Exceptions to Employment Restrictions Under Section 205(d) of the Federal Credit Union Act (“Second Chance IRPS”), 65907-65923 [2019-25699]
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Rules and Regulations
Federal Register
Vol. 84, No. 231
Monday, December 2, 2019
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
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: Final interpretive ruling and
policy statement 19–1.
AGENCY:
The NCUA Board (Board) is
updating and revising 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. The Board is rescinding
current IRPS 08–1 and issuing a revised
and updated IRPS to reduce regulatory
burden. The Board is amending and
expanding the current de minimis
exception to reduce the scope and
number of offenses that will require an
application to the Board. Specifically,
the final IRPS will not require an
application for convictions involving
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: The final IRPS takes effect
January 2, 2020.
FOR FURTHER INFORMATION CONTACT:
Pamela Yu, Special Counsel to the
General Counsel, Office of General
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SUMMARY:
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Counsel, at the above address or
telephone (703) 518–6540.
SUPPLEMENTARY INFORMATION:
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 endeavors 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
revising 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.1 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.2
The IRPS has not been revised since
2008 and, based on its experience with
the IRPS over the past decade, the Board
is updating and revising the guidance to
reduce regulatory burden while
protecting federally insured credit
unions from risk by convicted persons.
II. Background
Under Section 205(d)(1) of the FCU
Act, except with the prior written
1 12
2 73
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U.S.C. 1785(d)(1).
FR 48399 (Aug. 19, 2008).
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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.3 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
amend IRPS 08–1.
In issuing these final amendments to
IRPS 08–1, the Board remains mindful
of a corresponding Statement of Policy
(SOP) issued by the Federal Deposit
Insurance Corporation (FDIC) to
promote consistency between the
3 For example, in several recent cases, the offense
in question met four of the five de minimis criteria
but did not qualify for the de minimis exception
because the potential—but not actual—punishment
exceeded the standard set forth by IRPS 08–1. See
BD–02–18 (Oct. 18, 2018); BD–01–19 (Mar. 14,
2019).
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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.4 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.5 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.
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III. Proposed Second Chance IRPS
(IRPS 19–1)
In July 2019, the Board published and
sought public comment on a proposal to
expand exceptions to employment
restrictions under Section 205(d).6
Deemed the ‘‘Second Chance IRPS,’’ the
Board proposed to amend the current de
minimis exception to reduce the scope
and number of offenses that would
require an application to the Board.
Specifically, the proposed Second
Chance IRPS did 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. In addition, the
Board proposed some minor
grammatical, formatting, and clarifying
changes.
The Board received a total of twelve
comments from national credit union
trade associations, state credit union
associations, advocacy groups
(including one joint letter representing
36 individual groups), one federal credit
union, and one fidelity bond provider.
The commenters generally supported
4 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).
5 83 FR 38143 (Aug. 3, 2018).
6 84 FR 36488 (July 29, 2019).
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the proposed IRPS and appreciated the
Board’s efforts to reduce regulatory
burden, and to expand employment
opportunities to those deserving of a
second chance. The general consensus
among commenters was that the
proposed guidance was well-measured,
balanced, and flexible and will reduce
burdens on credit unions, covered
individuals, and the agency, while
maintaining appropriate safeguards to
ensure the new exceptions do not
present undue safety and soundness
risks to insured credit unions.
Commenters widely applauded the
NCUA’s efforts to expand employment
opportunities for low-risk convicted
persons and noted the second chance
amendments are consistent with our
nation’s redemptive spirit. One
commenter was particularly gratified
that the NCUA’s issuance will represent
a strong message in support of second
chances and act as a signal to other
industries that many former offenders
are worthy of the opportunity for
inclusion and trust.
A joint comment letter representing
numerous advocacy groups supported
the proposed Second Chance IRPS
overall, but asked that the NCUA go
further than the proposal to adopt
additional reforms and improvements to
promote expanded employment
opportunities for people with
conviction records, including, among
other things, additional expansions of
the de minimis exception; further
clarifications regarding expungements,
set-asides, and reversed convictions;
and clarifications to the evaluation
standards for Section 205(d) consent
applications.
Substantive comments on specific
aspects of the proposed Second Chance
IRPS are discussed in detail below. For
the reasons described below, the Board
is adopting the proposal with a few
minor modifications.
IV. Final Second Chance IRPS
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 proposed IRPS
revised the background section to make
clear that IRPS 19–1 supersedes and
replaces IRPS 08–1. There were no
comments on this aspect of the
proposal, and the Board adopts this
amendment as proposed.
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B. Scope
1. Persons Covered
The proposed Second Chance IRPS
modified the scope section 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,7 and others who
are participants in the conduct of the
affairs of an insured credit union.8
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. Over the years, the
definition of independent contractors in
Section 206(r), which is included in
IRPS 08–1, has created confusion among
interested parties. Given that the term is
actually unnecessary in determining
whether Section 205(d) applies at the
time the individual commenced work
for, or participated in the affairs of, the
credit union, the proposed Second
Chance IRPS deleted reference to certain
language in the definition of
‘‘independent contractor.’’ It also
clarified 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 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.
The proposed Second Chance IRPS did
not precisely define what constitutes
direct or indirect participation in the
conduct of the affairs of an insured
credit union, but rather updated and
clarified how the NCUA will determine
whether a person qualifies as a
participant in the affairs of an insured
credit union.
One commenter specifically agreed
the NCUA should not expressly define
who qualifies as a participant. Another
commenter questioned why it is
necessary for the guidance to address
both institution-affiliated parties and
7 12
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U.S.C. 1785(d).
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participants in the affairs of an insured
credit union. The commenter
encouraged the Board to delete
reference to participants as the term
appears redundant and does not seem to
expand the scope of coverage.
As noted above, the statute expressly
applies the employment prohibition to
institution-affiliated parties and others
who are participants in the conduct of
the affairs of an insured credit union.
Specifically, Section 205(d) provides
that except with prior written consent of
the Board—
1. any person who has been convicted
of any criminal offense involving
dishonesty or a 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—
a. become, or continue as, an
institution-affiliated party with respect
to any insured credit union; or
b. otherwise participate, directly or
indirectly, in the conduct of the affairs
of any insured credit union; and
2. any insured credit union may not
permit any person referred to in
paragraph (1) to engage in any conduct
or continue any relationship prohibited
under such paragraph.9
In the Board’s view, for consistency
with the operative statute, it is helpful
and appropriate for the guidance to
continue to address both institutionaffiliated parties and participants in the
affairs of an insured credit union. While
there may be overlap between the two,
retaining reference to the two distinct
statutory terms in the final IRPS will
promote clarity and maintain
consistency between the statute and
guidance.
The Board continues to maintain that
participants in the affairs of a credit
union is a term of art that defies precise
definition. Thus, the final Second
Chance IRPS 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. Each
individual’s conduct will be analyzed
on a case-by-case basis to determine if
that conduct constitutes participation in
the conduct of the affairs of an insured
credit union.
2. Offenses Covered
The proposed Second Chance IRPS
clarified 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. This means all of the
9 12
U.S.C. 1785(d).
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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. There were no comments
on this aspect of the proposal, and the
Board is adopting these provisions
without modification.
3. Offenses not Covered
Currently, where the covered offense
is considered de minimis, approval is
automatically granted, and an
application for the Board’s consent is
not required. The proposed Second
Chance IRPS modified the current
exception for de minimis offenses in
two ways: 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.
De minimis offenses. Under 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 the FDIC 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.
The proposed Second Chance IRPS
updated the general criteria for the de
minimis offenses exception to better
align with developments in criminal
reform and sentencing guidelines that
have occurred since IRPS 08–1 was
adopted in 2008. Specifically, the
potential punishment and/or fine
provision (current criterion 2) was
updated to allow those offenses
punishable by imprisonment for a term
of one year or less and/or a fine of
$2,500 or less, and those offenses
punishable by three days or less of jail
time, to meet that de minimis criterion.
Commenters noted that these changes
to the general criteria, while modest,
will nevertheless result in a meaningful
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reduction in the number of applications
to the Board. In particular, several
commenters indicated that simply
amending criterion 2 from ‘‘less than
one year’’ to ‘‘one year or less’’ will
result in significant regulatory relief.
Commenters also agreed the increase in
the dollar threshold better aligns with
criminal reform and sentencing
guidelines. One commenter was
supportive overall of the proposed
amendments to the general criteria for
the de minimis exception, but asserted
that the single conviction criterion
(criterion 1), which was not modified in
the proposal, is too restrictive.
The proposed IRPS also added a
definition of ‘‘jail time’’ to clarify that
the term 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.
One commenter specifically
supported the proposed definition of jail
time. However, another comment letter
expressed concerns that the proposal’s
definition would include time served in
pretrial confinement, for civil
infractions, or in home confinement
since these penalties impose a
‘‘significant restraint on an individual’s
freedom of movement.’’ As one
example, the comment letter noted lowrisk individuals who had their freedom
of movement restricted for failure to pay
a traffic fine would fall outside of the
exception because of the more
expansive proposed definition. Thus,
this comment letter recommended the
Board retain the current language
relative to jail time. Another commenter
suggested the definition of jail time
should include probation if probation
was the only confinement imposed as
part of an individual’s punishment.
After a review and analysis of the
comments, the Board is adopting this
aspect of the guidance unchanged in the
final Second Chance IRPS. The Board
anticipates the measured changes to
criterion 2 of the general de minimis
exception alone should result in a fairly
significant reduction in regulatory
burden. The Board is not inclined to
further relax the general criteria at this
time to allow for more than one de
minimis offense to qualify for the
general exception. The Board wishes to
emphasize, however, that for any
offense that does fit a de minimis
category, an application can still be
filed.
The Board also adopts the proposed
definition of ‘‘jail time’’ without
modification. As discussed in the
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proposal, 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) and the
proposed definition was intended to
improve transparency and enhance
compliance in that context. In the
Board’s view, the new definition is
appropriately tailored to address those
varied jurisdictional approaches in
order to clarify the circumstances under
which a lesser crime will qualify as de
minimis. In response to the comment
letter expressing concern that the
proposed definition was overly broad to
exclude individuals whose freedom of
movement is restricted for minor
crimes, such as for failure to pay a
traffic fine, the Board notes that minor
traffic violations are not criminal
offenses involving dishonesty or a
breach of trust within the scope of
Section 205(d).
Additional applications of the de
minimis exception. The proposed
Second Chance IRPS also expanded the
scope of the exception to include
several additional offenses to qualify as
de minimis offenses in order to
eliminate the need to submit an
application for certain low-risk, isolated
offenses. The proposed expansion was
intended to reduce regulatory burden to
credit unions, covered individuals, and
the agency, while continuing to mitigate
the risk to insured credit unions posed
by convicted persons.
