employment Restrictions under Section 205(d) of the Federal Credit Union Act, to assist credit unions and individuals in requesting the NCUA Board's consent pursuant to Section 205(d). IPRS 19-1 is available on the NCUA's website at .!.!!.!;~~.J:.UL.!.!.!::.!!!~~.!..\:;l;;;J;!.!.!.!.!!.!;!.!.!.:ill!l:~t..!i!.!~'l..!!~ E~!lli!l:lli!.!.ill&l.l~IIY.!~ili!!£;§.::12£!.!li;u~gn&!!Jlli, by contacting the Office of General Counsel at 703~~C!.."!.>±~~""""'~"""" or from any NCUA Regional Office. All requests for the NCUA Board's consent pursuant to Section 205(d) should be submitted using the attached form. Please consult IRPS 19-1 prior to completing the attached application, as not all criminal convictions require an application to be submitted. IRPS 19-1 also lists the factors the NCUA Board will consider when evaluating any application for consent. Any questions regarding the process to request the NCUA Board's consent pursuant to Section 205(d), including whether an application is required, may be directed to the Office of General Counsel at 703518-6540 or~~~=~~~· VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 PO 00000 Frm 00019 Fmt 4702 Sfmt 4725 E:\FR\FM\29JYP1.SGM 29JYP1 EP29JY19.010</GPH> khammond on DSKBBV9HB2PROD with PROPOSALS Completed application should be sent to the appropriate NCUA Regional Office or other program office. Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules 36499 NATIONAL CREDIT UNION ADMINISTRATION APPLICATION TO REQUEST CONSENT PURSUANT TO SECTION 205( d) SECTION A- APPLICANT INFORMATION 1. Applicant: D Credit union-sponsored D Individual Generally, an application must be filed by an insured credit union on behalf of a person. If the applicant is an individual, please explain why there is substantial good cause for the NCUA Board to grant a waiver of the institution filing requirement. 2. Applicant Name: 3. Date of Application: 4. Address of Applicant (Street, City, County, State, and Zip Code): I/We have, in connection with preparing this Application, read Sections 205(d)(l) & (3) of the Federal Credit Union Act, 12 U.S.C. §§1785(d)(l) & (3), which governs requests by insured credit unions for the consent of the National Credit Union Administration Board for a person who has been convicted of a crime involving dishonesty or breach of trust, or who has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense, to become or continue as an institution-affiliated party, or otherwise participate, directly or indirectly, in the conduct of the affairs of an insured credit union. In support of this Application, the following statements, representations and information are submitted for the purpose of inducing the National Credit Union Administration Board to grant its written consent to the person identified below (the prohibited person), who has been convicted of a crime involving dishonesty or breach oftrust or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense, to become or continue as an institution-affiliated party, or otherwise participate, directly or indirectly, in the conduct of the affairs of this credit union. NOTE: the Biographical Information Concerning the Prohibited Person (Section B) and Information Relative to the Prohibited Person's Convictions (Section C) should be completed by the prohibited person. SECTION B- BIOGRAPIITCAL INFORMATION CONCERNING THE PROIITBITED PERSON 1. Name of Prohibited Person: 2. Address of Prohibited Person (Street, City, County, State, and Zip Code): 3. Date of Birth (Month, Day, Year): 4. Place of Birth (City, State, and Country): 5. Social Security Number (See Privacy Act Statement on page 4): VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 PO 00000 Frm 00020 Fmt 4702 Sfmt 4725 E:\FR\FM\29JYP1.SGM 29JYP1 EP29JY19.011</GPH> khammond on DSKBBV9HB2PROD with PROPOSALS 6. Name and Address of Present of Most Recent Employer (Street, City, County, State, and Zip Code): 36500 Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules SECTION C- INFORMATION RELATIVE TO THE PROIITBITED PERSON'S CONVICTIONS 1. Description or Nature of Crime: a. Date of Conviction: b. Name and Address of Court: c. Disposition of the Charges: NOTE: Additional conviction(s) or program entry or entries for a crime involving dishonesty or breach of trust discovered subsequent to approval of this Application will require the submission of another application. 2. Briefly describe the nature of the offense and the circumstances surrounding it. Include age of the prohibited person at the time of conviction, date of the offense, and any mitigating circumstances (parole, suspension of sentence, pardon, etc.). Attach additional pages if necessary. 3. Briefly describe the extent of rehabilitation the prohibited person completed (attach supporting documents, if any). 4. Attach documentation of the Indictment, Information, or Complaint and Final Decree of Judgment, if available (Normally these can be obtained from the clerk of court of the relevant jurisdiction. If not provided, explain reasons for unavailability). VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 PO 00000 Frm 00021 Fmt 4702 Sfmt 4725 E:\FR\FM\29JYP1.SGM 29JYP1 EP29JY19.012</GPH> khammond on DSKBBV9HB2PROD with PROPOSALS 5. List any other pertinent facts relative to the crime which are not disclosed in the indictment or other court documents. Attach additional pages if necessary. Federal Register / Vol. 84, No. 145 / Monday, July 29, 2019 / Proposed Rules DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 71 [Docket No. FAA–2019–0372; Airspace Docket No. 18–ANM–17] RIN 2120–AA66 Proposed Amendment of Class E Airspace; Walden, CO Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: This action proposes to amend Class E airspace extending upward from 700 feet above the surface at Walden-Jackson County Airport, Walden, CO, to accommodate a new area navigation (RNAV) procedure at the airport. Additionally, this action proposes to remove Class E airspace extending upward from 700 feet above the surface within 4 miles each side of the 342° bearing extending from the 5 mile radius to V–524 northwest of the airport. This action would ensure the safety and management of instrument flight rules (IFR) operations within the National Airspace System. Additionally, this action proposes to update the geographic coordinates of the airport to match the FAA’s data base. DATES: Comments must be received on or before September 12, 2019. khammond on DSKBBV9HB2PROD with PROPOSALS VerDate Sep<11>2014 16:18 Jul 26, 2019 Jkt 247001 FOR FURTHER INFORMATION CONTACT: Matthew Van Der Wal, Federal Aviation Administration, Western Service Center, Operations Support Group, 2200 S 216th Street, Des Moines, WA 98198; telephone (206) 231–3695. PO 00000 Frm 00022 Fmt 4702 Sfmt 4702 SUPPLEMENTARY INFORMATION: Authority for This Rulemaking The FAA’s authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency’s authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would amend Class E airspace to support a new RNAV procedure at WaldenJackson County Airport, Walden, CO. Comments Invited Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Persons wishing the FAA to E:\FR\FM\29JYP1.SGM 29JYP1 EP29JY19.013</GPH> BILLING CODE 7535–01–C SUMMARY: Send comments on this proposal to the U.S. Department of Transportation, Docket Operations, 1200 New Jersey Avenue SE, West Building Ground Floor, Room W12–140, Washington, DC 20590; telephone: 1– 800–647–5527, or (202) 366–9826. You must identify FAA Docket No. FAA– 2019–0372; Airspace Docket No. 18– ANM–17, at the beginning of your comments. You may also submit comments through the internet at http:// www.regulations.gov. FAA Order 7400.11C, Airspace Designations and Reporting Points, and subsequent amendments can be viewed online at http://www.faa.gov/air_traffic/ publications/. For further information, you can contact the Airspace Policy Group, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591; telephone: (202) 267–8783. The Order is also available for inspection at the National Archives and Records Administration (NARA). For information on the availability of FAA Order 7400.11C at NARA, call (202) 741–6030, or go to https:// www.archives.gov/federal-register/cfr/ ibr-locations.html. FAA Order 7400.11, Airspace Designations and Reporting Points, is published yearly and effective on September 15. ADDRESSES: [FR Doc. 2019–15706 Filed 7–26–19; 8:45 am] 36501

Agencies

[Federal Register Volume 84, Number 145 (Monday, July 29, 2019)]
[Proposed Rules]
[Pages 36488-36501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15706]


=======================================================================
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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Chapter VII

RIN 3133-AF02


Exceptions to Employment Restrictions Under Section 205(d) of the 
Federal Credit Union Act (``Second Chance IRPS'')

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed interpretive ruling and policy statement 19-1.

