Fair Hiring in Banking, 79380-79397 [2024-21887]
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departments about the effect of a program on competition has been delegated to the
Assistant Attorney General for the Antitrust Division in 28 CFR § 0.40(g). The Assistant
Attorney General for the Antitrust Division has authorized me, as the Policy Director for
the Antitrust Division, to provide the Antitrust Division's views regarding the potential
impact on competition of proposed energy conservation standards on his behalf.
In conducting its analysis, the Antitrust Division examines whether a proposed
standard may lessen competition, for example, by substantially limiting consumer choice,
by placing certain manufacturers at an unjustified competitive disadvantage, or by
inducing avoidable inefficiencies in production or distribution of particular products. A
lessening of competition could result in higher prices to manufacturers and consumers.
We have reviewed the proposed standards contained in the Notice of Proposed
Rulemaking (89 Fed. Reg. 43770, May 20, 2024), the Direct Final Rule (89 Fed. Reg.
44052, May 20, 2024), and the related Technical Support Documents (TSD) that
accompanied them. We have also reviewed the Docket and public comments filed in
response to the related Request for Information.
Based on this review, our conclusion is that the proposed energy conservation
standards for air-cooled commercial package air conditions and heat pumps are unlikely
to have a significant adverse impact on competition.
Sincerely,
/s/
David G .B. Lawrence
Policy Director
RIN 3133–AF55
DATES:
BILLING CODE 6450–01–C
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 701, 741, 746, 748, and
752
The final rule is effective
October 30, 2024.
Fair Hiring in Banking
National Credit Union
Administration (NCUA).
ACTION: Final rule.
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AGENCY:
The NCUA Board (Board) is
issuing this final rule to incorporate
Interpretive Ruling and Policy
Statement (IRPS) 19–1 and the Fair
Hiring in Banking Act (FHBA) into its
regulations. The Federal Credit Union
Act (FCU Act) generally prohibits,
except with the Board’s prior written
SUMMARY:
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FOR FURTHER INFORMATION CONTACT:
Rachel Ackmann, Senior Staff Attorney,
Office of General Counsel, and Pamela
Yu, Special Counsel to the General
Counsel, Office of General Counsel, at
the above address or by calling (703)
518–6540.
SUPPLEMENTARY INFORMATION:
I. Background
Section 205(d) of the Federal Credit
Union Act (Section 205(d))
Prior to December 23, 2022, section
205(d)(1) of the Federal Credit Union
Act (FCU Act) provided that, except
with the prior written consent of the
Board (the NCUA refers to applications
for such consent as ‘‘consent
applications’’), 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 the prosecution for
such offense (collectively, covered
offenses), may not:
• Become, or continue as, an
institution-affiliated party (IAP) with
respect to any insured credit union; or
• Otherwise participate, directly or
indirectly, in the conduct of the affairs
of any insured credit union.1
1 12
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U.S.C. 1785(d)(1).
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[NCUA–2023–0023]
consent, any person who has been
convicted of or has a program entry for
certain criminal offenses involving
dishonesty or breach of trust from
participating in the affairs of an insured
credit union. The final rule will expand
career opportunities for individuals to
work and volunteer at insured credit
unions. The Board also rescinds IRPS
19–1.
[FR Doc. 2024–22081 Filed 9–27–24; 8:45 am]
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Section 205(d)(1)(B) further provides
that an insured credit union may not
allow any person described above to
participate in the conduct of the affairs
of the credit union without Board
consent. Section 205(d)(2) restricts the
Board from approving a consent
application related to a person
convicted of certain crimes enumerated
in Title 18 of the United States Code
(U.S.C.) for 10 years, absent a motion by
the Board and approval by the
sentencing court. Finally, section
205(d)(3) states that ‘‘whoever
knowingly violates’’ section (d)(1)(A) or
(d)(1)(B) commits a felony, punishable
by up to 5 years in prison or a fine of
up to $1,000,000 a day, or both. Section
205(d) prohibitions have existed in
some form since 1970, and since then
federally insured credit unions have
been required to make a diligent inquiry
as to whether prospective employees or
IAPs 2 are subject to a section 205(d)
prohibition.3
In 2008, the Board adopted IRPS 08–
1 to provide direction and guidance to
federally insured credit unions and
those persons who may be affected by
section 205(d).4 The Board specifically
sought comments as to whether the
format of the guidance as an IRPS was
appropriate or whether a regulation
would be more suitable.5 The Board
received some comments supporting
guidance in the form of an IRPS and
others supporting a regulation, but
ultimately chose to issue the guidance
through an IRPS.6
2 The NCUA has made its administrative orders
against IAPs available in a searchable database on
the agency’s website. See https://ncua.gov/news/
enforcement-actions/administrative-orders.
3 73 FR 48399, 48401 (Aug. 19, 2008).
4 Id.
5 The Board had not previously adopted any
policies or regulations on section 205(d), as the
statute at that time imposed no guidance or
limitations on the information that the Board may
consider, and the Board received a limited number
of applications under section 205(d). However, due
to an increasing number of applications requesting
the Board’s consent under section 205(d), the Board
believed it was appropriate to issue guidance on the
topic.
6 Two commenters believed that a regulation was
the more appropriate format for the guidance. One
of the commenters who favored a regulation
thought a regulation provided greater protection to
a credit union that might be challenged by a
prospective employee. Another commenter believed
a regulation was preferable because it would help
reinforce a credit union’s right to appeal an adverse
decision and subject future changes to public notice
and comment. The Board concluded that the source
of the requirement stems from Federal statute,
namely section 205(d). Therefore, the Board
believed that the need to comply with Federal law,
as augmented by guidance in the form of an IRPS,
was sufficient to protect a credit union. The Board
believed that credit union officials should be able
to adequately understand and apply the guidance
styled as an IRPS and that the right to request a
hearing contained in the IRPS provided a credit
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IRPS 08–1 outlined the actions
prohibited under the FCU Act and the
procedures for applying the Board’s
consent on a case-by-case basis.