Most commenters were very
supportive of the expansion of the
current de minimis exception to include
new qualifying offenses. One
commenter, however, disagreed with
expanding the exception to include
additional offenses, preferring the Board
have the opportunity to evaluate all
aspects of a covered individual’s
criminal past. Another commenter
expressed concern that the new
exceptions could risk the safety and
soundness of credit unions (particularly
smaller institutions), and thus, opposed
the addition of new de minimis
offenses.
As described in more detail below,
the Board generally adopts the new
qualifying offenses for de minimis
treatment as proposed, with some minor
modifications for improvement.
Age at time of covered offense. Under
the proposed Second Chance IRPS, 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
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exception if: (1) The conviction or
program entry was at least 30 months 10
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.
One commenter generally supported
this proposed change, but urged the
Board to go further by also modifying
the other general criteria applying to
offenses committed prior to the age of
21, namely, that the offense be
punishable by a jail term of less than
one year or a fine of less than $2,500.
The Board declines this
recommendation. While this measured
exception is intended to recognize that
isolated, youthful mistakes are
particularly worthy of forgiveness and
second chances, the Board remains
mindful of its safety and soundness
mandate. Reducing by half the passage
of time required for individuals with a
minor youthful conviction to qualify for
the exception provides meaningful relief
while still appropriately mitigating risks
to insured credit unions posed by
convicted persons. Accordingly, the
Board is adopting the age-based de
minimis treatment, as proposed, in the
final Second Chance IRPS.
Convictions or program entries for
insufficient funds checks. The Board
also proposed to expand the de minimis
exception to cover certain convictions
for ‘‘bad’’ or insufficient funds checks,
which, in the Board’s view, generally
are low-risk offenses that can be treated
as de minimis. Under the proposal,
these types of offenses were considered
de minimis and were not considered as
involving an insured depository
institution or insured credit union if the
following conditions apply:
• Other than for ‘‘bad’’ or insufficient
funds check(s), 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.
One commenter expressed concern
with the proposed exception for
offenses involving insufficient funds
10 Half of the regular five-year period applicable
to individuals with a covered conviction or program
entry that occurred when the individual was over
21 years of age at the time of the conviction or
program entry.
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checks and asked that the Board
readjust the qualifying aggregate total
face value amount. The same
commenter also suggested this
exception category should be revised to
impose a qualifying timeframe (e.g., 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)).
Another commenter suggested that
references to covered offenses that took
place at an ‘‘insured credit union’’ or an
‘‘insured depository institution’’ should
be revised throughout the guidance to
eliminate the ‘‘insured’’ modifier. In this
commenter’s view, the proposed
language is overly specific as any prior
offense by a covered individual
involving a financial institution, insured
or not, can increase risks to insured
credit unions.
The Board agrees that covered
individuals with convictions or program
entries for crimes involving financial
institutions may pose risks to insured
credit unions, regardless of the financial
institution’s insurance status. After
careful review, the Board maintains that
no offense category should be included
in the de minimis exception if the
covered crime was committed against a
financial institution, insured or not.
Accordingly, to the extent the
distinction between insured and
uninsured institutions is immaterial in
this context, the final IRPS eliminates
the ‘‘insured’’ modifier throughout.
However, the Board declines to impose
additional conditions on this exception
category at this time. Imposing a lower
qualifying aggregate total face value
amount or a qualifying timeframe for
this de minimis category would limit its
utility and undermine the Board’s
objective of providing well-balanced,
yet meaningful, regulatory relief. The
Board continues to take the view that
convictions for ‘‘bad’’ or insufficient
funds checks generally are low-risk
offenses that can be treated as de
minimis. Thus, offenses that meet all the
above-listed criteria, as revised to
eliminate the ‘‘insured’’ modifier, will
not require an application for the
Board’s consent under the final Second
Chance IRPS.
Convictions or program entries for
small-dollar, simple theft. As the Board
discussed in the proposed Second
Chance IRPS, 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 (e.g., shoplifting, retail
theft). Based on a historical review of
Section 205(d) applications, the Board
granted its consent to the vast majority
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of those covered individuals with
convictions or program entries related to
small-dollar, simple theft. Thus, under
the proposal, a conviction or pretrial
diversion program entry based on a
simple theft of goods, services and/or
currency (or other monetary instrument)
was 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 did not include the offenses of
burglary, forgery, robbery, identity theft,
or fraud. Under the proposal, these
crimes continued to require an
application for the Board’s consent,
unless otherwise qualifying as de
minimis.
Stakeholders providing comment on
this aspect of the proposed IRPS
generally supported the exception for
small-dollar, simple theft. Several
commenters supported the express
exclusion of burglary, forgery, robbery,
identity theft, and fraud from the
exception and agreed those offenses
should continue to require an
application for the Board’s consent.
Several commenters asked the Board to
clarify that all of the stated conditions
must be met in order for the exception
to apply. A number of commenters also
asked the Board to confirm and
emphasize in the final IRPS that simple
theft, of any value, involving a
depository institution or credit union
falls outside the de minimis exception
and will require an application to the
Board. One commenter suggested the
condition that the conviction or
program entry does not involve an
insured depository institution or
insured credit union should be revised
to eliminate the ‘‘insured’’ modifier.
One comment letter was generally in
favor of an exception for simple theft,
but contended the practical application
of the proposed exception is limited
because most simple theft convictions
involving $500 or less are likely already
covered as de minimis under the general
criteria (i.e., unlikely to be punishable
by imprisonment for a term of more
than one year or a fine of more than
$2,500, and the covered person is
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unlikely to have served more than three
days in jail). Thus, the comment letter
urged that the Board go further to
exclude from Section 205(d) coverage
certain minor dishonesty offenses, such
as all convictions for the use of a fake
ID (not only limited to alcohol-related
use), shoplifting, fare evasion, and other
lesser offenses. Alternatively, at a
minimum, the comment letter suggested
these types of convictions should be
excluded from Section 205(d) coverage
after one year from the time of
conviction or program entry.
Upon careful consideration of the
public comments, the Board continues
to take the view that the exception is
appropriately tailored to streamline the
application process without creating
undue or substantial risk to insured
credit unions, and declines to expand it
further at this time to include additional
offenses. Accordingly, the final Second
Chance IRPS adopts the small-dollar,
simple theft exception largely as
proposed. 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 all of
the above-listed conditions are met. As
discussed above, the Board agrees,
however, that the distinction between
insured and uninsured institutions is
immaterial in this context. Thus, the
final Second Chance IRPS eliminates
the ‘‘insured’’ modifier in this exception
category. Simple theft, of any value,
involving a depository institution or
credit union, whether insured or not,
falls outside the de minimis exception
and will require an application to the
Board. Where pertinent throughout, the
final Second Chance IRPS also adds the
word ‘‘all’’ to clarify that all the
described conditions must be met in
order for the exception to apply.
Convictions or program entries for the
use of a fake identification card. Under
the proposed Second Chance IRPS, 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, was
considered de minimis, provided there
is no other conviction or program entry
for the covered offense.
All commenters that provided
feedback on this aspect of the proposal
were supportive of the exception and
agreed that individuals with convictions
or program entries for the use of a fake
identification card pose little risk to
insured credit unions. Accordingly, the
Board adopts as proposed the provision
allowing de minimis treatment for the
use of fake identification by a person
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under the legal age for alcohol-related
purposes.
Convictions or program entries for
simple misdemeanor drug possession.
While not discounting the public health
implications of illegal drug use and
possession, the Board continues to
believe covered persons with single
convictions or program entries for
simple drug possession pose minimal
risk to insured credit unions.
As discussed in the proposed Second
Chance IRPS, there are already 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 disproportionately burden
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.11
Accordingly, the proposed Second
Chance IRPS also classified 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).
Under the proposal, 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 continued to require an
application for the Board’s consent,
unless otherwise qualifying as de
minimis.
Most commenters that provided input
on this part of the proposed Second
11 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.
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Chance IRPS supported the exception
and agreed that individuals with
convictions or program entries for single
convictions for simple drug possession
pose minimal risk to insured credit
unions. Several commenters echoed the
Board’s view that the exception is
appropriate given the current
uncertainty and confusion with respect
to marijuana-related offenses, with
marijuana legal under various state laws
but still federally illegal. A number of
commenters also shared the Board’s
observation that drug convictions
disproportionately burden people of
color and impose significant
extrajudicial consequences on convicted
individuals.
One comment letter, however,
recommended the Board more broadly
expand the exception to include most
drug convictions (beyond simple
possession), arguing that drug offenses
are not criminal offenses involving
dishonesty or breach of trust that should
be covered by Section 205(d). The
comment letter urged the Board to
eliminate the requirement to request
consent for persons with a conviction or
program entry for any drug possession
offense (i.e., not limited to
misdemeanors that occurred more than
five years ago), as well as for drug
offenses involving sales or distribution
of a controlled substance. The comment
letter further argued that mandatory
minimum federal sentences imposed for
drug offenses limits the effectiveness of
the proposed exception.
After careful review of the comments,
the Board maintains that an application
should be required for most drug
offenses so it can determine the nature
of the offense and elements of the crime;
thus, it will continue the current
requirement that an application be filed
for drug offenses that do not qualify as
de minimis. Moreover, while the Board
recognizes the de minimis treatment for
single convictions or program entries for
simple misdemeanor drug possession is
relatively narrowly tailored, it once
again emphasizes that, as with any
offense that does not fit a de minimis
category, an application can still be filed
for any drug crime that does not qualify
for de minimis treatment. Accordingly,
the Board adopts this exception
category, without change, in the final
IRPS.
Fidelity bond coverage. The proposed
Second Chance IRPS maintained the
agency’s current policy 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
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diversion program entry to all insured
credit unions or insured depository
institutions in the affairs of which he or
she intends to participate.
One commenter noted that,
historically, insurers have increased
premiums where an employee has a
theft or fraud conviction; thus, some
credit unions are concerned about their
ability to obtain insurance coverage for
covered individuals. This commenter
asked the NCUA to weigh the costs and
benefits of requiring a fidelity bond for
individuals that meet the de minimis
criteria under the final Second Chance
IRPS.
Several commenters expressed some
degree of concern that increasing the
number of excepted offenses not
requiring application could ultimately
lead to increased theft or fraud, thereby
resulting in increased insurance costs to
credit unions (costs that ultimately
would be borne by members). However,
most of those commenters shared the
view that this is a fairly remote
possibility and, at least in the shortterm, no immediate premium increases
are likely to result from the proposed
IRPS. Commenters noted that if such a
result were to occur, the Board should
revisit the IRPS to determine if it should
be modified.