-----------------------------------------------------------------------

SUMMARY: The NCUA Board (Board) is issuing for public comment a 
proposal to update and revise its Interpretive Ruling and Policy 
Statement (IRPS) regarding statutory prohibitions imposed by Section 
205(d) of the Federal Credit Union Act (FCU Act). Section 205(d) 
prohibits, except with the prior written consent of the Board, any 
person who has been convicted of any criminal offense involving 
dishonesty or breach of trust, or who has entered into a pretrial 
diversion or similar program in connection with a prosecution for such 
offense, from participating in the affairs of an insured credit union. 
Based on its experience with IRPS 08-1 since its issuance in 2008, the 
Board is proposing to rescind current IRPS 08-1 and to issue a revised 
and updated IRPS to reduce regulatory burden. The Board is proposing to 
amend and expand the current de minimis exception to reduce the scope 
and number of offenses that would require an application to the Board. 
Specifically, the proposed IRPS would not require an application for 
insufficient funds checks of aggregate moderate value, small dollar 
simple theft, false identification, simple drug possession, and 
isolated minor offenses committed by covered persons as young adults.

DATES: Comments must be received on or before September 27, 2019.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Website: https://www.ncua.gov/regulation-supervision/Pages/rules/proposed.aspx. Follow the instructions for submitting 
comments.
     Email: Address to [email protected]. Include ``[Your 
name] Comments on Notice of Proposed Guidance Regarding Prohibitions 
Imposed by Section 205(d) of the Federal Credit Union'' in the email 
subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You may view all public comments on NCUA's 
website at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: Pamela Yu, Special Counsel to the

[[Page 36489]]

General Counsel, Office of General Counsel, at the above address or 
telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:
I. Introduction
II. Background
III. Proposed Revisions to the IRPS
IV. Regulatory Procedures

I. Introduction

    The Board recognizes that many Americans face hiring barriers due 
to a criminal record, a great number of which are not violent or career 
criminals, but rather people who made poor choices early in life who 
have since paid their debt to society. Offering second chances to those 
who are truly penitent is consistent with our nation's shared values of 
forgiveness and redemption. In keeping with this spirit of clemency, 
the Board is seeking to expand career opportunities for those who have 
demonstrated remorse and responsibility for past indiscretions and wish 
to set on a path to productive living. Toward that end, the Board is 
proposing to revise its guidance regarding prohibitions imposed by 
Section 205(d) of the FCU Act.
    Section 205(d) of the FCU Act prohibits, without the prior written 
consent of the Board, a person convicted of any criminal offense 
involving dishonesty or breach of trust, or who has entered into a 
pretrial diversion or similar program in connection with a prosecution 
for such offense, from becoming or continuing as an institution-
affiliated party, or otherwise participating, directly or indirectly, 
in the conduct of the affairs of an insured credit union. In August 
2008, the Board issued final IRPS 08-1, to provide direction and 
guidance to federally insured credit unions and those persons who may 
be affected by Section 205(d) because of a prior criminal conviction or 
pretrial diversion program participation by describing the actions that 
are prohibited under the statute and establishing the procedures for 
applying for Board consent on a case-by-case basis.\1\ The IRPS has not 
been revised since 2008 and, based on its experience with the IRPS over 
the past decade, the Board is proposing to update and revise the 
guidance to reduce regulatory burden while protecting federally insured 
credit unions from risk by convicted persons. The Board encourages 
interested parties to provide their input and comments on all aspects 
of the proposal.
---------------------------------------------------------------------------

    \1\ 73 FR 48399 (Aug. 19, 2008).
---------------------------------------------------------------------------

II. Background

    Under Section 205(d)(1) of the FCU Act, except with the prior 
written consent of the Board, a person who has been convicted of any 
criminal offense involving dishonesty or breach of trust, or has agreed 
to enter into a pretrial diversion or similar program in connection 
with a prosecution for such offense may not:
     Become, or continue as, an institution-affiliated party 
with respect to any insured credit union; or
     Otherwise participate, directly or indirectly, in the 
conduct of the affairs of any insured credit union.
    Section 205(d)(1)(B) further provides that an insured credit union 
may not allow any person described above to participate in the affairs 
of the credit union without Board consent. Section 205(d)(2) imposes a 
ten-year ban against the Board's consent for a person convicted of 
certain crimes enumerated in Title 18 of the United States Code, absent 
a motion by the Board and approval by the sentencing court. Finally, 
Section 205(d)(3) states that ``whoever knowingly violates'' (d)(1)(A) 
or (d)(1)(B) commits a felony, punishable by up to five years in jail 
and a fine of up to $1,000,000 a day.
    Recognizing that certain offenses are so minor and occurred so far 
in the past so as to not currently present a substantial risk to the 
insured credit union, IRPS 08-1 excludes certain de minimis offenses 
from the need to obtain consent from the Board. However, several recent 
applications requesting the Board's consent pursuant to Section 205(d) 
involved fairly minor, low-risk, erstwhile, and isolated offenses that 
did not fall within the current de minimis exception.\2\ In light of 
these recent cases, the substantial passage of time since IRPS 08-1 was 
adopted, and importantly, the Board's commitment to opening a path 
forward for those seeking redemption for past criminal activities, the 
Board has determined it is appropriate to now consider revisions to 
IRPS 08-1.
---------------------------------------------------------------------------

    \2\ For example, in several recent cases, the offense in 
question met four of the five de minimis criteria but did not 
qualify for the exception because the potential--but not actual--
punishment exceeded the standard set forth by the IRPS, the de 
minimis exception was not available. See BD-02-18 (Oct. 18, 2018); 
BD-01-19 (Mar. 14, 2019).
---------------------------------------------------------------------------

    In proposing these amendments to IRPS 08-1, the Board is, once 
again, mindful of a corresponding Statement of Policy (SOP) issued by 
the Federal Deposit Insurance Corporation (FDIC) to determine whether 
similar or other changes should be made to IRPS 08-1 to improve 
consistency between the prudential regulators and to reduce regulatory 
burden. Section 19 of the Federal Deposit Insurance Act (FDIA) contains 
a prohibition provision similar to Section 205(d) of the FCU Act. In 
1998, the FDIC implemented an SOP regarding prohibitions imposed by 
Section 19 of the FDIA, and it has subsequently modified and updated 
its guidance on several occasions.\3\ In the past, the NCUA has drawn 
on the FDIC's SOP for guidance on this topic. In 2018, the FDIC updated 
and revised its SOP to expand its de minimis exception and to make 
other clarifying changes.\4\ In the Board's view, it is beneficial to 
both institutions and covered individuals for the NCUA's Section 205(d) 
requirements to be reasonably consistent, to the extent possible, with 
the FDIC's Section 19 requirements. Consistent guidelines between our 
sister agencies with respect to these parallel statutory provisions 
will help streamline the application process, particularly for those 
individuals seeking consent from both the NCUA and the FDIC to allow 
for potential employment at federally insured financial institutions.
---------------------------------------------------------------------------

    \3\ The FDIC has revised its SOP multiple times since its 
implementation in 1998. See 63 FR 66177 (Dec. 1, 1998); 72 FR 73823 
(Dec. 28, 2007); 73 FR 5270 (Jan. 29, 2008); 76 FR 28031 (May 13, 
2011); 77 FR 74847 (Dec. 18, 2012); 83 FR 38143 (Aug. 3, 2018).
    \4\ 83 FR 38143 (Aug. 3, 2018).
---------------------------------------------------------------------------

III. Proposed Revisions to the IRPS

    In addition to some minor grammatical, formatting, and clarifying 
changes, the Board proposes to revise the IRPS as described in detail 
below.