Recognizing that certain offenses are so
minor and dated that they would not
presently pose a substantial risk to the
insured credit union, IRPS 08–1
excluded certain de minimis offenses
that met specified requirements and
juvenile offenses from the need to
request consent from the Board. In
effect, the IRPS gave automatic consent
for these offenses without requiring a
consent application or any notice.
In 2019, the Board rescinded IRPS 08–
1 and issued IRPS 19–1, a revised and
updated IRPS to reduce regulatory
burden (also known as the Second
Chance IRPS).7 IRPS 19–1 amended
IRPS 08–1 to expand the definition of de
minimis offenses to reduce the scope
and number of offenses that would
require submission of a consent
application to the Board. Specifically,
the IRPS did not require a consent
application for convictions involving
insufficient funds checks of moderate
aggregate value, small-dollar simple
theft, false identification, simple drug
possession, and isolated minor offenses
committed by covered persons as young
adults. The Board recognized that many
Americans faced hiring barriers due to
a criminal record, a great number of
whom are not violent or career
criminals, but rather people who made
poor choices early in life who have
since paid their debt to society. The
Board found that offering second
chances for career opportunities to those
who are truly penitent was consistent
with our nation’s shared values of
forgiveness and redemption.
On December 23, 2022, Congress
passed the National Defense
Authorization Act for Fiscal Year 2023
(NDAA), which amended section
205(d).8 The NDAA included the
FHBA—which became immediately
effective on December 23, 2022. The
FHBA amends section 205(d) to expand
employment opportunities for those
with a previous minor or older criminal
offense, among other provisions.
Generally, the amendments codify a
number of elements already contained
in the NCUA’s current policy regarding
section 205(d) but also extend greater
relief than what is currently available to
certain individuals with prior
union a sufficient right to appeal a denial of consent
by the Board. Additionally, the Board noted that it
would not amend its IRPS without providing the
public notice and an opportunity to comment. For
all these reasons, the Board believed it appropriate
to issue the final guidance in the form of an IRPS.
7 84 FR 65907 (Dec. 2, 2019).
8 Public Law 117–263 (Dec. 23, 2022).
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convictions seeking employment with
an insured credit union, particularly
individuals with older convictions,
expunged convictions, or prior
convictions for a misdemeanor, any
drug-related possession offense, or
certain designated ‘‘lesser offenses.’’
The FHBA also clarifies several
definitions and the procedures for
processing a consent application.9 The
specific provisions of the FHBA are
discussed in detail later in this
preamble.
Section 19 of the Federal Deposit
Insurance Act
Section 19 of the Federal Deposit
Insurance Act (section 19) contains a
prohibition provision similar to section
205(d) of the FCU Act.10 Before 2020,
the Federal Deposit Insurance
Corporation (FDIC) provided the public
with guidance relating to section 19 and
the FDIC’s application thereof through a
Statement of Policy similar to the
NCUA’s IRPS 19–1.11 Similar to the
NCUA’s IRPS, the FDIC’s Statement of
Policy, among other things, instituted a
set of criteria to provide for blanket
approval of certain low-risk crimes and
for persons convicted of such de
minimis crimes to forgo filing a section
19 consent application.
In 2020, the FDIC revised and
incorporated its then existing Statement
of Policy into its regulations to, among
other purposes, provide for greater
transparency as to its section 19
application, provide greater certainty as
to the FDIC’s application process, and to
assist both insured depository
institutions and individuals who may be
affected by section 19 with
understanding its impact and
potentially seek relief from its
provisions.12
In December 2022, the FHBA made
amendments to section 19 that are
comparable to the amendments made in
section 205(d). The FDIC proposed to
implement these changes through a
notice-and-comment rulemaking in
November 2023.13 The FDIC finalized
its rulemaking on August 7, 2024.14
Coordination With the FDIC
In the past, the NCUA has drawn on
the FDIC’s guidance related to section
9 Under the FHBA, a ‘‘consent application’’
means ‘‘an application filed with [the] Board by an
individual (or by an insured credit union on behalf
of an individual) seeking the written consent of the
Board under [12 U.S.C. 1785(d)(1)(A).’’ 12 U.S.C.
1785(d)(6)(A).
10 12 U.S.C. 1829(a).
11 See 84 FR 68353 (Dec. 16, 2019).
12 Id.; 85 FR 51312 (Aug. 20, 2020) (FDIC 2020
final rule).
13 88 FR 77906 (Nov. 14, 2023).
14 89 FR 64353 (Aug. 7, 2024).
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19 due to the FDIC’s greater experience
processing section 19 consent
applications. Further, in the Board’s
view it is beneficial to both insured
financial institutions and covered
individuals for the NCUA’s section
205(d) related requirements to be
consistent, to the extent possible, with
the FDIC’s section 19 requirements.
Consistent guidelines between the two
agencies with respect to these parallel
statutory provisions help streamline the
consent 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. The FHBA
formalizes the expectation that the
agencies implement these comparable
statutory provisions similarly and
requires the NCUA and the FDIC to
consult and coordinate to promote
consistent procedures, where
appropriate.15 The Board finds that
adopting similar definitions,
terminology, and procedures in this
final rule will promote consistent
implementation of consent applications
because even those provisions that fall
outside the scope of consent
applications are likely to affect how the
agency administers those applications.