Comments from one insurer that
provides fidelity bond coverage to credit
unions were particularly helpful on this
point. Specifically, the commenter
indicated that, while the full
implications of the proposal may not be
known for several years, it currently
does not anticipate any immediate
premium adjustments for credit unions
to result from the proposed changes.
The commenter noted, however, that
beyond fidelity bond coverage, there
could be potential future impacts for
risk management services provided to
credit unions, as well as business auto
and business liability coverages, as new
general, safety concerns may arise. This
commenter also indicated that, as a
fidelity insurer, it will reexamine its
own de minimis category to consider if
updates to its policies are necessary
given the important goals underlying
the agency’s amendments.
The Board continues to maintain that
any person who meets the de minimis
criteria must still be covered by a
fidelity bond to the same extent as other
employees in similar positions. Fidelity
bond coverage provides important
protection against losses caused by
fraud, dishonesty, theft, and similar
activities committed by credit union
employees, directors, officers,
supervisory committee members, and
credit committee members. Based on
stakeholder feedback, the Board is
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satisfied that, at least in the immediate
near-term, the final Second Chance IRPS
will not result in higher premiums for
insured credit unions. The Board is
cognizant of the possibility that, should
the incidence of theft or fraud increase
as a result of its amendments to the de
minimis exception, future impacts could
mean higher insurance premiums. The
Board will continue to monitor whether
updates to its policy are necessary if
concerns regarding premium
adjustments arise.
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 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 (i.e., where the
conviction may still be revealed under
certain circumstances or otherwise
remains on the individual’s record).
Accordingly, the proposed Second
Chance IRPS clarified the circumstances
under which a conviction is deemed
expunged for purposes of Section
205(d). Specifically, 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
limited to, an evaluation of a person’s
fitness or character. Under the proposal,
the failure to destroy or seal the records
did not prevent the expungement from
being considered complete for purposes
of Section 205(d). Expungements of
pretrial diversion or similar program
entries are treated the same as
expungements for convictions.
Moreover, under the proposed Second
Chance IRPS, convictions set aside or
reversed after the applicant has
completed sentencing were treated
consistently 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.
Commenters generally indicated the
proposal’s clarifications regarding
expunged convictions were helpful.
Several commenters were particularly
supportive of the clarification regarding
state set-aside provisions as it is
sometimes unclear whether those
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provisions constitute a complete
expungement for purposes of Section
205(d). One commenter indicated the
clarification that the failure to destroy or
seal records would not preclude them
from being considered expunged is a
positive modification that will allow
greater flexibility for credit unions.
One comment letter, however,
recommended that all expungements be
treated as complete expungements for
purposes of Section 205(d), regardless of
whether the conviction or program entry
can subsequently be used for an
evaluation of the person’s fitness or
character. The same comment letter
opposed the proposal’s clarification
regarding state set-aside provisions,
interpreting the proposed clarification
as creating a new expansion of the
Section 205(d) consent requirements to
now cover individuals with set aside or
reversed convictions where there was
not a finding of wrongful conviction.
The Board is adopting this aspect of
the proposed guidance unchanged in
the final Second Chance IRPS. It notes
that its decision to add clarifying
language regarding expunged
convictions to the Second Chance IRPS
is intended to promote transparency in
the consent application process and,
thereby, to streamline the process and
give a measure of regulatory relief to
covered individuals and insured credit
unions seeking consent from the Board.
While the Board acknowledges that
making policy clarifications may
actually result in a temporary spike in
applications (due to an increased
awareness of the Section 205(d)
employment restrictions generally and/
or greater awareness of what constitutes
a conviction of record specifically), the
Board does not view the clarifying
language regarding expunged
convictions to represent an expansion of
the Section 205(d) consent requirements
to cover individuals with set aside or
reversed convictions who were not
previously covered under IRPS 08–1.
Indeed, prior Board decisions on
Section 205(d) consent requests have
found that certain state set-aside
provisions are not the equivalent of an
expungement within the meaning of
IRPS 08–1, as the conviction may still
be revealed under certain
circumstances.12 Thus, the clarifying
language regarding expunged
convictions does not represent a
departure from the Board’s past policy
in any regard.
12 See, e.g., BD–05–16, fn 7 (Dec. 20, 2016) (citing
McCully v. Schwenn, 220 F. App’x 475 (9th Cir.
2007) (‘‘[Ariz. Rev. Stat.] section 13–907 . . . does
not expunge or remove the fact of conviction in
Arizona.’’)).
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Further, the Board does not consider
it appropriate to treat all expungements,
set asides, reversed convictions, or other
similar case dispositions as complete
expungements for purposes of Section
205(d). State law varies and, in some
jurisdictions, an expungement is not
‘‘complete’’ and is still subject to
subsequent use. In the Board’s view,
expungements that reflect the intent of
the particular jurisdiction to completely
purge a conviction or program entry
from an individual’s background
records supports an interpretation that,
from a legal and policy perspective, the
intent is to place the individual in the
same position as if there were no
conviction or program entry in the first
place. However, an expunged criminal
record that is still accessible to be used
for subsequent purposes, including an
evaluation of the person’s fitness or
character, reflects the jurisdiction’s
public policy that that record is still
relevant and germane to certain
subsequent inquiries. In considering
whether an expungement is one that
should fall outside the scope of Section
205(d), the Board’s key consideration is
whether the respective jurisdiction, by
statute or court order, intended for the
conviction or program entry to be fully
purged from the individual’s
background. Preservation in a
jurisdiction’s expungement statute or by
court order of the ability to use the
conviction or program entry for a
subsequent purpose indicates the record
has not been completely expunged.
Under these circumstances, the Board’s
interpretation is the conviction or
program entry comes within the scope
of Section 205(d). Again, however, the
Board reiterates that covered
individuals with expunged convictions
or program entries still qualifying as
convictions or record for purposes of
Section 205(d) may still apply to the
NCUA for the Board’s consent.
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,
the proposed Second Chance IRPS
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65913
clarified that when a credit union learns
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.
Comments on this aspect of the
proposal were generally positive. A
number of commenters, however, asked
for reassurance that a credit union’s
failure to maintain a record that an
application is not necessary because the
de minimis exception applies will not
be subject to supervisory action. These
commenters asked for clarification that
the recordkeeping requirement is a
suggested best practice, not a mandatory
compliance obligation. In addition, one
commenter noted that, irrespective of
the guidance, each credit union retains
the right to consider an applicant’s past
crime(s) and maintains individual
discretion in making hiring decisions.
The Board emphasizes that while the
source of the consent requirements stem
from federal statute, namely Section
205(d), this final IRPS is supervisory
guidance, not regulation. The NCUA,
along with the other federal prudential
regulators, in 2018 issued an
interagency statement to reaffirm the
role of supervisory guidance.13 The
statement confirmed that, unlike a law
or regulation, supervisory guidance does
not have the force and effect of law, and
the NCUA does not take enforcement
actions based on supervisory guidance.
Rather, supervisory guidance outlines
the NCUA’s supervisory expectations or
priorities and articulates the agency’s
general views regarding appropriate
practices for a given subject area.
The Board wishes to underscore that
documentation of an employee’s or
applicant’s de minimis offense is a
recommended practice that does not
have the force and effect of law, and the
NCUA will not take enforcement action
based on this guidance. Nevertheless,
the Board continues to believe it is
helpful to both industry and supervisory
staff to clarify the steps a credit union
should take when it learns about an
employee’s or applicant’s de minimis
offense; as such, the Board is adopting
this clarification in the final Second
Chance IRPS.
The Board encourages industry to
offer second chances and to expand
employment opportunities for former
offenders seeking redemptive paths
forward, but no insured credit union is
under any obligation to hire or retain an
13 See FFIEC ‘‘Interagency Statement Clarifying
the Role of Supervisory Guidance,’’ (Sept. 11, 2018).
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employee with a criminal background.
Insured credit unions have discretion to
establish their own internal
employment policies and should make
hiring decisions that best suit their own
individual needs and risk tolerance.
Conditional offers. The proposal
provided for extensions of conditional
offers of employment to prospective
employees requiring the Board’s consent
under Section 205(d). 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.
One commenter was skeptical of the
practical benefit of this provision, if the
credit union does not have a reasonable
expectation of the timing of the
approval process. Thus, the commenter
recommended the Board clarify in the
final IRPS the general length of time
necessary for the agency to process a
consent application. One comment
letter urged the Board to instruct credit
unions to inquire into an applicant’s
criminal background only after the
conditional offer stage of the hiring
process, to safeguard against credit
unions unfairly discarding the
applications of people with conviction
histories. Alternatively, at a minimum,
this comment letter urged that the Board
clarify credit unions are not required to
make criminal record inquiries on an
initial job application and may adopt a
policy to collect criminal background
history only after the conditional offer
stage (i.e., credit unions may adopt socalled ‘‘ban the box’’ policies).
The Board is mindful that the Section
205(d) consent application process may
impose inconveniences and
uncertainties to covered individuals and
credit unions, as both applicant and
employer remain in indeterminate state
during the process of seeking consent
from the Board. While the industry’s
desire for certainty as to the timing of
the consent application process is
understandable, the Board maintains it
is impracticable to establish a timetable
for action on consent applications
because each individual application is
fact specific and varies in complexity.
However, past applications submitted to
the Board have generally been
adjudicated within 60 days from receipt,
and, in most cases, the processing time
was significantly less. The Board
remains committed to streamlining the
application process and endeavors to
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decide on consent applications as
quickly as possible. The Board
anticipates that its decision to delegate
responsibility for reviewing certain
applications, discussed in more detail
below, will further speed up the
application process and reduce burdens
on credit unions and applicants.
The Board also reiterates that insured
credit unions are responsible for
establishing their own internal
employment policies and have
discretion to make hiring decisions in
their best judgment. The proposal’s
provision for extensions of conditional
offers of employment to prospective
employees requiring the Board’s consent
under Section 205(d) was intended to
reduce burdens in the hiring and
consent application process;
accordingly, the Board is adopting this
provision in the final Second Chance
IRPS. An insured credit union choosing
to adopt a policy to extend conditional
offers may establish its own procedures
to make criminal record inquiries at any
stage of its choosing in its hiring
process, so long as applicants do 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)
Application types. The proposed
Second Chance IRPS did not modify the
current procedures for requesting the
Board’s consent under Section 205(d).
However, the proposal added 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 unionsponsored 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. The Section 205(d) application
form was also revised to more clearly
distinguish between the two types of
applications and the supporting
information required for each.