A. Background

    IRPS 08-1 currently provides background regarding Section 205(d)'s 
prohibition, and discusses its purpose to provide requirements, 
direction and guidance to federally insured credit unions and 
individuals covered by the statutory ban. The background section would 
be revised to make clear that IRPS 19-1 supersedes and replaces IRPS 
08-1.

B. Scope

1. Persons Covered
    The scope section of the proposed IRPS would be modified to clarify 
the persons covered by the Section 205(d) prohibition. Under the 
statute, the prohibition applies to institution-affiliated parties, as 
defined by Section 206(r) of the FCU Act,\5\ and others who are 
participants in the conduct of the affairs of an insured credit 
union.\6\
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    \5\ 12 U.S.C. 1786(r).
    \6\ 12 U.S.C. 1785(d).

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[[Page 36490]]

    Under Section 206(r), independent contractors are considered 
institution-affiliated parties if they knowingly or recklessly 
participate in violations, unsafe or unsound practices or breaches of 
fiduciary duty which are likely to cause significant loss to, or a 
significant adverse effect on, an insured credit union. IRPS 08-1's 
inclusion of the statutory definition of independent contractors, as 
contained in Section 206(r), is confusing and unnecessary in 
determining whether Section 205(d) would apply at the time the 
individual commenced work for, or participated in the affairs of, the 
credit union.
    Accordingly, proposed IRPS 19-1 would delete reference to certain 
language in the definition of ``independent contractor'' contained in 
12 U.S.C. 1786(r) that is unnecessary to determine whether Section 
205(d) applies. It would clarify that an independent contractor 
typically does not have a relationship with the insured credit union 
other than the specific activity for which the insured credit union has 
contracted, and that the relevant factor in determining whether an 
independent contractor is covered by Section 205(d)'s prohibition is 
whether the independent contractor influences or controls the 
management or affairs of that credit union.
    A person who does not meet the statutory definition of institution-
affiliated party, as contained in Section 206(r), is nevertheless 
prohibited by Section 205(d) if he or she is considered to be 
participating, directly or indirectly, in the conduct of the affairs of 
an insured credit union. Proposed IRPS 19-1 would update and clarify 
how the NCUA will determine whether a person qualifies as a participant 
in the affairs of an insured credit union. Currently, the NCUA does not 
define what constitutes participation in the conduct of the affairs of 
an insured credit union, but rather analyzes each individual's conduct 
on a case-by-case basis. The Board continues to maintain that 
participants in the affairs of a credit union is a term of art that 
defies precise definition. However, proposed IRPS 19-1 reiterates the 
NCUA's current position that agency and court decisions will inform its 
determination and that, generally, participation will depend upon the 
degree of influence or control over the management or affairs of the 
insured credit union.
2. Offenses Covered
    Proposed IRPS 19-1 would clarify that, in order for an application 
to be considered by the Board, the case must be considered final by the 
procedures of the applicable jurisdiction. In other words, all of the 
sentencing requirements associated with a conviction or conditions 
imposed by the pretrial diversion or similar program, including, but 
not limited to, imprisonment, fines, condition of rehabilitation, and 
probation requirements, must be completed before the Board will 
deliberate a consent application.
3. Offenses Not Covered
    De minimis offenses. Proposed IRPS 19-1 would reduce burden on 
credit unions and covered individuals by modifying the current 
exception for de minimis offenses: First, by updating the general 
criteria for the exception; and second, by substantially expanding the 
scope of the exception to include additional offenses to qualify as de 
minimis offenses. Under the current rule, where the covered offense is 
considered de minimis, approval is automatically granted, and an 
application for the Board's consent is not be required.
    Under the NCUA's current policy in IRPS 08-1, a covered offense is 
considered de minimis if it meets all of the following five criteria: 
(1) There is only one conviction or entry into a pretrial diversion 
program of record for a covered offense; (2) the offense was punishable 
by imprisonment for a term of less than one year and/or a fine of less 
than $1,000, and the punishment imposed by the court did not include 
incarceration; (3) the conviction or pretrial diversion program was 
entered at least five years prior to the date an application would 
otherwise be required; (4) the offense did not involve an insured 
depository institution or insured credit union; and (5) the Board or 
any other Federal financial institution regulatory agency has not 
previously denied consent under Section 205(d) of the FCU Act or 
Section 19 of the FDIA, respectively, for the same conviction or 
participation in a pretrial diversion program.
    Proposed IRPS 19-1 would modify the de minimis offenses exception 
by updating this general criteria to better align with developments in 
criminal reform and sentencing guidelines that have occurred since IRPS 
08-1 was first adopted in 2008. Specifically, the potential punishment 
and/or fine provision (criterion (2)) would be updated to allow the 
following offenses to meet that de minimis criterion: Those punishable 
by imprisonment for a term of one year or less and/or a fine of $2,500 
or less, and those punishable by three days or less of jail time.
    Proposed IRPS 19-1 would also add a definition of ``jail time'' to 
clarify the circumstances under which a lesser crime would qualify as 
de minimis. The NCUA is aware that various jurisdictions take different 
approaches to confinement depending on the nature of the crime (e.g., 
house arrest, home detention, ankle monitor, voice curfew, work release 
etc.). The new definition would clarify that the term ``jail time'' 
includes any significant restraint on an individual's freedom of 
movement, including confinement to a specific facility or building on a 
continuous basis where the person may leave temporarily only to perform 
specific functions or during specified time periods or both. However, 
the Board does not intend the term to include individuals on probation 
or parole who may be restricted to a particular jurisdiction, or who 
must report occasionally to an individual or to a specified location.
    Additional applications of the de minimis exception. Proposed IRPS 
19-1 would also significantly expand the scope of the exception to 
include additional offenses to qualify as de minimis offenses. The 
Board intends to meaningfully expand the scope of the exception, 
thereby eliminating the need to submit an application for certain low-
risk, isolated offenses. This expansion would result in a significant 
reduction in regulatory burdens to credit unions, covered individuals, 
and the agency, while continuing to mitigate the risk to insured credit 
unions posed by convicted persons.
    Age at time of covered offense. The Board recognizes that isolated, 
youthful mistakes may be worthy of forgiveness and second chances. 
Individuals who committed minor offenses when they were still at an 
impressionable age deserve a greater opportunity for redemption. 
Accordingly, the Board proposes a new age-based exception to the filing 
requirement. Under the proposal, a person with a covered conviction or 
program entry that occurred when the individual was 21 years of age or 
younger at the time of the conviction or program entry, and who 
otherwise meets the general de minimis criteria, will qualify for this 
de minimis exception if: (1) The conviction or program entry was 
entered at least 30 months \7\ prior to the date an application would 
otherwise be required and (2) all sentencing or program requirements 
have been met prior to the date an application would otherwise be 
required.
---------------------------------------------------------------------------