The NCUA and the FDIC have consulted
and coordinated on this rulemaking as
directed by the FHBA. Additionally, the
NCUA has consulted with the Board of
Governors of the Federal Reserve
System and the Office of the
Comptroller of the Currency.
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II. Proposed Rule and Public Comments
At its October 19, 2023, meeting, the
Board issued a proposed rule 16 to add
new part 752 to chapter VII of title 12
of the U.S. Code of Federal Regulations
(CFR) to codify IRPS 19–1, along with
significant changes that are consistent
with the FHBA amendments to section
205(d) and the FDIC’s comparable
implementing regulations.17 The
proposed rule addressed, among other
topics, the individuals and types of
offenses covered by section 205(d), as
well as the NCUA’s procedures for
15 12 U.S.C. 1785(d)(5)(I), and 12 U.S.C.
1829(f)(9).
16 The proposed rule was published in the
Federal Register on November 7, 2023. 88 FR 76702
(Nov. 7, 2023).
17 The NCUA is issuing a final rule to codify its
policy regarding section 205(d) consent
applications due to the FDIC’s recent codification
of its similar section 19 Statement of Policy. The
NCUA believes codifying IRPS 19–1 will provide
for greater transparency as to its application,
provide greater certainty as to the NCUA’s
application process, and help both credit unions
and individuals who may be affected by section
205(d) to understand its impact and potentially seek
relief from its provisions.
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reviewing a consent application. The
proposed rule provided for a 60-day
comment period, which ended on
January 8, 2024. The Board received 10
public comments on the proposal from
individuals, a fidelity bond provider, a
faith-based association advocating for
the rights of the accused and
incarcerated, and national, state, and
regional organizations representing
credit unions.18
The NCUA requested comments on all
aspects of its approach to section 205(d)
and, specifically, the following topics:
• the date on which a criminal
offense ‘‘occurred’’ or was ‘‘committed;’’
• the date on which ‘‘sentencing
occurred;’’
• whether section 205(d)
encompasses foreign convictions and
pretrial diversions;
• the standard for expungements,
sealings, and dismissals;
• ‘‘offenses involving controlled
substances;’’ and
• de minimis offenses.
Most commenters opted to provide
general comments rather than address
the specific questions posed in the
preamble. Only one commenter
specifically addressed each of the eight
questions presented.
Four commenters expressed broad
support for providing second chances
and expanding employment
opportunities to those with criminal
offense backgrounds but did not provide
substantive comments on the proposed
rule. Of those commenters that provided
substantive comments, all were
generally supportive of the proposed
rule. One commenter noted that the
proposed rule enhances the ability of
credit unions to make their own hiring
decisions and decreases the instances
where a consent application would need
to be submitted. Two commenters wrote
that by modifying and expanding the
current de minimis offenses deemed
automatically approved by the Board,
the proposal expands opportunities for
individuals seeking employment in the
financial services sector. Further, they
noted that by expanding the category of
de minimis offenses, the NCUA better
aligns itself with the FDIC.
Several of the commenters indicated
their support for the proposed rule but
suggested changes to particular
provisions or asked for clarification on
certain aspects of the proposal. The
comments and the Board’s responses are
addressed in the section-by-section
discussion below.
18 One comment was indecipherable and
included an attachment with no relevance to the
proposed rule. This submission was counted in the
total number of comments received.
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III. Final Rule
The Board is now rescinding IRPS 19–
1 and issuing a final rule to incorporate
IRPS 19–1 and the FHBA into its
regulations. The final rule addresses,
among other topics, the types of offenses
covered by section 205(d), the effect of
the completion of sentencing or pretrialdiversion program requirements in the
context of section 205(d), and the
NCUA’s procedures for reviewing
applications filed under section 205(d).
The final rule also makes conforming
changes and adopts amendments to
§ 701.14 on changes in official or senior
executive officer in credit unions that
are newly chartered or are in troubled
condition.
Substantive comments on specific
aspects of the proposed rule are
discussed in detail in the following
sections of the preamble. For the
reasons described, the Board is adopting
the proposal with some modifications.
Section-by-Section Discussion
1. Section 752.1—What is section 205(d)
of the FCU Act?
This section sets out the scope of new
part 752. Paragraph (a) generally
describes the requirements of section
205(d). Paragraph (b) of this section
clarifies that insured credit unions must
make a reasonable, documented inquiry
regarding an applicant’s history to
ensure that a person who is subject to
the prohibition provision of section
205(d) is not hired or permitted to
participate in the conduct of credit
unions’ affairs without the written
consent of the NCUA.
The Board reiterates that, consistent
with the NCUA’s current policy, a
federally insured credit union’s
reasonable, documented inquiry should,
at a minimum, establish a screening
process to obtain information about
convictions and program entries from
job applicants. If a federally insured
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.
Paragraph (b) provides that insured
credit unions are permitted to make
conditional offers of employment to
prospective applicants. As per the
NCUA’s existing policy, an insured
credit union choosing to adopt a policy
to extend conditional offers of
employment may establish its own
procedures to make criminal record
inquiries at any stage of its choosing in
its hiring process, so long as applicants
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do not commence work for or be
employed by the credit union until the
applicant is determined to not be
prohibited under section 205(d) or
receives consent from the Board.
Paragraph (c) addresses the need for a
consent application and establishes the
standard for an application’s approval.
The NCUA will evaluate a consent
application to determine if a 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 credit union. The
burden is upon the applicant to
establish that the application warrants
approval.