One comment letter urged the Board
to go further than the proposal to
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expressly encourage individuals to
directly file applications in their own
right, rather than requiring that a credit
union sponsor the application. This
letter noted that while the FDIC’s
Statement of Policy (SOP) on Section 19
contains similar ‘‘substantial good
cause’’ language, in practice the FDIC
routinely accepts individual
applications and the vast majority of
applications it processes are not
sponsored by a financial institution.
The Board notes that both credit
union-sponsored applications and
individual applications were permitted
under IRPS 08–1 and both options will
continue to be available under this final
IRPS. While historically consent
applications submitted to the NCUA are
more typically credit union-sponsored,
individuals are not precluded from
filing an application in their own right
if there is substantial good cause. In the
Board’s view, highlighting the
distinction between individual
applications and credit union-sponsored
applications in the final Second Chance
IRPS may help encourage more
individuals to apply for consent without
sponsorship by a credit union. The
NCUA also intends to publish in the
near term an informational brochure to
further educate the public about the
Section 205(d) process and will
highlight the two different application
options.
Regional office for application
submission. Additionally, the proposed
IRPS clarified 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.
One comment letter urged the NCUA
to consider creating a central office to
accept and review Section 205(d)
consent applications and to be a
resource to credit unions seeking to
verify that covered individuals have
received the Board’s consent to work.
The comment letter further suggested
that this centralized office could be
delegated the responsibility to only
forward applications for Board review
that significantly merit additional
scrutiny.
Historically, the Board has received
less than ten Section 205(d) consent
applications on an annual basis. Given
this relatively low volume, it is
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unnecessary to establish a centralized
office to process consent applications.
The Board continues to maintain that
the appropriate office for submission of
a credit union-sponsored application is
the program office that oversees the
credit union, and the appropriate 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. Accordingly, the Board adopts
these clarifications in the final IRPS.
Delegation of authority. The proposal
requested public comment on whether
delegating responsibility for reviewing
certain applications could further
streamline the application process and
reduce burdens on credit unions and
applicants.
One commenter was strongly
supportive of delegating authority to
regional directors to consider 205(d)
consent applications, noting that such
delegation will likely ensure a more
timely response given the region’s
greater understanding of any relevant
local factors or information that may be
pertinent to the decision. The same
commenter, however, recommended the
Board establish a reasonable timeframe
for the region’s response so that
applications are processed
expeditiously. One comment letter
agreed that delegating responsibility for
reviewing certain applications would
help streamline the process, but
suggested responsibility should be
delegated to a central office specifically
created to accept and review Section
205(d) applications. A different
commenter was not opposed to
delegating the review of certain
applications, but expressed concern that
delegation to third-party entities could
compromise sensitive credit union
information. This commenter urged the
agency to institute proper data security
protocols, and requested additional
information on the process of
delegation, including efforts the NCUA
will take to protect sensitive credit
union and individual applicant data.
Upon review and careful
consideration of the public comments,
the Board has determined that in order
to further streamline the application
process it will delegate authority to
program offices to process, review, and
act upon credit union-sponsored
consent applications. But the Board will
retain authority to decide on individual
applications, which tend to be more
complex and fact-specific. Individual
applications also require the Board’s
waiver of the institution filing
requirement for substantial good cause
and, typically, request a blanket waiver
for the applicant to be employed or
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participate in the conduct of the affairs
of any insured credit union. These
factors support the Board’s retention of
its authority to consider individual
applications for Section 205(d) consent.
However, in delegating responsibility
for reviewing credit union-sponsored
applications, the Board wishes to assure
stakeholders that the NCUA will make
all reasonable efforts to duly secure all
sensitive information it receives in
connection with any consent
application. Toward that end, the NCUA
has conducted a Privacy Impact
Assessment (PIA) on the Second Chance
IRPS. Sensitive personally identifiable
information (PII) is encrypted if shared
intra-agency and data is stored on
secured drives with restricted access.
The Board does not anticipate that PII
will generally be shared outside the
agency, however, the NCUA’s Office of
Continuity and Security Management
may conduct criminal background
checks that may require contacting a
federal, state, or local agency which
maintains civil, criminal or other
relevant enforcement information or
other pertinent information relevant to
the Board’s decision on a Section 205(d)
consent request.
E. Application Form
The proposed Second Chance IRPS
also revised and updated 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 proposed changes and to
conform to current regulatory
requirements. The Section 205(d)
application form was also modified to
more clearly delineate between the two
types of applications (credit unionsponsored versus individual) and the
supporting documentation required for
each.
Stakeholders who commented on this
aspect of the proposal were generally
supportive of the proposed edits to the
Section 205(d) application form. One
commenter, however, noted some credit
unions have found the current
information requested to be lengthy and
onerous to both the credit union and the
covered individual, particularly in cases
where background information is
difficult to obtain from old criminal
record systems. Another commenter
urged the Board to go further in more
expressly encouraging covered
individuals to submit individual
applications.
Upon review of the comments, the
Board is adopting the improvements to
the Section 205(d) application form in
the final Second Chance IRPS. The
revised application form will more
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clearly delineate between the two
application options, which will make it
more user friendly and may encourage
more applicants to file individual
applications for blanket waivers.
While the Board recognizes it may be
difficult to obtain older records
pertaining to offenses that occurred long
ago, it remains incumbent on the
applicant to provide pertinent
documentation to support the
application in order for the NCUA to
properly evaluate the merits of the
consent request. The purpose of an
application is to provide the applicant
an opportunity to demonstrate that,
notwithstanding the statutory
employment restrictions under Section
205(d), the individual is fit to
participate in the conduct of the affairs
of an insured credit union without
posing undue risks to its safety and
soundness or impairing public
confidence in the insured credit union.
The Board maintains that the
information requested on the
application form is the minimum
amount necessary for the agency to gain
an understanding of the circumstances
surrounding the conviction or program
entry and to evaluate all the relevant
factors and criteria the NCUA will
consider in determining whether to
grant consent. Finally, the Board
reiterates that the burden remains upon
the applicant to establish that the
application warrants approval.
IV. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
generally requires the NCUA to prepare
an analysis of any significant economic
impact a regulation may have on a
substantial number of small entities
(those with less than $100 million in
assets).14 This final IRPS will provide
regulatory relief by decreasing the
number of covered offenses that will
require an application to the Board.
Accordingly, the NCUA certifies that
final 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), 44 U.S.C. 3501 et seq., requires
that the Office of Management and
Budget (OMB) approve all collections of
information by a federal agency from the
public before they can be implemented.
Respondents are not required to respond
to any collection of information unless
it displays a valid OMB control number.
14 5
U.S.C. 603(a).
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In accordance with the PRA, the
information collection requirements
included in this final IRPS has been
submitted to OMB for approval under
control number 3133–0203.
By the National Credit Union
Administration Board, on November 21,
2019.
Gerard Poliquin,
Secretary of the Board.
C. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests.15 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. The final IRPS does 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 this IRPS
does not constitute a policy that has
federalism implications for purposes of
the executive order.
Note: The following text will not appear in
the Code of Federal Regulations.
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D. Assessment of Federal Regulations
and Policies on Families
The NCUA has determined that this
final IRPS will not affect family wellbeing within the meaning of Section 654
of the Treasury and General
Government Appropriations Act, 1999,
Public Law 105–277, 112 Stat. 2681
(1998).
E. Small Business Regulatory
Enforcement Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996
(SBREFA) 16 generally provides for
congressional review of agency rules. A
reporting requirement is triggered in
instances where the NCUA issues a final
rule as defined by section 551 of the
Administrative Procedure Act.17 An
agency rule, in addition to being subject
to congressional oversight, may also be
subject to a delayed effective date if the
rule is a ‘‘major rule.’’ The NCUA does
not believe this final IRPS is a ‘‘major
rule’’ within the meaning of the relevant
sections of SBREFA. As required by
SBREFA, the NCUA submitted this final
IRPS to OMB for it to determine if the
final IRPS is a ‘‘major rule’’ for purposes
of SBREFA. The OMB determined that
the final IRPS is not major. The NCUA
also will file appropriate reports with
Congress and the Government
Accountability Office so this rule may
be reviewed.
Authority: 12 U.S.C. 1752a, 1756, 1766,
1785.
15 64
FR 43255 (Aug. 4, 1999).
Law 104–121.
17 5 U.S.C. 551.
16 Public
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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
Board (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 Board granting consent
for a person convicted of certain crimes
enumerated in Title 18 of the United
States Code. In order for the Board to
grant consent during the ten-year
period, the 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 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
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not require the Board’s consent. In order
to assist those who may need the
consent of the 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 Board will consider in
deciding whether to provide such
consent. Finally, the IRPS explains how
an applicant may appeal a decision by
the Board denying an application for its
consent. This IRPS supersedes and
replaces former IRPS 08–1.18
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.
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)
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, is 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.
18 73
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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 are 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 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 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 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
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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 ow whether it is a
pretrial diversion or similar program
will be made by the Board on a case-bycase 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 require an
application for the 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
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:
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• 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 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 a
depository institution or credit union;
and
• 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.
Additional applications of the de
minimis offenses exception to filing.
Age at time of covered offense. If the
actions that resulted in a covered
conviction 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 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 a depository institution or
credit union if the all of the following
applies:
• Other than for ‘‘bad’’ or insufficient
funds check(s), 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
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entries for bad or insufficient checks is
$1,000 or less and;
• No depository institution or 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 a
depository institution or 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 all of the
foregoing de minimis criteria must be
covered by a fidelity bond to the same
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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 all 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 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 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
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conviction was set aside based on a
finding on the merits that such
conviction was wrongful.
B. Duty Imposed on Credit Unions
Insured credit unions are responsible
for establishing their own internal
employment policies and have
discretion to make hiring decisions,
consistent with applicable law, that best
suit their own individual needs and risk
tolerance. However, 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
maintains 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 includes, for example,
the completion of a written employment
application which requires a listing of
all convictions and pretrial diversion
program entries.19 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 all of the criteria for
the exception, or submit an application
requesting the Board’s consent under
Section 205(d) prior to hiring the person
or otherwise permitting him or 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
19 Consistent with applicable law, an insured
credit union may establish its own procedures to
make conviction history inquiries at any stage of its
choosing in its hiring process, so long as applicants
do 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.
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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 Board’s consent under
Section 205(d). The person must remain
on such temporary leave of absence
until such time as the 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 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 Board. When an
application for the 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
office. 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 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 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-bycase 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
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15:54 Nov 29, 2019
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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
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.