    \7\ Or, half the regular 5-year period.
---------------------------------------------------------------------------

    Convictions or program entries for insufficient funds checks. The 
Board also proposes to expand the de minimis

[[Page 36491]]

exception to cover certain convictions for ``bad'' or insufficient 
funds checks. In the Board's view, certain bad check offenses generally 
are low-risk and can be treated as de minimis. Thus, under proposed 
IRPS 19-1, convictions or pretrial diversion program entries of record 
based on the writing of ``bad'' or insufficient funds check(s) will be 
considered a de minimis offense and will not be considered as having 
involved an insured depository institution or insured credit union if 
the following conditions apply:
     There is no other conviction or pretrial diversion program 
entry subject to Section 205(d);
     The aggregate total face value of all ``bad'' or 
insufficient funds check(s) cited across all the conviction(s) or 
program entry or entries for bad or insufficient checks is $1,000 or 
less; and
     No insured depository institution or insured credit union 
was a payee on any of the ``bad'' or insufficient funds checks that 
were the basis of the conviction(s) or program entry or entries.
    Offenses that meet the above criteria would not require an 
application for the Board's consent.
    Convictions or program entries for small-dollar, simple theft. A 
substantial number of applications that have come before the Board 
since 2008 have involved convictions or program entries for relatively 
minor, low-risk, small-dollar, simple theft (for example, shoplifting, 
retail theft, etc.). Based on a historical review of Section 205(d) 
applications, the Board granted its consent to the vast majority of 
those covered individuals with small-dollar, simple theft convictions, 
or program entries. Treating this category of offenses as de minimis 
would streamline the application process, without creating undue or 
substantial risk to insured credit unions. Accordingly, under proposed 
IRPS 19-1, a conviction or pretrial diversion program entry based on a 
simple theft of goods, services and/or currency (or other monetary 
instrument) is considered de minimis where the following conditions are 
met:
     The aggregate value of the currency, goods, and/or 
services taken was $500 or less at the time of conviction or program 
entry; and
     The person has no other conviction or program entry 
described in Section 205(d); and
     It has been five years since the conviction or program 
entry (or 30 months in the case of a person 21 years or younger at the 
time of the conviction or program entry); and
     It does not involve an insured depository institution or 
insured credit union.
    For purposes of the exception, simple theft does not include the 
offenses of burglary, forgery, robbery, identity theft, or fraud. These 
crimes would continue to require an application for the Board's 
consent, unless otherwise qualifying as de minimis.
    Convictions or program entries for the use of a fake identification 
card. Under proposed IRPS 19-1, the use of a fake, false, or altered 
identification card by a person under the legal age to obtain or 
purchase alcohol, or to enter a premises where alcohol is served and 
age appropriate identification is required, would be considered de 
minimis, provided there is no other conviction or program entry for the 
covered offense. The Board has determined that covered individuals with 
convictions for the use of fake identification pose little risk to 
insured credit unions.
    Convictions or program entries for simple misdemeanor drug 
possession. There are a host of significant extrajudicial consequences 
for individuals with nonviolent drug possession convictions, including 
not only employment bans but the loss of Federal financial aid, 
eviction from public housing, disqualification from occupational 
licenses, loss of voting rights, and denial of public assistance. 
Moreover, research shows that drug convictions are a disproportionate 
burden on people of color. In addition, the Board recognizes that some 
uncertainty and confusion exists with respect to marijuana-related 
offenses, with marijuana now legal in many states but still illegal at 
the Federal level.\8\
---------------------------------------------------------------------------

    \8\ Marijuana laws are rapidly evolving across all 50 states. 
Multiple states have legalized or decriminalized marijuana in some 
form at the state level. However, marijuana remains a Schedule I 
drug under the Federal Controlled Substances Act. See 21 U.S.C. 
812(b)(1). Further information about marijuana legalization may be 
found online at https://disa.com/map-of-marijuana-legality-by-state.
---------------------------------------------------------------------------

    While not discounting the public health implications of illegal 
drug use and possession, the Board maintains that covered persons with 
single convictions or program entries for simple drug possession pose 
minimal risk to insured credit unions. Thus, proposed IRPS 19-1 would 
classify as de minimis those convictions or entries for drug offenses 
meeting the following conditions:
     The person has no other conviction or program entry 
described in Section 205(d); and
     The single conviction or program entry for simple 
possession of a controlled substance was classified as a misdemeanor 
and did not involve the illegal distribution (including an intent to 
distribute), sale, trafficking, or manufacture of a controlled 
substance or other related offense; and
     It has been five years since the conviction or program 
entry (or 30 months in the case of a person 21 years or younger at the 
time of the conviction or program entry).
    Convictions or program entries for intent to distribute, illegal 
distribution, illegal sale or trafficking of a controlled substance, or 
illegal manufacture of a controlled substance would continue to require 
an application for the Board's consent, unless otherwise qualifying as 
de minimis.
    Proposed IRPS 19-1 would continue to require that any person who 
meets the de minimis criteria must be covered by a fidelity bond to the 
same extent as other employees in similar positions. In addition, that 
person must disclose the presence of the conviction or pretrial 
diversion program entry to all insured credit unions or insured 
depository institutions in the affairs of which he or she intends to 
participate.
    In addition, consistent with current agency policy, no conviction 
or pretrial diversion program entry for a violation of the Title 18 
sections set out in 12 U.S.C. 1785(d)(2) can qualify under any of the 
de minimis exceptions to filing.
    Expunged convictions. Under the NCUA's current policy, a conviction 
that has been ``completely expunged'' is not considered a conviction of 
record and will not require an application for the NCUA Board's consent 
under Section 205(d). However, the Board is aware that it is sometimes 
unclear whether certain state set-aside provisions constitute a 
complete expungement for Section 205(d) purposes (for example, where or 
the conviction may still be revealed under certain circumstances or 
otherwise remains on the individual's record). Accordingly, proposed 
IRPS 19-1 would clarify the circumstances under which a conviction 
would be deemed expunged for purposes of Section 205(d).
    Specifically, the Board proposes to clarify that if an order of 
expungement has been issued in regard to a conviction or program entry 
and is intended by the language in the order itself, or in the 
legislative provisions under which the order was issued, to be a 
complete expungement, then the jurisdiction, either in the order or the 
underlying legislative provisions, cannot allow the conviction or 
program entry to be used for any subsequent purpose. This includes, but 
is not

[[Page 36492]]

limited to, an evaluation of a person's fitness or character. Under 
proposed IRPS 19-1, the failure to destroy or seal the records would 
not prevent the expungement from being considered complete for purposes 
of Section 205(d). Expungements of pretrial diversion or similar 
program entries would be treated the same as expungements for 
convictions. Moreover, under proposed IRPS 19-1, convictions set aside 
or reversed after the applicant has competed sentencing would be 
treated consistent with pretrial diversions programs unless the court 
records reflect that the underlying conviction was set aside based on a 
finding on the merits that such conviction was wrongful.