The Board noted in the proposal that
the FHBA uses the terms ‘‘national
office’’ and ‘‘regional office,’’ which are
inconsistent with the NCUA’s
organization.19 To address those
technical inconsistencies in the final
rule, the Board has replaced references
to the NCUA’s regional offices and the
Office of National Examinations and
Supervision (ONES) with the term
‘‘field office’’ throughout. The Board has
also added paragraph (d) to define the
term ‘‘field office’’ as a Regional Office
or the Office of National Examinations
and Supervision, as described in 12 CFR
790.2.
Section 752.1 is otherwise adopted
generally as proposed.
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2. Section 752.2—Who is covered by
section 205(d)?
This section identifies who is covered
by section 205(d). Paragraph (a) states
that IAPs, as defined by 12 U.S.C.
1786(r), are covered. Similar to IRPS 19–
1, volunteer and de facto employees are
deemed covered under section 205(d) as
well. Whether other persons who are
not IAPs, such as certain independent
contractors, are covered depends upon
their degree of influence or control over
the management or affairs of an insured
credit union. For example, directors and
officers of affiliates, or joint ventures of
an insured credit union, are covered if
they participate in the conduct of affairs
of the insured credit union or are able
to influence or control the management
or affairs of the insured credit union.
Generally, those who exercise major
policymaking functions of an insured
credit union are covered by section
205(d).
19 See 12 CFR 790.2. The NCUA is currently
composed of the Board with a Central Office; Field
Offices, consisting of three Regional Offices and
ONES; the Asset Management and Assistance
Center; the Community Development Revolving
Loan Program; and the NCUA Central Liquidity
Facility.
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Paragraph (b) defines the term
‘‘person’’ for the purposes of section
205(d) as an individual only and not a
legal entity.
One commenter indicated that the
principles-based definition for covered
persons in § 752.2 was sufficiently clear
as proposed, particularly when read in
conjunction with the statutory
definition of ‘‘institution-affiliated
party.’’ The commenter noted that any
potential gray areas that arise can be
resolved through legal opinions on a
case-by-case basis.
The Board is adopting this section
largely as proposed. As noted in the
proposal, § 752.2 includes less detail
than IRPS 19–1 regarding how the
NCUA will determine whether a person
participates in the conduct of the affairs
of an insured credit union. The NCUA
intends to publish guidance that further
clarifies its intent about other persons
who are not IAPs. The guidance will
include language similar to IRPS 19–1.
3. Section 752.3—Which offenses
qualify as ‘‘Covered Offenses’’ under
section 205(d)?
This section addresses what
constitutes a covered offense under
section 205(d).20 Paragraph (a) states
that a conviction or program entry must
have been for a criminal offense
involving dishonesty or breach of trust.
The paragraph defines criminal offenses
involving dishonesty and breach of
trust. The FHBA defines ‘‘criminal
offense involving dishonesty’’ as ‘‘an
offense under which an individual,
directly or indirectly, cheats or defrauds
or wrongfully takes property belonging
to another in violation of a criminal
statute.’’ The FHBA further provides
that the term includes an offense that
Federal, state, or local law defines as
dishonest or for which dishonesty is an
element of the offense. However, the
term does not include a misdemeanor
criminal offense committed more than 1
year before the date on which an
individual files a consent application,
excluding any period of incarceration,
or an offense involving the possession of
controlled substances.
The FHBA does not define breach of
trust. Under this section, breach of trust
means a wrongful act, use,
20 The Board notes that the approach to criminal
offenses mandated by the statute and rulemaking
would not have an impact on other processes
related to criminal convictions. For example, the
NCUA may consider a more expansive scope of
convictions related to controlled substances under
section 212 of the Federal Credit Union Act in
disapproving directors, committee members, and
senior executive officers of troubled or newly
chartered insured credit unions. See 12 CFR 701.14
for the NCUA’s implementation of this provision,
also addressed elsewhere in this final rule.
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misappropriation, or omission with
respect to any property or fund that 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. This
definition is identical to the definition
in IRPS 19–1.
As discussed previously, the FHBA
excludes from the scope of such
offenses ‘‘an offense involving the
possession of controlled substances.’’
The Board interprets this phrase
concerning controlled substances to
exclude from the scope of the
prohibition, at a minimum, criminal
offenses involving the simple
possession of controlled substances and
possession with intent to distribute a
controlled substance. This exclusion
may also apply to other drug-related
offenses depending on the statutory
elements of the offenses or from court
determinations that the statutory
provisions of the offenses do not involve
dishonesty or breach of trust, as noted
in paragraph (b) of § 752.3. The Board
notes that in processing other
applications, such as change in official
or senior executive officer in credit
unions that are newly chartered or are
in troubled condition, the NCUA may
still consider excluded offenses as
appropriate. For example, an offense
that is not covered under section 205(d)
may bear on an individual’s
competence, experience, character, or
integrity under 12 U.S.C. 1790a and 12
CFR 701.14. Potential applicants may
contact their appropriate NCUA field
office if they have questions about
whether their offenses are covered
under section 205(d).
This new regulatory language marks a
shift from IRPS 19–1, which requires
consent applications for certain simple
misdemeanor drug possession offenses.
Under IRPS 19–1, a consent application
for a simple misdemeanor drug
possession offense is required except if
the conviction or program entry was
classified as a misdemeanor at the time
of conviction or program entry, the
person had no other conviction or
program entry described in section
205(d), and it had been 5 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 the conviction
did not involve the illegal distribution
(including an intent to distribute), sale,
trafficking, or manufacture of a
controlled substance or other related
offense.