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65919
The foregoing criteria will also be
applied by the 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. The 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 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 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 Board will be
required for any proposed significant
changes in the person’s duties and/or
responsibilities. Such proposed changes
may, in the discretion of the appropriate
Regional Director, require a new
application for the 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 Board under Section
205(d) and subsequently wishes to
become an institution-affiliated party or
participate in the affairs of an FDICinsured institution, he or she must
obtain the prior approval of the FDIC
pursuant to Section 19 of the FDIA.
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under Section 205(d), the insured credit
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union (or, in the case where a goodcause 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
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the denial. The Board will apply the
process contained in regulations
governing prohibitions based on felony
convictions, found at 12 CFR part 747,
to any request for a hearing.
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Federal Register / Vol. 84, No. 231 / Monday, December 2, 2019 / Rules and Regulations
Agencies
[Federal Register Volume 84, Number 231 (Monday, December 2, 2019)]
[Rules and Regulations]
[Pages 65907-65923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25699]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 84, No. 231 / Monday, December 2, 2019 /
Rules and Regulations
[[Page 65907]]
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: Final interpretive ruling and policy statement 19-1.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board (Board) is updating and revising 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. The Board is rescinding current IRPS 08-1 and
issuing a revised and updated IRPS to reduce regulatory burden. The
Board is amending and expanding the current de minimis exception to
reduce the scope and number of offenses that will require an
application to the Board. Specifically, the final IRPS will not require
an application for convictions involving 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: The final IRPS takes effect January 2, 2020.
FOR FURTHER INFORMATION CONTACT: Pamela Yu, Special Counsel to the
General Counsel, Office of General Counsel, at the above address or
telephone (703) 518-6540.
SUPPLEMENTARY INFORMATION:
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 endeavors 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
revising 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.\1\ 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.\2\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1785(d)(1).
\2\ 73 FR 48399 (Aug. 19, 2008).
---------------------------------------------------------------------------
The IRPS has not been revised since 2008 and, based on its
experience with the IRPS over the past decade, the Board is updating
and revising the guidance to reduce regulatory burden while protecting
federally insured credit unions from risk by convicted persons.
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.\3\ 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 amend IRPS 08-1.
---------------------------------------------------------------------------
\3\ For example, in several recent cases, the offense in
question met four of the five de minimis criteria but did not
qualify for the de minimis exception because the potential--but not
actual--punishment exceeded the standard set forth by IRPS 08-1. See
BD-02-18 (Oct. 18, 2018); BD-01-19 (Mar. 14, 2019).
---------------------------------------------------------------------------
In issuing these final amendments to IRPS 08-1, the Board remains
mindful of a corresponding Statement of Policy (SOP) issued by the
Federal Deposit Insurance Corporation (FDIC) to promote consistency
between the
[[Page 65908]]
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.\4\ 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.\5\ 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.
---------------------------------------------------------------------------
\4\ 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).
\5\ 83 FR 38143 (Aug. 3, 2018).
---------------------------------------------------------------------------
III. Proposed Second Chance IRPS (IRPS 19-1)
In July 2019, the Board published and sought public comment on a
proposal to expand exceptions to employment restrictions under Section
205(d).\6\ Deemed the ``Second Chance IRPS,'' the Board proposed to
amend the current de minimis exception to reduce the scope and number
of offenses that would require an application to the Board.
Specifically, the proposed Second Chance IRPS did 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. In addition, the Board proposed some minor grammatical,
formatting, and clarifying changes.
---------------------------------------------------------------------------
\6\ 84 FR 36488 (July 29, 2019).
---------------------------------------------------------------------------
The Board received a total of twelve comments from national credit
union trade associations, state credit union associations, advocacy
groups (including one joint letter representing 36 individual groups),
one federal credit union, and one fidelity bond provider. The
commenters generally supported the proposed IRPS and appreciated the
Board's efforts to reduce regulatory burden, and to expand employment
opportunities to those deserving of a second chance. The general
consensus among commenters was that the proposed guidance was well-
measured, balanced, and flexible and will reduce burdens on credit
unions, covered individuals, and the agency, while maintaining
appropriate safeguards to ensure the new exceptions do not present
undue safety and soundness risks to insured credit unions. Commenters
widely applauded the NCUA's efforts to expand employment opportunities
for low-risk convicted persons and noted the second chance amendments
are consistent with our nation's redemptive spirit. One commenter was
particularly gratified that the NCUA's issuance will represent a strong
message in support of second chances and act as a signal to other
industries that many former offenders are worthy of the opportunity for
inclusion and trust.
A joint comment letter representing numerous advocacy groups
supported the proposed Second Chance IRPS overall, but asked that the
NCUA go further than the proposal to adopt additional reforms and
improvements to promote expanded employment opportunities for people
with conviction records, including, among other things, additional
expansions of the de minimis exception; further clarifications
regarding expungements, set-asides, and reversed convictions; and
clarifications to the evaluation standards for Section 205(d) consent
applications.
Substantive comments on specific aspects of the proposed Second
Chance IRPS are discussed in detail below. For the reasons described
below, the Board is adopting the proposal with a few minor
modifications.
IV. Final Second Chance IRPS
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 proposed IRPS revised the
background section to make clear that IRPS 19-1 supersedes and replaces
IRPS 08-1. There were no comments on this aspect of the proposal, and
the Board adopts this amendment as proposed.
B. Scope
1. Persons Covered
The proposed Second Chance IRPS modified the scope section 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,\7\ and others who are
participants in the conduct of the affairs of an insured credit
union.\8\
---------------------------------------------------------------------------
\7\ 12 U.S.C. 1786(r).
\8\ 12 U.S.C. 1785(d).
---------------------------------------------------------------------------
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. Over the years,
the definition of independent contractors in Section 206(r), which is
included in IRPS 08-1, has created confusion among interested parties.
Given that the term is actually unnecessary in determining whether
Section 205(d) applies at the time the individual commenced work for,
or participated in the affairs of, the credit union, the proposed
Second Chance IRPS deleted reference to certain language in the
definition of ``independent contractor.'' It also clarified 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 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. The proposed Second
Chance IRPS did not precisely define what constitutes direct or
indirect participation in the conduct of the affairs of an insured
credit union, but rather updated and clarified how the NCUA will
determine whether a person qualifies as a participant in the affairs of
an insured credit union.
One commenter specifically agreed the NCUA should not expressly
define who qualifies as a participant. Another commenter questioned why
it is necessary for the guidance to address both institution-affiliated
parties and
[[Page 65909]]
participants in the affairs of an insured credit union. The commenter
encouraged the Board to delete reference to participants as the term
appears redundant and does not seem to expand the scope of coverage.
As noted above, the statute expressly applies the employment
prohibition to institution-affiliated parties and others who are
participants in the conduct of the affairs of an insured credit union.
Specifically, Section 205(d) provides that except with prior written
consent of the Board--
1. any person who has been convicted of any criminal offense
involving dishonesty or a 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--
a. become, or continue as, an institution-affiliated party with
respect to any insured credit union; or
b. otherwise participate, directly or indirectly, in the conduct of
the affairs of any insured credit union; and
2. any insured credit union may not permit any person referred to
in paragraph (1) to engage in any conduct or continue any relationship
prohibited under such paragraph.\9\
---------------------------------------------------------------------------
\9\ 12 U.S.C. 1785(d).
---------------------------------------------------------------------------
In the Board's view, for consistency with the operative statute, it
is helpful and appropriate for the guidance to continue to address both
institution-affiliated parties and participants in the affairs of an
insured credit union. While there may be overlap between the two,
retaining reference to the two distinct statutory terms in the final
IRPS will promote clarity and maintain consistency between the statute
and guidance.
The Board continues to maintain that participants in the affairs of
a credit union is a term of art that defies precise definition. Thus,
the final Second Chance IRPS 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.
Each individual's conduct will be analyzed on a case-by-case basis to
determine if that conduct constitutes participation in the conduct of
the affairs of an insured credit union.
2. Offenses Covered
The proposed Second Chance IRPS clarified 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. This means 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. There were no comments
on this aspect of the proposal, and the Board is adopting these
provisions without modification.
3. Offenses not Covered
Currently, where the covered offense is considered de minimis,
approval is automatically granted, and an application for the Board's
consent is not required. The proposed Second Chance IRPS modified the
current exception for de minimis offenses in two ways: 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.
De minimis offenses. Under 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
the FDIC 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.
The proposed Second Chance IRPS updated the general criteria for
the de minimis offenses exception to better align with developments in
criminal reform and sentencing guidelines that have occurred since IRPS
08-1 was adopted in 2008. Specifically, the potential punishment and/or
fine provision (current criterion 2) was updated to allow those
offenses punishable by imprisonment for a term of one year or less and/
or a fine of $2,500 or less, and those offenses punishable by three
days or less of jail time, to meet that de minimis criterion.
Commenters noted that these changes to the general criteria, while
modest, will nevertheless result in a meaningful reduction in the
number of applications to the Board. In particular, several commenters
indicated that simply amending criterion 2 from ``less than one year''
to ``one year or less'' will result in significant regulatory relief.
Commenters also agreed the increase in the dollar threshold better
aligns with criminal reform and sentencing guidelines. One commenter
was supportive overall of the proposed amendments to the general
criteria for the de minimis exception, but asserted that the single
conviction criterion (criterion 1), which was not modified in the
proposal, is too restrictive.
The proposed IRPS also added a definition of ``jail time'' to
clarify that the term 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.
One commenter specifically supported the proposed definition of
jail time. However, another comment letter expressed concerns that the
proposal's definition would include time served in pretrial
confinement, for civil infractions, or in home confinement since these
penalties impose a ``significant restraint on an individual's freedom
of movement.'' As one example, the comment letter noted low-risk
individuals who had their freedom of movement restricted for failure to
pay a traffic fine would fall outside of the exception because of the
more expansive proposed definition. Thus, this comment letter
recommended the Board retain the current language relative to jail
time. Another commenter suggested the definition of jail time should
include probation if probation was the only confinement imposed as part
of an individual's punishment.
After a review and analysis of the comments, the Board is adopting
this aspect of the guidance unchanged in the final Second Chance IRPS.
The Board anticipates the measured changes to criterion 2 of the
general de minimis exception alone should result in a fairly
significant reduction in regulatory burden. The Board is not inclined
to further relax the general criteria at this time to allow for more
than one de minimis offense to qualify for the general exception. The
Board wishes to emphasize, however, that for any offense that does fit
a de minimis category, an application can still be filed.
The Board also adopts the proposed definition of ``jail time''
without modification. As discussed in the
[[Page 65910]]
proposal, 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) and the proposed definition was intended to improve
transparency and enhance compliance in that context. In the Board's
view, the new definition is appropriately tailored to address those
varied jurisdictional approaches in order to clarify the circumstances
under which a lesser crime will qualify as de minimis. In response to
the comment letter expressing concern that the proposed definition was
overly broad to exclude individuals whose freedom of movement is
restricted for minor crimes, such as for failure to pay a traffic fine,
the Board notes that minor traffic violations are not criminal offenses
involving dishonesty or a breach of trust within the scope of Section
205(d).