C. Duty Imposed on Credit Unions

    Section 205(d) imposes a duty upon every federally insured credit 
union to make a reasonable inquiry regarding the history of every 
applicant for employment, including taking appropriate steps to avoid 
hiring or permitting the participation of convicted persons. Under the 
NCUA's current policy, federally insured credit unions should, at a 
minimum, establish a screening process to obtain information about 
convictions and program entries from job applicants. However, the 
current policy is unclear as to what steps a credit union should or 
must take when it learns about a job applicant's de minimis offense. 
Thus, proposed IRPS 19-1 would clarify that when a credit union learns 
that a prospective employee has a prior conviction or program entry for 
a de minimis offense, the credit union should document in its files 
that an application is not required because the covered offense is 
considered de minimis and meets the criteria for the exception.
    The proposal would also allow for extensions of conditional offers 
of employment to prospective employees requiring the Board's consent 
under Section 205(d). While the Board endeavors to promptly consider 
all consent applications, it also recognizes that the lapse in time 
necessary to process an application is inconvenient and burdensome to 
both credit unions and prospective employees. Thus, under proposed IRPS 
19-1, a credit union may extend a conditional offer of employment 
contingent on the completion of a satisfactory background check to 
determine if the applicant is barred by Section 205(d). If a 
conditional offer is extended, however, the job applicant may not 
commence work for or be employed by the credit union until the 
applicant is determined to not be barred under Section 205(d) or 
receives consent from the Board.

D. Procedures for Requesting the Board's Consent Under Section 205(d)

    Proposed IRPS 19-1 would not modify the current procedures for 
requesting the Board's consent under Section 205(d). It would, however, 
add language to clarify the distinction between a credit union-
sponsored application filed by the institution on behalf of a covered 
individual and an individual application filed on a covered person's 
own behalf. Generally, an application must be filed by an insured 
credit union on behalf of a person (credit union-sponsored application) 
unless the Board, for substantial good cause, grants a waiver of that 
requirement and allows the person to file an application in their own 
right (individual application). In most cases, a credit union-sponsored 
application is for a particular person, in a particular job, at a 
particular credit union. On the other hand, an individual application 
is typically requesting a blanket waiver for the applicant to be 
employed or participate in the conduct of the affairs of any insured 
credit union.
    As discussed in more detail below, the Section 205(d) application 
form would also be revised to more clearly distinguish between the two 
types of applications and the supporting information required for each.
    Additionally, the proposed IRPS would clarify that the appropriate 
regional office for submission of a credit union-sponsored application 
is the program office that oversees the credit union (i.e., the program 
office covering the state where the credit union's home office is 
located, or the Office of National Examinations and Supervision), and 
the appropriate regional office for an individual application and 
waiver of the credit union-sponsored filing requirement is the program 
office covering the state where the person resides.
    The Board is also considering whether delegating responsibility for 
reviewing certain applications could further streamline the application 
process and reduce burdens on credit unions and applicants. The Board 
is particularly interested in receiving public comment on this topic 
and encourages stakeholders to provide input on this aspect of the 
proposal.

E. Application Form

    Proposed IRPS 19-1 also revises and updates the application form 
that is required to be used to submit a Section 205(d) consent request, 
``Application to Request Consent Pursuant to Section 205(d),'' to 
reflect the changes in this proposal and to conform to current 
regulatory requirements. The modified Section 205(d) application form 
would also more clearly delineate between the two types of applications 
(credit union-sponsored versus individual) and the supporting 
documentation required for each.

IV. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a notice of proposed rulemaking, an agency prepare and 
make available for public comment an initial regulatory flexibility 
analysis that describes the impact of a proposed rule on small 
entities. A regulatory flexibility analysis is not required, however, 
if the agency certifies that the rule will not have a significant 
economic impact on a substantial number of small entities (defined for 
purposes of the RFA to include credit unions with assets less than $100 
million) and publishes its certification and a short, explanatory 
statement in the Federal Register together with the rule. Proposed IRPS 
19-1 would provide regulatory relief by decreasing the number of 
covered offenses that will require an application to the Board. The 
NCUA certifies that proposed IRPS 19-1 will not have a significant 
economic impact on a substantial number of small credit unions.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to information 
collection requirements in which an agency creates a new paperwork 
burden on regulated entities or modifies an existing burden.\9\ For 
purposes of the PRA, a paperwork burden may take the form of a 
reporting, disclosure, or recordkeeping requirement, each referred to 
as an information collection. The NCUA may not conduct or sponsor, and 
the respondent is not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(OMB) control number.
---------------------------------------------------------------------------

    \9\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

    Proposed IRPS 19-1 will amend the current exceptions for de minimis 
offenses by expanding the scope, thereby eliminating the need to submit 
an application for certain low-risk, isolated offenses. This amendment 
would reduce the number of respondents applying for consent from three 
to one. The proposed IRPS

[[Page 36493]]

requires credit unions to document when an application is not required 
because the covered offense is considered de minimis. This new 
recordkeeping requirement is minimal and would only impact those credit 
unions or individuals who would otherwise have submitted an application 
for consent.
    These program changes would revise the information collection 
requirement currently approved OMB control number 3133-0203, as 
follows:
    Title of Information Collection: IRPS 19-1, Guidance Regarding 
Prohibitions Imposed by Section 205(d) of the Federal Credit Union Act.
    Estimated Number of Respondents: 3.
    Estimated Annual Frequency of Response: 1.33.
    Estimated Total Annual Reponses: 4.
    Estimated Hours per Response: 0.75.
    Estimated Total Annual Burden Hours: 3.
    Affected Public: Private Sector: Not-for-profit institutions; 
Individual or Household.
    The NCUA invites comments on: (a) Whether the collections of 
information are necessary for the proper performance of the agencies' 
functions, including whether the information has practical utility; (b) 
the accuracy of the estimates of the burden of the information 
collections, including the validity of the methodology and assumptions 
used; (c) ways to enhance the quality, utility, and clarity of the 
information to be collected; (d) ways to minimize the burden of the 
information collections on respondents, including through the use of 
automated collection techniques or other forms of information 
technology; and (e) estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    All comments are a matter of public record. Comments regarding the 
information collection requirements should be sent to (1) Dawn 
Wolfgang, NCUA PRA Clearance Officer, National Credit Union 
Administration, 1775 Duke Street, Suite 6016, Alexandria, Virginia 
22314, or Fax No. 703-519-8572, or Email at [email protected] and 
the (2) Office of Information and Regulatory Affairs, Office of 
Management and Budget, Attention: Desk Officer for NCUA, New Executive 
Office Building, Room 10235, Washington, DC 20503, or email at 
[email protected].

C. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
NCUA, an independent regulatory agency, as defined in 44 U.S.C. 
3502(5), voluntarily complies with the executive order to adhere to 
fundamental federalism principles. Proposed IRPS 19-1 would not have a 
substantial direct effect on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government. As such, 
the NCUA has determined that proposed IRPS 19-1 does not constitute a 
policy that has federalism implications for purposes of the executive 
order.

D. Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that proposed IRPS 19-1 will not affect 
family well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act of 1999.\10\
---------------------------------------------------------------------------

    \10\ Public Law 105-277, 112 Stat. 2681 (1998).

---------------------------------------------------------------------------
    Authority: 12 U.S.C. 1752a, 1756, 1766, 1785.

    By the National Credit Union Administration Board, on July 18, 
2019.
Gerard Poliquin,
Secretary of the Board.