Commenters were generally
supportive of the Board’s proposal
concerning controlled substances. One
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commenter wrote that credit unions in
rural areas with high addiction rates
have indicated that the classification of
possession of an illegal substance as a
de minimis offense would increase the
pool of potential employment
candidates. The same commenter noted
studies have shown employment has
therapeutic effects in drug addiction
treatment and, in the spirit of assisting
communities in reaching their fullest
potential, credit unions should have the
ability to offer employment
opportunities to more eligible
candidates, including those battling
addiction. Another commenter
supported the NCUA’s review of its
interpretation of crimes involving
possession.
The Board believes that the final rule
is consistent with the text and purposes
of the FHBA and will align the Board’s
interpretation of section 205(d) as to
offenses involving controlled substances
more closely with other Federal banking
regulators. The FHBA explicitly
excludes from the category of ‘‘criminal
offense involving dishonesty’’ ‘‘an
offense involving the possession of
controlled substances,’’ not just the
offense of ‘‘possession of controlled
substances.’’ 21 The modifier
‘‘involving,’’ in the Board’s view,
expands that exclusion beyond simplepossession offenses. The regulatory
language, however, will continue to
recognize that a drug-related offense
could potentially involve dishonesty,
breach of trust, or money laundering.22
Moreover, while section 205(d) provides
statutory barriers to the employment of
certain individuals due to their criminal
history, insured credit unions otherwise
retain the discretion, under that statute,
as to which applicants they want to
hire. The Board also notes that this
provision does not affect its ability to
consider drug-related offenses as they
pertain to the suitability of an
individual under other statutory
provisions, including section 212 of the
FCU Act.23
Paragraph (b) requires that, to
determine if the criminal offense is one
of dishonesty or breach of trust, the
NCUA will look to the statutory
elements of the criminal offense or to
court decisions in the relevant
jurisdiction that have interpreted these
statutory elements. This provision is
similar to the policy under IRPS 19–1
21 See 12 U.S.C. 1785(d)(6)(B)(iii) (emphasis
added).
22 See House Rpt. No. 117–314 (May 10, 2022),
available at https://www.congress.gov/
congressional-report/117th-congress/house-report/
314/1.
23 12 U.S.C. 1790a.
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and is unchanged from the proposed
rule.
The FHBA also states that the term
‘‘criminal offense involving dishonesty’’
does not include ‘‘a misdemeanor
criminal offense committed more than
one year before the date on which an
individual files a consent application,
excluding any period of
incarceration.’’ 24 The Board interprets
the term ‘‘offense committed’’ to mean
the ‘‘last date of the underlying
misconduct,’’ based on the plain text of
the statute. In instances with multiple
offenses, ‘‘offense committed’’ means
the last date of any of the underlying
offenses.
Paragraph (c) includes language
reflecting the FHBA’s exclusion of
certain older offenses from the scope of
section 205(d).25 The FHBA provides
that individuals are not subject to a
prohibition under section 205(d) if they
committed a covered offense and it has
been 7 years or more since the offense
occurred; or if the individual was
incarcerated with respect to the offense,
it has been 5 years or more since the
individual was released from
incarceration; or the individual
committed the offense when they were
21 years of age or younger, and it has
been more than 30 months since the
sentencing occurred.26
The Board considers the phrases
‘‘offense committed’’—noted
previously—and ‘‘offense occurred’’ to
be substantially similar. Accordingly,
the Board interprets the term ‘‘offense
occurred’’ to mean the ‘‘last date of the
underlying misconduct.’’ In instances
with multiple offenses, ‘‘offense
occurred’’ means the last date of any of
the underlying offenses.
One commenter supported the
Board’s proposal, noting its
interpretation of the term ‘‘offense
occurred’’ is reasonable and logical.
Paragraph (c) contains another FHBA
exception: section 205(d)’s restrictions
do not apply to an offense if ‘‘the
individual was incarcerated with
respect to the offense and it has been 5
years or more since the individual was
released from incarceration.’’ 27 While
the language of the statute is clear, the
Board notes that there could be
situations in which an individual who
was incarcerated with respect to an
offense would be permitted to work at
an insured credit union before a
similarly situated individual who was
not incarcerated in connection with an
24 12
U.S.C. 1785(d)(6)(B)(iii)(I).
12 U.S.C. 1785(d)(4)(A).
26 Note that these exceptions do not apply to the
offenses described under 12 U.S.C. 1785(d)(2).
27 See 12 U.S.C. 1785(d)(4)(A)(i)(II).
25 See
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offense. This difference is due to the
FHBA’s use of a shorter time period for
individuals who were incarcerated for
an offense than for individuals who did
not serve jail time.
Paragraph (c) also tracks the FHBA’s
language concerning offenses committed
by individuals 21 years of age or
younger. The FHBA states that, for
individuals who committed an offense
when the individual was 21 years of age
or younger, section 205(d) shall not
apply to the offense if it has been more
than 30 months since the sentencing
occurred.28 The Board interprets
‘‘sentencing occurred’’ to mean the date
on which a court imposed the sentence
(as indicated by the date on the court’s
sentencing order), not the date on which
all conditions of sentencing were
completed. Moreover, paragraph (c)
notes that its exclusions—which are
derived from the FHBA—do not apply
to the enumerated offenses described
under 12 U.S.C. 1785(d)(2).
One commenter suggested that the
term ‘‘sentencing occurred’’ should
mean the date that appears on the
applicable sentencing order, instead of
the date the court’s clerk entered the
order on the docket, which often occurs
days after the order is signed by the
judge. The commenter pointed out that
the date on the sentencing order can be
easily and definitively ascertained from
the court records. The Board agrees with
this commenter and has modified this
paragraph to add a clarifying
parenthetical, as indicated previously.