Additional applications of the de minimis exception. The proposed
Second Chance IRPS also expanded the scope of the exception to include
several additional offenses to qualify as de minimis offenses in order
to eliminate the need to submit an application for certain low-risk,
isolated offenses. The proposed expansion was intended to reduce
regulatory burden to credit unions, covered individuals, and the
agency, while continuing to mitigate the risk to insured credit unions
posed by convicted persons.
Most commenters were very supportive of the expansion of the
current de minimis exception to include new qualifying offenses. One
commenter, however, disagreed with expanding the exception to include
additional offenses, preferring the Board have the opportunity to
evaluate all aspects of a covered individual's criminal past. Another
commenter expressed concern that the new exceptions could risk the
safety and soundness of credit unions (particularly smaller
institutions), and thus, opposed the addition of new de minimis
offenses.
As described in more detail below, the Board generally adopts the
new qualifying offenses for de minimis treatment as proposed, with some
minor modifications for improvement.
Age at time of covered offense. Under the proposed Second Chance
IRPS, 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 at least 30 months \10\ 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.
---------------------------------------------------------------------------
\10\ Half of the regular five-year period applicable to
individuals with a covered conviction or program entry that occurred
when the individual was over 21 years of age at the time of the
conviction or program entry.
---------------------------------------------------------------------------
One commenter generally supported this proposed change, but urged
the Board to go further by also modifying the other general criteria
applying to offenses committed prior to the age of 21, namely, that the
offense be punishable by a jail term of less than one year or a fine of
less than $2,500.
The Board declines this recommendation. While this measured
exception is intended to recognize that isolated, youthful mistakes are
particularly worthy of forgiveness and second chances, the Board
remains mindful of its safety and soundness mandate. Reducing by half
the passage of time required for individuals with a minor youthful
conviction to qualify for the exception provides meaningful relief
while still appropriately mitigating risks to insured credit unions
posed by convicted persons. Accordingly, the Board is adopting the age-
based de minimis treatment, as proposed, in the final Second Chance
IRPS.
Convictions or program entries for insufficient funds checks. The
Board also proposed to expand the de minimis exception to cover certain
convictions for ``bad'' or insufficient funds checks, which, in the
Board's view, generally are low-risk offenses that can be treated as de
minimis. Under the proposal, these types of offenses were considered de
minimis and were not considered as involving an insured depository
institution or insured credit union if the following conditions apply:
Other than for ``bad'' or insufficient funds check(s),
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.
One commenter expressed concern with the proposed exception for
offenses involving insufficient funds checks and asked that the Board
readjust the qualifying aggregate total face value amount. The same
commenter also suggested this exception category should be revised to
impose a qualifying timeframe (e.g., 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)). Another commenter
suggested that references to covered offenses that took place at an
``insured credit union'' or an ``insured depository institution''
should be revised throughout the guidance to eliminate the ``insured''
modifier. In this commenter's view, the proposed language is overly
specific as any prior offense by a covered individual involving a
financial institution, insured or not, can increase risks to insured
credit unions.
The Board agrees that covered individuals with convictions or
program entries for crimes involving financial institutions may pose
risks to insured credit unions, regardless of the financial
institution's insurance status. After careful review, the Board
maintains that no offense category should be included in the de minimis
exception if the covered crime was committed against a financial
institution, insured or not. Accordingly, to the extent the distinction
between insured and uninsured institutions is immaterial in this
context, the final IRPS eliminates the ``insured'' modifier throughout.
However, the Board declines to impose additional conditions on this
exception category at this time. Imposing a lower qualifying aggregate
total face value amount or a qualifying timeframe for this de minimis
category would limit its utility and undermine the Board's objective of
providing well-balanced, yet meaningful, regulatory relief. The Board
continues to take the view that convictions for ``bad'' or insufficient
funds checks generally are low-risk offenses that can be treated as de
minimis. Thus, offenses that meet all the above-listed criteria, as
revised to eliminate the ``insured'' modifier, will not require an
application for the Board's consent under the final Second Chance IRPS.
Convictions or program entries for small-dollar, simple theft. As
the Board discussed in the proposed Second Chance IRPS, 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 (e.g., shoplifting, retail theft). Based on
a historical review of Section 205(d) applications, the Board granted
its consent to the vast majority
[[Page 65911]]
of those covered individuals with convictions or program entries
related to small-dollar, simple theft. Thus, under the proposal, a
conviction or pretrial diversion program entry based on a simple theft
of goods, services and/or currency (or other monetary instrument) was
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 did not include the
offenses of burglary, forgery, robbery, identity theft, or fraud. Under
the proposal, these crimes continued to require an application for the
Board's consent, unless otherwise qualifying as de minimis.
Stakeholders providing comment on this aspect of the proposed IRPS
generally supported the exception for small-dollar, simple theft.
Several commenters supported the express exclusion of burglary,
forgery, robbery, identity theft, and fraud from the exception and
agreed those offenses should continue to require an application for the
Board's consent. Several commenters asked the Board to clarify that all
of the stated conditions must be met in order for the exception to
apply. A number of commenters also asked the Board to confirm and
emphasize in the final IRPS that simple theft, of any value, involving
a depository institution or credit union falls outside the de minimis
exception and will require an application to the Board. One commenter
suggested the condition that the conviction or program entry does not
involve an insured depository institution or insured credit union
should be revised to eliminate the ``insured'' modifier.
One comment letter was generally in favor of an exception for
simple theft, but contended the practical application of the proposed
exception is limited because most simple theft convictions involving
$500 or less are likely already covered as de minimis under the general
criteria (i.e., unlikely to be punishable by imprisonment for a term of
more than one year or a fine of more than $2,500, and the covered
person is unlikely to have served more than three days in jail). Thus,
the comment letter urged that the Board go further to exclude from
Section 205(d) coverage certain minor dishonesty offenses, such as all
convictions for the use of a fake ID (not only limited to alcohol-
related use), shoplifting, fare evasion, and other lesser offenses.
Alternatively, at a minimum, the comment letter suggested these types
of convictions should be excluded from Section 205(d) coverage after
one year from the time of conviction or program entry.
Upon careful consideration of the public comments, the Board
continues to take the view that the exception is appropriately tailored
to streamline the application process without creating undue or
substantial risk to insured credit unions, and declines to expand it
further at this time to include additional offenses. Accordingly, the
final Second Chance IRPS adopts the small-dollar, simple theft
exception largely as proposed. 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
all of the above-listed conditions are met. As discussed above, the
Board agrees, however, that the distinction between insured and
uninsured institutions is immaterial in this context. Thus, the final
Second Chance IRPS eliminates the ``insured'' modifier in this
exception category. Simple theft, of any value, involving a depository
institution or credit union, whether insured or not, falls outside the
de minimis exception and will require an application to the Board.
Where pertinent throughout, the final Second Chance IRPS also adds the
word ``all'' to clarify that all the described conditions must be met
in order for the exception to apply.
Convictions or program entries for the use of a fake identification
card. Under the proposed Second Chance IRPS, 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, was considered
de minimis, provided there is no other conviction or program entry for
the covered offense.
All commenters that provided feedback on this aspect of the
proposal were supportive of the exception and agreed that individuals
with convictions or program entries for the use of a fake
identification card pose little risk to insured credit unions.
Accordingly, the Board adopts as proposed the provision allowing de
minimis treatment for the use of fake identification by a person under
the legal age for alcohol-related purposes.
Convictions or program entries for simple misdemeanor drug
possession. While not discounting the public health implications of
illegal drug use and possession, the Board continues to believe covered
persons with single convictions or program entries for simple drug
possession pose minimal risk to insured credit unions.
As discussed in the proposed Second Chance IRPS, there are already
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 disproportionately burden 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.\11\
---------------------------------------------------------------------------
\11\ 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.
---------------------------------------------------------------------------
Accordingly, the proposed Second Chance IRPS also classified 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).
Under the proposal, 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
continued to require an application for the Board's consent, unless
otherwise qualifying as de minimis.
Most commenters that provided input on this part of the proposed
Second
[[Page 65912]]
Chance IRPS supported the exception and agreed that individuals with
convictions or program entries for single convictions for simple drug
possession pose minimal risk to insured credit unions. Several
commenters echoed the Board's view that the exception is appropriate
given the current uncertainty and confusion with respect to marijuana-
related offenses, with marijuana legal under various state laws but
still federally illegal. A number of commenters also shared the Board's
observation that drug convictions disproportionately burden people of
color and impose significant extrajudicial consequences on convicted
individuals.
One comment letter, however, recommended the Board more broadly
expand the exception to include most drug convictions (beyond simple
possession), arguing that drug offenses are not criminal offenses
involving dishonesty or breach of trust that should be covered by
Section 205(d). The comment letter urged the Board to eliminate the
requirement to request consent for persons with a conviction or program
entry for any drug possession offense (i.e., not limited to
misdemeanors that occurred more than five years ago), as well as for
drug offenses involving sales or distribution of a controlled
substance. The comment letter further argued that mandatory minimum
federal sentences imposed for drug offenses limits the effectiveness of
the proposed exception.
After careful review of the comments, the Board maintains that an
application should be required for most drug offenses so it can
determine the nature of the offense and elements of the crime; thus, it
will continue the current requirement that an application be filed for
drug offenses that do not qualify as de minimis. Moreover, while the
Board recognizes the de minimis treatment for single convictions or
program entries for simple misdemeanor drug possession is relatively
narrowly tailored, it once again emphasizes that, as with any offense
that does not fit a de minimis category, an application can still be
filed for any drug crime that does not qualify for de minimis
treatment. Accordingly, the Board adopts this exception category,
without change, in the final IRPS.
Fidelity bond coverage. The proposed Second Chance IRPS maintained
the agency's current policy 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.
One commenter noted that, historically, insurers have increased
premiums where an employee has a theft or fraud conviction; thus, some
credit unions are concerned about their ability to obtain insurance
coverage for covered individuals. This commenter asked the NCUA to
weigh the costs and benefits of requiring a fidelity bond for
individuals that meet the de minimis criteria under the final Second
Chance IRPS.
Several commenters expressed some degree of concern that increasing
the number of excepted offenses not requiring application could
ultimately lead to increased theft or fraud, thereby resulting in
increased insurance costs to credit unions (costs that ultimately would
be borne by members). However, most of those commenters shared the view
that this is a fairly remote possibility and, at least in the short-
term, no immediate premium increases are likely to result from the
proposed IRPS. Commenters noted that if such a result were to occur,
the Board should revisit the IRPS to determine if it should be
modified.