Interpretive Ruling and Policy Statement 19-1 Exceptions to Employment 
Restrictions Under Section 205(d) of the Federal Credit Union Act 
(``Second Chance IRPS'')

I. Background

    This Interpretive Ruling and Policy Statement (IRPS) provides 
requirements, direction, and guidance to federally insured credit 
unions (insured credit unions) and individuals regarding the 
prohibition imposed by operation of law by Section 205(d) of the 
Federal Credit Union Act (FCU Act), 12 U.S.C. 1785(d). Section 
205(d)(1) provides that, except with the prior written consent of the 
National Credit Union Administration (NCUA) Board, a person who has 
been convicted of any criminal offense involving dishonesty or breach 
of trust, or has agreed to enter into a pretrial diversion or similar 
program in connection with a prosecution for such offense may not:
     Become, or continue as, an institution-affiliated party 
with respect to any insured credit union; or
     Otherwise participate, directly or indirectly, in the 
conduct of the affairs of any insured credit union.
    Section 205(d)(1)(B) further provides that an insured credit union 
may not allow any person described above to engage in any conduct or to 
continue any relationship prohibited by Section 205(d). The statute 
imposes a ten-year ban against the NCUA Board granting consent for a 
person convicted of certain crimes enumerated in Title 18 of the United 
States Code. In order for the NCUA Board to grant consent during the 
ten-year period, the NCUA Board must file a motion with, and obtain the 
approval of, the sentencing court. Finally, Section 205(d)(3) states 
that ``whoever knowingly violates'' (d)(1)(A) or (d)(1)(B) is 
committing a felony, punishable by up to five years in jail and a fine 
of up to $1,000,000 a day.
    This IRPS provides guidance to credit unions and individuals 
regarding who is subject to the prohibition provision of Section 
205(d). The IRPS defines what offenses come within the prohibition 
provision of Section 205(d) and thus require an application for the 
NCUA Board's consent to participate in the affairs of an insured credit 
union. The IRPS also identifies certain offenses that will be excluded 
from Section 205(d) and do not require the NCUA Board's consent. In 
order to assist those who may need the consent of the NCUA Board to 
participate in the affairs of an insured credit union, the IRPS 
explains the procedures to request such consent, specifies the 
application form that must be used, clarifies the duty imposed on 
credit unions by Section 205(d), and identifies the factors the NCUA 
Board will consider in deciding whether to provide such consent. 
Finally, the IRPS explains how an applicant could appeal a decision by 
the NCUA Board denying an application for its consent. This IRPS 
supersedes and replaces former IRPS 08-1.\11\
---------------------------------------------------------------------------

    \11\ 73 FR 48399 (Aug. 19, 2008).
---------------------------------------------------------------------------

II. Policies and Procedures Regarding Prohibitions Imposed by Section 
205(d)

A. Scope of Section 205(d) of the FCU Act

1. Persons Covered by Section 205(d)
    Section 205(d) of the FCU Act applies to institution-affiliated 
parties, as defined by Section 206(r) of the FCU Act, 12 U.S.C. 
1786(r), and others who are participants in the conduct of the affairs 
of a federally insured credit union. This IRPS applies only to insured 
credit unions, their institution-affiliated parties, and those 
participating in the affairs of an insured credit union.
    (a) Institution-affiliated parties.
    Institution-affiliated parties include any committee member, 
director, officer, or employee of, or agent for, and insured credit 
union; any consultant, joint venture partner, and any other person as 
determined by the Board (by regulation or on a case-by-case basis)

[[Page 36494]]

who participates in the conduct of the affairs of an insured credit 
union; or any independent contractor (including any attorney, 
appraiser, or accountant). Therefore, all officials, committee members 
and employees of an insured credit union fall within the scope of 
Section 205(d) of the FCU Act. Additionally, anyone the NCUA determines 
to be a de facto employee, applying generally applicable standards of 
employment law, will also be subject to Section 205(d). Typically, an 
independent contractor does not have a relationship with the insured 
credit union other than the activity for which the insured credit union 
has contracted. As a general rule, an independent contractor who 
influences or controls the management or affairs of an insured credit 
union, would be covered by Section 205(d). In addition, a ``person'' 
for purposes of Section 205(d) means an individual, and does not 
include a corporation, firm or other business entity.
    (b) Participants in the affairs of an insured credit union.
    A person who does not meet the definition of institution-affiliated 
party is nevertheless prohibited by Section 205(d) if he or she is 
considered to be participating, directly or indirectly, in the conduct 
of the affairs of an insured credit union. Whether persons who are not 
institution-affiliated parties are covered depends upon their degree of 
influence or control over the management or affairs of an insured 
institution. Those who exercise major policymaking functions of an 
insured institution would be deemed participants in the affairs of that 
institution and covered by Section 205(d). Participants in the affairs 
of a credit union is a term of art and is not capable of more precise 
definition. The NCUA does not define what constitutes participation in 
the conduct of the affairs of an insured credit union but will analyze 
each individual's conduct on a case-by-case basis and make a 
determination. Agency and court decisions will provide the guide as to 
what standards will be applied. As a general proposition, however, 
participation will depend upon the degree of influence or control over 
the management or affairs of the insured credit union. Those who 
exercise major policymaking functions at an insured credit union would 
fall within this category.
2. Offenses Covered by Section 205(d)
    Except as indicated in subsection 3, below, an application 
requesting the consent of the NCUA Board under Section 205(d) is 
required where any adult, or minor treated as an adult, has received a 
conviction by a court of competent jurisdiction for any criminal 
offense involving dishonesty or breach of trust (a covered offense), or 
where such person has entered a pretrial diversion or similar program 
regarding a covered offense. Before an application is considered by the 
NCUA Board, all of the sentencing requirements associated with a 
conviction or conditions imposed by the pretrial diversion or similar 
program, including but not limited to, imprisonment, fines, condition 
of rehabilitation, and probation requirements, must be completed, and 
the case must be considered final by the procedures of the applicable 
jurisdiction. The following definitions apply:
    Conviction. There must be a conviction of record. Section 205(d) 
does not apply to arrests, pending cases not brought to trial, 
acquittals, or any conviction which has been reversed on appeal. A 
conviction with regard to which an appeal is pending will require an 
application until or unless reversed. A conviction for which a pardon 
has been granted will require an application.
    Pretrial Diversion or Similar Program. A pretrial diversion 
program, whether formal or informal, is characterized by a suspension 
or eventual dismissal of charges or criminal prosecution upon agreement 
by the accused to treatment, rehabilitation, restitution, or other non-
criminal or non-punitive alternatives. Whether a program constitutes a 
pretrial diversion is determined by relevant federal, state or local 
law, and, if not so designated under applicable law then the 
determination on whether it is a pretrial diversion or similar program 
will be made by the NCUA Board on a case-by-case basis.
    Dishonesty or Breach of Trust. The conviction or entry into a 
pretrial diversion program must have been for a criminal offense 
involving dishonesty or breach of trust.
    ``Dishonesty'' means directly or indirectly to cheat or defraud; to 
cheat or defraud for monetary gain or its equivalent; or wrongfully to 
take property belonging to another in violation of any criminal 
statute. Dishonesty includes acts involving want of integrity, lack of 
probity, or a disposition to distort, cheat, or act deceitfully or 
fraudulently, and may include crimes which federal, state or local laws 
define as dishonest.
    ``Breach of trust'' means a wrongful act, use, misappropriation or 
omission with respect to any property or fund which has been committed 
to a person in a fiduciary or official capacity, or the misuse of one's 
official or fiduciary position to engage in a wrongful act, use, 
misappropriation or omission.
    Whether a crime involves dishonesty or breach of trust will be 
determined from the statutory elements of the crime itself. All 
convictions or pretrial diversion program entries for offenses 
concerning the illegal manufacture, sale, distribution of or 
trafficking in controlled substances shall require an application for 
the NCUA Board's consent under Section 205(d) unless they fall within 
the provisions for the de minimis offenses set out below.
3. Offenses Not Covered by Section 205(d)
    De minimis offenses.
    In general. Approval is automatically granted and an application 
for the NCUA Board's consent under Section 205(d) will not be required 
where the covered offense is considered de minimis, because it meets 
all of the following criteria:
     There is only one conviction or entry into a pretrial 
diversion program of record for a covered offense;
     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 time. The NCUA Board considers 
jail time to include any significant restraint on an individual's 
freedom of movement which includes, as part of the restriction, 
confinement to a specific facility or building on a continuous basis 
where the person may leave temporarily only to perform specific 
functions or during specified time periods or both. However, this 
definition is not intended to include those on probation or parole who 
may be restricted to a particular jurisdiction, or who must report 
occasionally to an individual or to a specified location;
     The conviction or pretrial diversion program was entered 
at least five years prior to the date an application would otherwise be 
required;
     The offense did not involve an insured depository 
institution \12\ or insured credit union; and
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    \12\ For purposes of this IRPS, the term ``insured depository 
institution'' means any bank or savings association the deposits of 
which are insured by the FDIC. See 12 U.S.C. 1813(c)(2).
---------------------------------------------------------------------------