Proposed paragraph (d) added parallel
language reflecting the FDIC’s long-held
position that individuals who are
convicted of, or enter into a pretrial
diversion program for, a criminal
offense involving dishonesty or breach
of trust in foreign jurisdictions are
subject to section 19, unless the offense
is otherwise excluded by 12 CFR 303,
subpart L, as stated in the FDIC’s rule.
One commenter agreed that section
205(d) should include foreign criminal
convictions and pretrial diversions for
offenses in foreign jurisdictions
involving dishonesty, like fraud and
embezzlement, unless the conviction
has been expunged, dismissed, or
pardoned. Another commenter noted
that, as a fidelity bond carrier, it will
continue to require full disclosure of all
pertinent, known facts in the bond
application and renewal process, and all
facts related to current or prospective
employees will remain relevant to its
underwriting decisions.
The Board has not previously had a
position on foreign offenses; however,
given the congressional mandate to
28 12
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consult and coordinate to promote
consistent implementation on consent
application procedures where
appropriate, the Board is adopting the
FDIC’s interpretation, as proposed.
Employers may be unaware of an
applicant’s foreign offenses without
conducting their own inquiry, and many
countries have their own application
processes to conduct criminal
background checks.
The Board notes several nonexhaustive ways in which insured credit
unions could comply with this
requirement. For credit union
operations outside the United States, the
insured credit union could conduct a
reasonable, documented inquiry to
verify an applicant’s history by
inquiring about potential covered
offenses that may have occurred in that
foreign country (or countries) in which
the credit union conducts operations, as
well as the United States. As another
example of such an inquiry, if an
insured credit union plans to hire
someone in the United States who is
from a foreign country, the credit union
could inquire about potential covered
offenses that may have occurred in the
United States and in that foreign
country. And if a foreign jurisdiction
forbade background investigations by an
insured credit union, the credit union
could note this restriction as part of its
reasonable, documented inquiry.
4. Section 752.4—What constitutes a
conviction under section 205(d)?
Paragraph (a) states that there must
have been a conviction of record for
section 205(d) to apply, and that section
205(d) does not apply to arrests,
pending cases not brought to trial
(unless the person has a program entry
as set out in § 752.5), or any conviction
reversed on appeal unless the reversal
was for the purpose of re-sentencing.
The Board is generally adopting
paragraph (a) as proposed, with nonsubstantive modifications to § 752.4(a)
to change the tense of the final sentence
for consistency with the preceding
sentence.
Paragraph (b) clarifies that, absent a
program entry, when an individual is
charged with a covered offense but is
subsequently convicted of an offense
that is not a covered offense, that
conviction is not subject to section
205(d). IRPS 19–1 does not have this
clarification; however, it is included in
the FDIC’s current part 303. The final
rule clarifies that the conviction, not the
originally charged offense, is relevant
under section 205(d).
Paragraph (c) of this section reflects
statutory language related to the
treatment of orders of expungement,
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sealing, or dismissal of criminal records.
Under IRPS 19–1, a conviction that has
been completely expunged is not
considered a conviction of record and
does not require a consent application.
However, IRPS 19–1 further noted that
where an order of expungement has
been issued and is intended to be a
complete expungement, the jurisdiction
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. Also, the failure to destroy or
seal the records will not prevent the
expungement from being considered
complete for the purposes of section
205(d).
The FHBA provides a two-pronged
test to determine whether a covered
offense should be considered expunged,
dismissed, or sealed and therefore
excluded from the scope of section
205(d). First, there must be an ‘‘order of
expungement, sealing, or dismissal that
has been issued in regard to the
conviction in connection with such
offense’’; second, it must be ‘‘intended
by the language in the order itself, or in
the legislative provisions under which
the order was issued, that the conviction
shall be destroyed or sealed from the
individual’s state, Tribal, or Federal
record, even if exceptions allow the
conviction to be considered for certain
character and fitness evaluation
purposes.’’ 29
The FHBA does not address
expungements, sealings, or dismissals
by operation of law, and the Board has
sought to provide a more
comprehensive framework as to such
records. The Board proposed to add
language to the second (intent) prong of
the expungement framework to
encompass the language in the
expungement order itself, the legislative
provisions under which the order was
issued, and other legislative provisions.
The Board believes that the additional
language is consistent with the purposes
of the statute and congressional intent to
provide relief to individuals with older
or minor offenses. One commenter
agreed that the proposed interpretation
of expungement to include those by
application of law is reasonable and
supported finalizing that provision as
proposed.
The proposal noted that, similar to
IRPS 19–1, covered offenses that have
been pardoned—and which are not
otherwise excluded by § 752.8—would
still require a consent application.
One commenter suggested that
pardons should also qualify as an
expungement by operation of law. The
29 12
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commenter observed that requiring a
consent application for a conviction that
has been pardoned seems inconsistent
with congressional intent and the
presidential pardon power. The
commenter suggested that if a
conviction has been officially nullified
due to a pardon by the President or a
state governor, that conviction should
be nullified in all respects, including
pursuant to the NCUA’s regulations.
The commenter asked that the Board
exclude pardons from the scope of
section 205(d) and suggested that
pardoned offenses should be treated
similarly to expungements, dismissals,
or the sealing of a conviction.