Comments from one insurer that provides fidelity bond coverage to
credit unions were particularly helpful on this point. Specifically,
the commenter indicated that, while the full implications of the
proposal may not be known for several years, it currently does not
anticipate any immediate premium adjustments for credit unions to
result from the proposed changes. The commenter noted, however, that
beyond fidelity bond coverage, there could be potential future impacts
for risk management services provided to credit unions, as well as
business auto and business liability coverages, as new general, safety
concerns may arise. This commenter also indicated that, as a fidelity
insurer, it will reexamine its own de minimis category to consider if
updates to its policies are necessary given the important goals
underlying the agency's amendments.
The Board continues to maintain that any person who meets the de
minimis criteria must still be covered by a fidelity bond to the same
extent as other employees in similar positions. Fidelity bond coverage
provides important protection against losses caused by fraud,
dishonesty, theft, and similar activities committed by credit union
employees, directors, officers, supervisory committee members, and
credit committee members. Based on stakeholder feedback, the Board is
satisfied that, at least in the immediate near-term, the final Second
Chance IRPS will not result in higher premiums for insured credit
unions. The Board is cognizant of the possibility that, should the
incidence of theft or fraud increase as a result of its amendments to
the de minimis exception, future impacts could mean higher insurance
premiums. The Board will continue to monitor whether updates to its
policy are necessary if concerns regarding premium adjustments arise.
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 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 (i.e., where the
conviction may still be revealed under certain circumstances or
otherwise remains on the individual's record). Accordingly, the
proposed Second Chance IRPS clarified the circumstances under which a
conviction is deemed expunged for purposes of Section 205(d).
Specifically, 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 limited to, an evaluation of a person's fitness or
character. Under the proposal, the failure to destroy or seal the
records did not prevent the expungement from being considered complete
for purposes of Section 205(d). Expungements of pretrial diversion or
similar program entries are treated the same as expungements for
convictions. Moreover, under the proposed Second Chance IRPS,
convictions set aside or reversed after the applicant has completed
sentencing were treated consistently 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.
Commenters generally indicated the proposal's clarifications
regarding expunged convictions were helpful. Several commenters were
particularly supportive of the clarification regarding state set-aside
provisions as it is sometimes unclear whether those
[[Page 65913]]
provisions constitute a complete expungement for purposes of Section
205(d). One commenter indicated the clarification that the failure to
destroy or seal records would not preclude them from being considered
expunged is a positive modification that will allow greater flexibility
for credit unions.
One comment letter, however, recommended that all expungements be
treated as complete expungements for purposes of Section 205(d),
regardless of whether the conviction or program entry can subsequently
be used for an evaluation of the person's fitness or character. The
same comment letter opposed the proposal's clarification regarding
state set-aside provisions, interpreting the proposed clarification as
creating a new expansion of the Section 205(d) consent requirements to
now cover individuals with set aside or reversed convictions where
there was not a finding of wrongful conviction.
The Board is adopting this aspect of the proposed guidance
unchanged in the final Second Chance IRPS. It notes that its decision
to add clarifying language regarding expunged convictions to the Second
Chance IRPS is intended to promote transparency in the consent
application process and, thereby, to streamline the process and give a
measure of regulatory relief to covered individuals and insured credit
unions seeking consent from the Board. While the Board acknowledges
that making policy clarifications may actually result in a temporary
spike in applications (due to an increased awareness of the Section
205(d) employment restrictions generally and/or greater awareness of
what constitutes a conviction of record specifically), the Board does
not view the clarifying language regarding expunged convictions to
represent an expansion of the Section 205(d) consent requirements to
cover individuals with set aside or reversed convictions who were not
previously covered under IRPS 08-1. Indeed, prior Board decisions on
Section 205(d) consent requests have found that certain state set-aside
provisions are not the equivalent of an expungement within the meaning
of IRPS 08-1, as the conviction may still be revealed under certain
circumstances.\12\ Thus, the clarifying language regarding expunged
convictions does not represent a departure from the Board's past policy
in any regard.
---------------------------------------------------------------------------
\12\ See, e.g., BD-05-16, fn 7 (Dec. 20, 2016) (citing McCully
v. Schwenn, 220 F. App'x 475 (9th Cir. 2007) (``[Ariz. Rev. Stat.]
section 13-907 . . . does not expunge or remove the fact of
conviction in Arizona.'')).
---------------------------------------------------------------------------
Further, the Board does not consider it appropriate to treat all
expungements, set asides, reversed convictions, or other similar case
dispositions as complete expungements for purposes of Section 205(d).
State law varies and, in some jurisdictions, an expungement is not
``complete'' and is still subject to subsequent use. In the Board's
view, expungements that reflect the intent of the particular
jurisdiction to completely purge a conviction or program entry from an
individual's background records supports an interpretation that, from a
legal and policy perspective, the intent is to place the individual in
the same position as if there were no conviction or program entry in
the first place. However, an expunged criminal record that is still
accessible to be used for subsequent purposes, including an evaluation
of the person's fitness or character, reflects the jurisdiction's
public policy that that record is still relevant and germane to certain
subsequent inquiries. In considering whether an expungement is one that
should fall outside the scope of Section 205(d), the Board's key
consideration is whether the respective jurisdiction, by statute or
court order, intended for the conviction or program entry to be fully
purged from the individual's background. Preservation in a
jurisdiction's expungement statute or by court order of the ability to
use the conviction or program entry for a subsequent purpose indicates
the record has not been completely expunged. Under these circumstances,
the Board's interpretation is the conviction or program entry comes
within the scope of Section 205(d). Again, however, the Board
reiterates that covered individuals with expunged convictions or
program entries still qualifying as convictions or record for purposes
of Section 205(d) may still apply to the NCUA for the Board's consent.
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, the proposed Second Chance IRPS clarified that when a credit
union learns 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.
Comments on this aspect of the proposal were generally positive. A
number of commenters, however, asked for reassurance that a credit
union's failure to maintain a record that an application is not
necessary because the de minimis exception applies will not be subject
to supervisory action. These commenters asked for clarification that
the recordkeeping requirement is a suggested best practice, not a
mandatory compliance obligation. In addition, one commenter noted that,
irrespective of the guidance, each credit union retains the right to
consider an applicant's past crime(s) and maintains individual
discretion in making hiring decisions.
The Board emphasizes that while the source of the consent
requirements stem from federal statute, namely Section 205(d), this
final IRPS is supervisory guidance, not regulation. The NCUA, along
with the other federal prudential regulators, in 2018 issued an
interagency statement to reaffirm the role of supervisory guidance.\13\
The statement confirmed that, unlike a law or regulation, supervisory
guidance does not have the force and effect of law, and the NCUA does
not take enforcement actions based on supervisory guidance. Rather,
supervisory guidance outlines the NCUA's supervisory expectations or
priorities and articulates the agency's general views regarding
appropriate practices for a given subject area.
---------------------------------------------------------------------------
\13\ See FFIEC ``Interagency Statement Clarifying the Role of
Supervisory Guidance,'' (Sept. 11, 2018).
---------------------------------------------------------------------------
The Board wishes to underscore that documentation of an employee's
or applicant's de minimis offense is a recommended practice that does
not have the force and effect of law, and the NCUA will not take
enforcement action based on this guidance. Nevertheless, the Board
continues to believe it is helpful to both industry and supervisory
staff to clarify the steps a credit union should take when it learns
about an employee's or applicant's de minimis offense; as such, the
Board is adopting this clarification in the final Second Chance IRPS.
The Board encourages industry to offer second chances and to expand
employment opportunities for former offenders seeking redemptive paths
forward, but no insured credit union is under any obligation to hire or
retain an
[[Page 65914]]
employee with a criminal background. Insured credit unions have
discretion to establish their own internal employment policies and
should make hiring decisions that best suit their own individual needs
and risk tolerance.
Conditional offers. The proposal provided for extensions of
conditional offers of employment to prospective employees requiring the
Board's consent under Section 205(d). 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.
One commenter was skeptical of the practical benefit of this
provision, if the credit union does not have a reasonable expectation
of the timing of the approval process. Thus, the commenter recommended
the Board clarify in the final IRPS the general length of time
necessary for the agency to process a consent application. One comment
letter urged the Board to instruct credit unions to inquire into an
applicant's criminal background only after the conditional offer stage
of the hiring process, to safeguard against credit unions unfairly
discarding the applications of people with conviction histories.
Alternatively, at a minimum, this comment letter urged that the Board
clarify credit unions are not required to make criminal record
inquiries on an initial job application and may adopt a policy to
collect criminal background history only after the conditional offer
stage (i.e., credit unions may adopt so-called ``ban the box''
policies).
The Board is mindful that the Section 205(d) consent application
process may impose inconveniences and uncertainties to covered
individuals and credit unions, as both applicant and employer remain in
indeterminate state during the process of seeking consent from the
Board. While the industry's desire for certainty as to the timing of
the consent application process is understandable, the Board maintains
it is impracticable to establish a timetable for action on consent
applications because each individual application is fact specific and
varies in complexity. However, past applications submitted to the Board
have generally been adjudicated within 60 days from receipt, and, in
most cases, the processing time was significantly less. The Board
remains committed to streamlining the application process and endeavors
to decide on consent applications as quickly as possible. The Board
anticipates that its decision to delegate responsibility for reviewing
certain applications, discussed in more detail below, will further
speed up the application process and reduce burdens on credit unions
and applicants.
The Board also reiterates that insured credit unions are
responsible for establishing their own internal employment policies and
have discretion to make hiring decisions in their best judgment. The
proposal's provision for extensions of conditional offers of employment
to prospective employees requiring the Board's consent under Section
205(d) was intended to reduce burdens in the hiring and consent
application process; accordingly, the Board is adopting this provision
in the final Second Chance IRPS. An insured credit union choosing to
adopt a policy to extend conditional offers may establish its own
procedures to make criminal record inquiries at any stage of its
choosing in its hiring process, so long as applicants do 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)
Application types. The proposed Second Chance IRPS did not modify
the current procedures for requesting the Board's consent under Section
205(d). However, the proposal added 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. The Section 205(d) application form was
also revised to more clearly distinguish between the two types of
applications and the supporting information required for each.
One comment letter urged the Board to go further than the proposal
to expressly encourage individuals to directly file applications in
their own right, rather than requiring that a credit union sponsor the
application. This letter noted that while the FDIC's Statement of
Policy (SOP) on Section 19 contains similar ``substantial good cause''
language, in practice the FDIC routinely accepts individual
applications and the vast majority of applications it processes are not
sponsored by a financial institution.