     The NCUA Board or any other federal financial institution 
regulatory agency has not previously denied consent under Section 
205(d) of the FCU Act or Section 19 of the FDIA, respectively, for the 
same conviction or participation in a pretrial diversion program.
    Additional applications of the de minimis offenses exception to 
filing.

[[Page 36495]]

    Age at time of covered offense. If the actions that resulted in a 
covered conviction or pretrial diversion program entry of record all 
occur when the individual was 21 years of age or younger, then the 
subsequent conviction or program entry, that otherwise meets the 
general de minimis criteria in (a)(1) above will be considered de 
minimis if the conviction or program entry was entered at least 30 
months prior to the date an application would otherwise be required and 
all sentencing or program requirements have been met.
    Convictions or program entries for insufficient funds checks. 
Convictions or pretrial diversion program entries of record based on 
the writing of ``bad'' or insufficient funds check(s) will be 
considered a de minimis offense and will not be considered as having 
involved an insured depository institution or insured credit union if 
the following applies:
     There is no other conviction or pretrial diversion program 
entry subject to Section 205(d) and the aggregate total face value of 
all ``bad'' or insufficient funds check(s) cited across all the 
conviction(s) or program entry or entries for bad or insufficient 
checks is $1,000 or less and;
     No insured depository institution or insured credit union 
was a payee on any of the ``bad'' or insufficient funds checks that 
were the basis of the conviction(s) or program entry or entries.
    Convictions or program entries for small-dollar, simple theft. A 
conviction or pretrial diversion program entry based on a simple theft 
of goods, services and/or currency (or other monetary instrument) where 
the aggregate value of the currency, goods, and/or services taken was 
$500 or less at the time of conviction or program entry, where the 
person has no other conviction or program entry described in Section 
205(d), and where it has been five years since the conviction or 
program entry (or 30 months in the case of a person 21 years or younger 
at the time of the conviction or program entry) and which does not 
involve an insured depository institution or insured credit union is 
considered de minimis. Simple theft excludes burglary, forgery, 
robbery, identity theft, and fraud.
    Convictions or program entries for the use of a fake, false, or 
altered identification card. The use of a fake, false, or altered 
identification card used by a person under the legal age for the 
purpose of obtaining or purchasing alcohol, or used for the purpose of 
entering a premises where alcohol is served but for which age 
appropriate identification is required, provided that there is no other 
conviction or pretrial diversion program entry for the covered offense, 
will be considered de minimis.
    Convictions or program entries for simple misdemeanor drug 
possession. A conviction or pretrial diversion program entry based on 
simple drug possession or illegal possession of a controlled substance 
where the offense was classified as a misdemeanor at the time of 
conviction or program entry, where the person has no other conviction 
or program entry described in Section 205(d), and where it has been 
five years since the conviction or program entry (or 30 months in the 
case of a person 21 years or younger at the time of the conviction or 
program entry) and which does not involve the illegal distribution 
(including an intent to distribute), sale, trafficking, or manufacture 
of a controlled substance or other related offense is considered de 
minimis. Simple possession excludes intent to distribute, illegal 
distribution, illegal sale or trafficking of a controlled substance, or 
illegal manufacture of a controlled substance.
    Any person who meets the foregoing de minimis criteria must be 
covered by a fidelity bond to the same extent as other employees in 
similar positions. An insured credit union may not allow any person to 
participate in its affairs, even if that person has a conviction for 
what would constitute a de minimis covered offense, if the person 
cannot obtain required fidelity bond coverage.
    Any person who meets the foregoing criteria for a de minimis 
offense must disclose the presence of the conviction or pretrial 
diversion program entry to all insured credit unions or other insured 
institutions in the affairs of which he or she intends to participate.
    Further, no conviction or pretrial diversion program entry for a 
violation of the Title 18 sections set out in 12 U.S.C. 1785(d)(2) can 
qualify under any of the de minimis exceptions to filing set out above.
    Youthful offender adjudgments. An adjudgment by a court against a 
person as a ``youthful offender'' under any youth offender law, or any 
adjudgment as a ``juvenile delinquent'' by any court having 
jurisdiction over minors as defined by state law does not require an 
application for the NCUA Board's consent. Such adjudications are not 
considered convictions for criminal offenses. Such adjudications do no 
constitute a matter covered under Section 205(d) and is not an offense 
or program entry for determining the applicability of the de minimis 
offenses exception to the filing of an application.
    Expunged convictions. A conviction that has been completely 
expunged is not considered a conviction of record and will not require 
an application for the NCUA Board's consent under Section 205(d). If an 
order of expungement has been issued in regard to a conviction or 
pretrial diversion program entry and is intended by the language in the 
order itself, or in the legislative provisions under which the order 
was issued, to be a complete expungement, then the jurisdiction, either 
in the order or the underlying legislative provisions, cannot allow the 
conviction or program entry to be used for any subsequent purpose 
including, but not limited to, an evaluation of a person's fitness or 
character. The failure to destroy or seal the records will not prevent 
the expungement from being considered complete for the purposes of 
Section 205(d) in such a case. Expungements of pretrial diversion or 
similar program entries will be treated the same as those for 
convictions. Convictions that are set aside or reversed after the 
applicant has competed sentencing will be treated consistent with 
pretrial diversions or similar programs unless the court records 
reflect that the underlying conviction was set aside based on a finding 
on the merits that such conviction was wrongful.