The Board declines to adopt this
recommendation and notes its
longstanding position that covered
offenses that have been pardoned, and
which are not otherwise excluded from
the scope of section 205(d), will still
require an application. A pardon
typically cancels the punishment for a
criminal offense, not the underlying
finding of guilt. In contrast, an
expungement or sealing is significantly
more likely to result, by applicable
statute or court order, in the removal of
the finding of guilt or otherwise result
in a legal determination that the offense
should not be used against an
individual for employment purposes.
Accordingly, in the Board’s view, a
person with such an expunged or sealed
offense tends to present less of a risk to
the credit union system than a person
whose same offense has been pardoned.
The Board notes, however, that while a
covered offense that has been pardoned
but not expunged will still require an
application, in most cases the pardon
would generally weigh in favor of
approval.
Paragraph (d) excludes ‘‘youthful
offender’’ judgments for minors from the
scope of section 205(d). Paragraph (d)
clarifies that it encompasses the term
‘‘youthful offender’’ and ‘‘juvenile
delinquent’’ and similar terms, since a
court does not have to specifically use
these terms in an adjudication in order
for paragraph (d)’s provisions to apply.
5. Section 752.5—What constitutes a
pretrial diversion or similar program
under section 205(d)?
Paragraph (a) defines what constitutes
a pretrial diversion or similar program
(a program entry). A pretrial diversion
or similar program means a program
characterized by a suspension or
eventual dismissal or reversal of charges
or criminal prosecution upon agreement
by the accused to restitution, drug or
alcohol rehabilitation, anger
management, or community service.
The FHBA establishes this definition.
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Paragraph (b) clarifies that when a
covered offense either is reduced by a
program entry to an offense that would
otherwise not be covered by section
205(d) or is dismissed upon successful
completion of a program entry, the
offense remains a covered offense for
purposes of section 205(d). The covered
offense will require a consent
application unless it is de minimis as
provided by § 752.8. This language is
new as compared to IRPS 19–1 and
comes from the FDIC’s part 303.
Paragraph (c) states that
expungements or sealings of program
entry records will be treated the same as
expungements or sealings of
convictions. This language is new as
compared to IRPS 19–1 and comes from
the FDIC’s part 303.
No commenters objected to these
provisions, which the Board generally
adopts as proposed.
including on [its] website.’’ 30 These
forms and instructions ‘‘shall provide a
sample cover letter and a
comprehensive list of items that may
accompany the consent application,
including clear guidance on evidence
that may support a finding of
rehabilitation.’’ 31 While the final rule
does not codify these requirements, the
agency will comply with the statutory
mandate to make appropriate forms and
instructions available to the public. The
final rule provides generally that the
NCUA’s consent application forms as
well as additional information
concerning section 205(d) can be
accessed on the NCUA’s website. One
commenter noted that the availability of
forms on the agency’s public website
will be helpful.
No commenters objected to these
provisions, which the Board generally
adopts as proposed.
6. Section 752.6—What are the types of
consent applications that can be filed?
8. Section 752.8—What is the de
minimis exemption?
The FHBA codifies procedures for
consent applications filed with the
NCUA. The statute removes the NCUA’s
existing policy that an insured credit
union sponsor a consent application or
that an individual seek a waiver of the
credit union filing requirement.
Specifically, the proposed rule provides
that the NCUA will accept applications
from an individual or an insured credit
union applying on behalf of an
individual.
Paragraph (b) provides that an
individual consent application or a
credit union-sponsored consent
application may be filed separately or
contemporaneously with the
appropriate NCUA field office.
The Board has made a number of
changes to this section based on the
statutory revisions and helpful
comments received. One commenter—to
the FDIC’s parallel notice of proposed
rulemaking under the FHBA 32—
requested that this section be revised to
exempt de minimis offenses from the
scope of the statutory prohibition, to
align with the FHBA. The Board agrees,
and this section has been revised in the
final rule to treat de minimis offenses,
a category that includes the sub-category
‘‘designated lesser offenses,’’ as offenses
that are excluded from the prohibitions
of section 205(d) (assuming certain
conditions are met) and for which
offenses no application is required. This
is a substantive departure from the
Board’s longstanding treatment of de
minimis offenses, in which potential
applicants with such offenses on their
records did not need to file an
application with the Board because the
NCUA deemed their (potential)
application automatically approved. In
other words, the NCUA considered such
offenses covered under section 205(d),
while the FHBA exempts those offenses
entirely from section 205(d).
Accordingly, this section of the final
rule includes additional language to
clarify that the prohibitions of section
205(d) will not apply, and an
application will therefore not be
required, as to offenses meeting the
conditions to qualify for the de minimis
exemption.
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7. Section 752.7—When may an
application be filed?
This section notes that before a
consent application may be filed, ‘‘all of
the sentencing requirements associated
with a conviction, or conditions
imposed by the program entry,
including but not limited to,
imprisonment, fines, conditions of
rehabilitation, and probation
requirements must be completed, and
the case must be considered final by the
procedures of the applicable
jurisdiction.’’ The Board includes this
language to accord with several of the
FHBA’s exclusions from section 205(d)
that are not tied to the completion of
sentencing requirements.
Furthermore, the FHBA requires the
NCUA to ‘‘make all forms and
instructions related to consent
applications available to the public,
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U.S.C. 1785(d)(5)(E)(i).
U.S.C. 1785(d)(5)(E)(ii).
32 See 88 FR 77906 (Nov. 14, 2023).
The FHBA removed the use of fake
identification from the scope of section
205(d), and paragraphs (a)(1) and (b)(4)
reflect this exclusion.33
Paragraph (a)(1) states an individual
who has been convicted of two or fewer
covered offenses need not file if the
individual could have been sentenced to
a term of confinement in a correctional
facility of 3 years or less and/or a fine
of $2,500 or less, and the individual
actually served 3 days or less of jail time
for each, provided that all of the
sentencing requirements associated with
the conviction have been completed,
each conviction or program entry was
entered at least 3 years prior to the date
of a consent application (assuming there
are two convictions or program entries
for a covered offense), and each covered
offense was not committed against an
insured depository institution or
insured credit union.