The Board notes that both credit union-sponsored applications and
individual applications were permitted under IRPS 08-1 and both options
will continue to be available under this final IRPS. While historically
consent applications submitted to the NCUA are more typically credit
union-sponsored, individuals are not precluded from filing an
application in their own right if there is substantial good cause. In
the Board's view, highlighting the distinction between individual
applications and credit union-sponsored applications in the final
Second Chance IRPS may help encourage more individuals to apply for
consent without sponsorship by a credit union. The NCUA also intends to
publish in the near term an informational brochure to further educate
the public about the Section 205(d) process and will highlight the two
different application options.
Regional office for application submission. Additionally, the
proposed IRPS clarified 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.
One comment letter urged the NCUA to consider creating a central
office to accept and review Section 205(d) consent applications and to
be a resource to credit unions seeking to verify that covered
individuals have received the Board's consent to work. The comment
letter further suggested that this centralized office could be
delegated the responsibility to only forward applications for Board
review that significantly merit additional scrutiny.
Historically, the Board has received less than ten Section 205(d)
consent applications on an annual basis. Given this relatively low
volume, it is
[[Page 65915]]
unnecessary to establish a centralized office to process consent
applications. The Board continues to maintain that the appropriate
office for submission of a credit union-sponsored application is the
program office that oversees the credit union, and the appropriate
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. Accordingly, the Board adopts these
clarifications in the final IRPS.
Delegation of authority. The proposal requested public comment on
whether delegating responsibility for reviewing certain applications
could further streamline the application process and reduce burdens on
credit unions and applicants.
One commenter was strongly supportive of delegating authority to
regional directors to consider 205(d) consent applications, noting that
such delegation will likely ensure a more timely response given the
region's greater understanding of any relevant local factors or
information that may be pertinent to the decision. The same commenter,
however, recommended the Board establish a reasonable timeframe for the
region's response so that applications are processed expeditiously. One
comment letter agreed that delegating responsibility for reviewing
certain applications would help streamline the process, but suggested
responsibility should be delegated to a central office specifically
created to accept and review Section 205(d) applications. A different
commenter was not opposed to delegating the review of certain
applications, but expressed concern that delegation to third-party
entities could compromise sensitive credit union information. This
commenter urged the agency to institute proper data security protocols,
and requested additional information on the process of delegation,
including efforts the NCUA will take to protect sensitive credit union
and individual applicant data.
Upon review and careful consideration of the public comments, the
Board has determined that in order to further streamline the
application process it will delegate authority to program offices to
process, review, and act upon credit union-sponsored consent
applications. But the Board will retain authority to decide on
individual applications, which tend to be more complex and fact-
specific. Individual applications also require the Board's waiver of
the institution filing requirement for substantial good cause and,
typically, request a blanket waiver for the applicant to be employed or
participate in the conduct of the affairs of any insured credit union.
These factors support the Board's retention of its authority to
consider individual applications for Section 205(d) consent.
However, in delegating responsibility for reviewing credit union-
sponsored applications, the Board wishes to assure stakeholders that
the NCUA will make all reasonable efforts to duly secure all sensitive
information it receives in connection with any consent application.
Toward that end, the NCUA has conducted a Privacy Impact Assessment
(PIA) on the Second Chance IRPS. Sensitive personally identifiable
information (PII) is encrypted if shared intra-agency and data is
stored on secured drives with restricted access. The Board does not
anticipate that PII will generally be shared outside the agency,
however, the NCUA's Office of Continuity and Security Management may
conduct criminal background checks that may require contacting a
federal, state, or local agency which maintains civil, criminal or
other relevant enforcement information or other pertinent information
relevant to the Board's decision on a Section 205(d) consent request.
E. Application Form
The proposed Second Chance IRPS also revised and updated 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 proposed changes and to conform to current
regulatory requirements. The Section 205(d) application form was also
modified to more clearly delineate between the two types of
applications (credit union-sponsored versus individual) and the
supporting documentation required for each.
Stakeholders who commented on this aspect of the proposal were
generally supportive of the proposed edits to the Section 205(d)
application form. One commenter, however, noted some credit unions have
found the current information requested to be lengthy and onerous to
both the credit union and the covered individual, particularly in cases
where background information is difficult to obtain from old criminal
record systems. Another commenter urged the Board to go further in more
expressly encouraging covered individuals to submit individual
applications.
Upon review of the comments, the Board is adopting the improvements
to the Section 205(d) application form in the final Second Chance IRPS.
The revised application form will more clearly delineate between the
two application options, which will make it more user friendly and may
encourage more applicants to file individual applications for blanket
waivers.
While the Board recognizes it may be difficult to obtain older
records pertaining to offenses that occurred long ago, it remains
incumbent on the applicant to provide pertinent documentation to
support the application in order for the NCUA to properly evaluate the
merits of the consent request. The purpose of an application is to
provide the applicant an opportunity to demonstrate that,
notwithstanding the statutory employment restrictions under Section
205(d), the individual is fit to participate in the conduct of the
affairs of an insured credit union without posing undue risks to its
safety and soundness or impairing public confidence in the insured
credit union. The Board maintains that the information requested on the
application form is the minimum amount necessary for the agency to gain
an understanding of the circumstances surrounding the conviction or
program entry and to evaluate all the relevant factors and criteria the
NCUA will consider in determining whether to grant consent. Finally,
the Board reiterates that the burden remains upon the applicant to
establish that the application warrants approval.
IV. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires the NCUA to
prepare an analysis of any significant economic impact a regulation may
have on a substantial number of small entities (those with less than
$100 million in assets).\14\ This final IRPS will provide regulatory
relief by decreasing the number of covered offenses that will require
an application to the Board. Accordingly, the NCUA certifies that final
IRPS 19-1 will not have a significant economic impact on a substantial
number of small credit unions.
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\14\ 5 U.S.C. 603(a).
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq.,
requires that the Office of Management and Budget (OMB) approve all
collections of information by a federal agency from the public before
they can be implemented. Respondents are not required to respond to any
collection of information unless it displays a valid OMB control
number.
[[Page 65916]]
In accordance with the PRA, the information collection requirements
included in this final IRPS has been submitted to OMB for approval
under control number 3133-0203.
C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests.\15\
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. The final IRPS does 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 this IRPS does not constitute a policy
that has federalism implications for purposes of the executive order.
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\15\ 64 FR 43255 (Aug. 4, 1999).
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D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final IRPS will not affect family
well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999, Public Law 105-277, 112
Stat. 2681 (1998).
E. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) \16\ generally provides for congressional review of agency
rules. A reporting requirement is triggered in instances where the NCUA
issues a final rule as defined by section 551 of the Administrative
Procedure Act.\17\ An agency rule, in addition to being subject to
congressional oversight, may also be subject to a delayed effective
date if the rule is a ``major rule.'' The NCUA does not believe this
final IRPS is a ``major rule'' within the meaning of the relevant
sections of SBREFA. As required by SBREFA, the NCUA submitted this
final IRPS to OMB for it to determine if the final IRPS is a ``major
rule'' for purposes of SBREFA. The OMB determined that the final IRPS
is not major. The NCUA also will file appropriate reports with Congress
and the Government Accountability Office so this rule may be reviewed.
---------------------------------------------------------------------------
\16\ Public Law 104-121.
\17\ 5 U.S.C. 551.
---------------------------------------------------------------------------
Authority: 12 U.S.C. 1752a, 1756, 1766, 1785.
By the National Credit Union Administration Board, on November
21, 2019.
Gerard Poliquin,
Secretary of the Board.
Note: The following text will not appear in the Code of Federal
Regulations.
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 Board (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 Board granting consent for a person
convicted of certain crimes enumerated in Title 18 of the United States
Code. In order for the Board to grant consent during the ten-year
period, the 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
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 Board's consent. In order to
assist those who may need the consent of the 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 Board will consider in deciding
whether to provide such consent. Finally, the IRPS explains how an
applicant may appeal a decision by the Board denying an application for
its consent. This IRPS supersedes and replaces former IRPS 08-1.\18\
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\18\ 73 FR 48399 (Aug. 19, 2008).
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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.
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) 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, is
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.
[[Page 65917]]
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 are 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 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 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
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 ow whether it is a pretrial diversion or similar program
will be made by the 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 require an application for the
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 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 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 a depository institution or
credit union; and
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.
Additional applications of the de minimis offenses exception to
filing.
Age at time of covered offense. If the actions that resulted in a
covered conviction 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 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 a depository institution or credit union if the all of the
following applies:
Other than for ``bad'' or insufficient funds check(s),
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
[[Page 65918]]
entries for bad or insufficient checks is $1,000 or less and;
No depository institution or 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 a depository institution or 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 all of 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 all 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 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 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
Insured credit unions are responsible for establishing their own
internal employment policies and have discretion to make hiring
decisions, consistent with applicable law, that best suit their own
individual needs and risk tolerance. However, 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
maintains 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 includes, for example, the
completion of a written employment application which requires a listing
of all convictions and pretrial diversion program entries.\19\ 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
all of the criteria for the exception, or submit an application
requesting the Board's consent under Section 205(d) prior to hiring the
person or otherwise permitting him or 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).
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\19\ Consistent with applicable law, an insured credit union may
establish its own procedures to make conviction history inquiries at
any stage of its choosing in its hiring process, so long as
applicants do 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.
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If an insured credit union discovers that an employee, official, or
anyone
[[Page 65919]]
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 Board's consent under Section 205(d). The
person must remain on such temporary leave of absence until such time
as the 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 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 Board. When an application for
the 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 office. 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
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 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 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 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. The
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 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 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 Board will be required for any proposed
significant changes in the person's duties and/or responsibilities.
Such proposed changes may, in the discretion of the appropriate
Regional Director, require a new application for the 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 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.
[[Page 65920]]
E. Right To Request a Hearing Following the Denial of an Application
Under Section 205(d)
If a consent application is denied under Section 205(d), the
insured credit union (or, in the case where a good-cause 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 denial. The Board will apply
the process contained in regulations governing prohibitions based on
felony convictions, found at 12 CFR part 747, to any request for a
hearing.
BILLING CODE 7535-01-P
[GRAPHIC] [TIFF OMITTED] TR02DE19.000
[[Page 65921]]
[GRAPHIC] [TIFF OMITTED] TR02DE19.001
[[Page 65922]]
[GRAPHIC] [TIFF OMITTED] TR02DE19.002
[[Page 65923]]
[GRAPHIC] [TIFF OMITTED] TR02DE19.003
[FR Doc. 2019-25699 Filed 11-29-19; 8:45 am]
BILLING CODE 7535-01-C