B. Duty Imposed on Credit Unions

    Section 205(d) imposes a duty upon every insured credit union to 
make a reasonable inquiry regarding the history of every applicant for 
employment. The NCUA believes that inquiry should consist of taking 
steps appropriate under the circumstances, consistent with applicable 
law, to avoid hiring or permitting participation in its affairs by a 
person who has a conviction or entry into a pretrial diversion program 
for a covered offense. At a minimum, each insured credit union should 
establish a screening process which provides the insured credit union 
with information concerning any convictions or pretrial diversion 
programs pertaining to a job applicant. This would include, for 
example, the completion of a written employment application which 
requires a listing of all convictions and pretrial diversion program 
entries. When the credit union learns that a prospective employee has a 
prior conviction or entered into a pretrial diversion program for a 
covered offense, the credit union should document in its files that an 
application is not required because the covered offense is considered 
de minimis and meets the criteria for the exception, or submit an 
application requesting the NCUA Board's consent under Section 205(d) 
prior to hiring the person or otherwise permitting him or

[[Page 36496]]

her to participate in its affairs. In the alternative, for the purposes 
of Section 205(d), a credit union may extend a conditional offer of 
employment contingent on the completion of a background check 
satisfactory to the credit union and to determine if the applicant is 
barred by Section 205(d). In such a case, the job applicant may not 
commence work for or be employed by the credit union until such time 
that the applicant is determined to not be barred under Section 205(d).
    If an insured credit union discovers that an employee, official, or 
anyone else who is an institution-affiliated party or who participates, 
directly or indirectly, in its affairs, is in violation of Section 
205(d), the credit union must immediately place that person on a 
temporary leave of absence from the credit union and file an 
application seeking the NCUA Board's consent under Section 205(d). The 
person must remain on such temporary leave of absence until such time 
as the NCUA Board has acted on the application. When the NCUA learns 
that an institution-affiliated party or a person participating in the 
affairs of an insured credit union should have received the NCUA 
Board's consent under Section 205(d) but did not, the NCUA will look at 
the circumstances of each situation to determine whether the inquiry 
made by the credit union was reasonable under the circumstances.

C. Procedures for Requesting the NCUA Board's Consent Under Section 
205(d)

    Section 205(d) of the FCU Act serves, by operation of law, as a 
statutory bar to participation in the affairs of an insured credit 
union, absent the written consent of the NCUA Board. When an 
application for the NCUA Board's consent under Section 205(d) is 
required, the insured credit union must file a written application 
using the attached form with the appropriate NCUA Regional Director. 
The purpose of an application is to provide the applicant an 
opportunity to demonstrate that, notwithstanding the bar, the person is 
fit to participate in the conduct of the affairs of an insured credit 
union without posing a risk to its safety and soundness or impairing 
public confidence in that institution. Such an application should 
thoroughly explain the circumstances surrounding the conviction or 
pretrial diversion program. The applicant may also address the relevant 
factors and criteria the NCUA Board will consider in determining 
whether to grant consent, specified below. The burden is upon the 
applicant to establish that the application warrants approval.
    The application must be filed by an insured credit union on behalf 
of a person (credit union-sponsored application) unless the NCUA Board 
grants a waiver of that requirement and allows the person to file an 
application in their own right (individual application). Such waivers 
will be considered on a case-by-case basis where substantial good cause 
for granting a waiver is shown. The appropriate regional office for a 
credit union-sponsored application is the program office that oversees 
the credit union (i.e., the program office covering the state where the 
credit union's home office is located, or the Office of National 
Examinations and Supervision). The appropriate regional office for an 
individual filing for waiver of the credit union-sponsored filing 
requirement is the program office covering the state where the person 
resides.
    When an application is not required because the covered offense is 
considered de minimis, the credit union should document in its files 
and be prepared to demonstrate that the covered offense meets the de 
minimis criteria enumerated above.

D. Evaluation of Section 205(d) Applications

    The essential criteria in assessing an application for consent 
under Section 205(d) are whether the person has demonstrated his or her 
fitness to participate in the conduct of the affairs of an insured 
credit union, and whether the employment, affiliation, or participation 
by the person in the conduct of the affairs of the insured credit union 
may constitute a threat to the safety and soundness of the institution 
or the interests of its members or threaten to impair public confidence 
in the insured credit union.
    In evaluating an application, the NCUA Board will consider:
    1. The conviction or pretrial diversion program entry and the 
specific nature and circumstances of the covered offense;
    2. Evidence of rehabilitation, including the person's reputation 
since the conviction or pretrial diversion program entry, the person's 
age at the time of conviction or program entry, and the time which has 
elapsed since the conviction or program entry;
    3. Whether participation, directly or indirectly, by the person in 
any manner in the conduct of the affairs of the insured credit union 
constitutes a threat to the safety or soundness of the insured credit 
union or the interest of its members, or threatens to impair public 
confidence in the insured credit union;
    4. The position to be held or the level of participation by the 
person at the insured credit union;
    5. The amount of influence and control the person will be able to 
exercise over the management or affairs of the insured credit union;
    6. The ability of management of the insured credit union to 
supervise and control the person's activities;
    7. The applicability of the insured institution's fidelity bond 
coverage to the person;
    8. For state chartered, federally insured credit unions, the 
opinion or position of the state regulator; and
    9. Any additional factors in the specific case that appear 
relevant.
    The foregoing criteria will also be applied by the NCUA Board to 
determine whether the interests of justice are served in seeking an 
exception in the appropriate court when an application is made to 
terminate the ten-year ban for certain enumerated offenses in violation 
of Title 18 of the United States Code prior to its expiration date. 
NCUA believes such requests will be extremely rare and will be made 
only upon a showing of compelling reasons.
    Some applications can be approved without an extensive review 
because the person will not be in a position to present any substantial 
risk to the safety and soundness of the insured credit union. Persons 
who will occupy clerical, maintenance, service or purely administrative 
positions, generally fall into this category. A more detailed analysis 
will be performed in the case of persons who will be in a position to 
influence or control the management or affairs of the insured credit 
union. Approval by the NCUA Board will be subject to the condition that 
the person shall be covered by a fidelity bond to the same extent as 
others in similar positions.
    In cases in which the NCUA Board has granted a waiver of the credit 
union-sponsored filing requirement to allow a person to file an 
application in their own right, approval of the application will be 
conditioned upon that person disclosing the presence of the 
conviction(s) or program entry or entries to all insured credit unions 
or insured depository institutions in the affairs of which he or she 
wishes to participate. When deemed appropriate, credit union-sponsored 
applications are to allow the person to work in a specific job at a 
specific credit union and may also be subject to the condition that the 
prior consent of the NCUA Board will be required for any proposed 
significant changes in the person's duties and/or responsibilities. 
Such proposed changes

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may, in the discretion of the appropriate Regional Director, require a 
new application for the NCUA Board's consent. When approval has been 
granted for a person to participate in the affairs of a particular 
insured credit union and subsequently that person seeks to participate 
in the affairs of another insured credit union, approval does not 
automatically follow. In such cases, another application must be 
submitted. Moreover, any person who has received consent from the NCUA 
Board under Section 205(d) and subsequently wishes to become an 
institution-affiliated party or participate in the affairs of an FDIC-
insured institution, he or she must obtain the prior approval of the 
FDIC pursuant to Section 19 of the FDIA.

E. Right To Request a Hearing Following the Denial of an Application 
Under Section 205(d)

    If the NCUA Board withholds consent under Section 205(d), the 
insured credit union (or in the case where a waiver has been granted, 
the individual that submitted the application) may request a hearing by 
submitting a written request within 30 days following the date of 
notification of the NCUA Board's action. The NCUA Board will apply the 
process contained in regulations governing prohibitions based on felony 
convictions, found at part 747, subpart D of Title 12, Code of Federal 
Regulations, to any request for a hearing. The insured credit union (or 
in the case where a waiver has been granted, the individual that 
submitted the application) may also waive a hearing and request that 
the NCUA Board determine the matter on the basis of written 
submissions.
BILLING CODE 7535-01-P

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[FR Doc. 2019-15706 Filed 7-26-19; 8:45 am]
 BILLING CODE 7535-01-C