One commenter suggested that the
maximum potential fine amount for the
de minimis criterion in paragraph (a)(1)
should be increased from $2,500 to
$5,000, in keeping with a certain
Federal criminal statute that provides
for fines up to $5,000 for certain
misdemeanors or infractions. The
commenter noted that under the
statutory provision there are very few
violations of Federal criminal laws for
which the potential fine for a violation
would be less than $5,000, making
many Federal offenses ineligible for de
minimis treatment. The Board declines
to expand the de minimis framework as
suggested because it considers the
current threshold appropriate. The
$2,500 amount is comparable to the
$2,000 de minimis threshold for
insufficient-fund offenses under the
FHBA.
While the Board acknowledges that
offenses falling under the statute the
commenter cited may require an
application, two factors mitigate this
concern. First, some of the offenses or
infractions may not involve dishonesty
or a breach of trust, which would make
them irrelevant under section 205(d).
Second, many of those offenses are
likely to be misdemeanors, which
receive significant relief under § 752.3.
Thus, the Board finds the rule gives
appropriate relief for minor offenses
with the $2,500 threshold.
Paragraph (a)(2) reflects the FHBA’s
confinement criteria as to the Board’s
determination of de minimis offenses.34
To improve the clarity of this section,
the final rule adds a sentence explaining
that designated lesser offenses need not
30 12
31 12
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34 See
E:\FR\FM\30SER1.SGM
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meet the other criteria that apply to de
minimis offenses.
For greater ease of reference, proposed
paragraphs (a)(2)(i)–(iii) have been
reorganized in the final rule. Under
redesignated paragraph (a)(3), jail time
is calculated based on the time an
individual spent incarcerated as a
punishment or a sanction—not as
pretrial detention—and does not
include probation or parole where an
individual was restricted to a particular
jurisdiction or was required to report
occasionally to an individual or a
specific location. Jail time includes
confinement to a psychiatric treatment
center in lieu of a jail, prison, or house
of correction on mental competency
grounds. The definition is not intended
to include any of the following: persons
who are restricted to a substance-abuse
treatment program facility for part or all
of the day; and persons who are ordered
to attend outpatient psychiatric
treatment.
Paragraph (a)(4), redesignated from
proposed paragraph (a)(3), requires that
if there are two convictions or program
entries for a covered offense, each
conviction or program entry must have
been entered at least 3 years prior to the
date a consent application would
otherwise be required.
Paragraph (a)(5) (redesignated from
proposed paragraph (a)(4)) requires that,
in order for an offense or offenses to
qualify under the general de minimis
framework, each offense ‘‘must not have
been’’ committed against an insured
depository institution or insured credit
union. This language aligns with the
current FDIC regulations.
Under the proposed rule, several de
minimis criteria had qualifiers for
offenses committed against ‘‘insured’’
credit unions.35 Two commenters noted
that the proposal’s references to covered
offenses committed against ‘‘insured
credit unions’’ or ‘‘insured depository
institutions’’ for determining whether a
given offense is de minimis was too
narrowly focused on whether an
institution is insured. One commenter
suggested that if an offense is committed
against any credit union or financial
institution, it should not be considered
a de minimis offense irrespective of the
institution’s insurance status. Another
commenter noted that any prior offense
by a covered individual committed
against a financial institution, insured
or not, increases risks to insured credit
unions. Both commenters suggested
eliminating the ‘‘insured’’ qualifier so
that the de minimis exemption would
not be available for offenses committed
against any depository institution or
35 See
proposed §§ 752.8(a)(4), (b)(2), (b)(3).
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credit union—not just insured
depository institutions and insured
credit unions. After careful
consideration, the Board declines to
adopt this recommendation. The FHBA
and its legislative history indicate
lawmakers’ preference for broad relief
and granting second chances. Adopting
the commenters’ recommendation
would provide less relief for individuals
with minor offenses committed against
non-federally insured credit unions or
depository institutions. While this
approach to the de minimis framework
marks a departure from IRPS 19–1, in
the Board’s view, providing greater
relief for de minimis offenses—not
less—is consistent with the FHBA and
congressional intent.
Paragraph (b)(1) (age of person at time
of covered offense) provides that a
consent application is not required if
there are two convictions or program
entries for a covered offense, and the
actions that resulted in both convictions
or program entries all occurred when
the individual was 21 years of age or
younger and the convictions or program
entries were entered at least 18 months
prior to the date of a consent
application. For a reduced waiting
period to apply before an individual
may qualify for the de minimis
exemption, the underlying convictions
or program entries must meet the other
de minimis criteria in paragraph (a) of
§ 752.8.
The Board has revised the de minimis
requirement related to the aggregate
total face value of all ‘‘bad’’ or
insufficient funds checks from $1,000 to
$2,000, to conform with the statute.36
Under paragraph (b)(2), a consent
application is not required if an
individual has convictions or program
entries of record based on the writing of
‘‘bad’’ or insufficient funds checks and
the following conditions apply: (i) the
aggregate total face value of all ‘‘bad’’ or
insufficient funds checks cited across all
the convictions or program entries for
‘‘bad’’ or insufficient funds checks is
$2,000 or less; (ii) no depository
institution or credit union was a payee
on any of the ‘‘bad’’ or insufficient
funds checks that were the basis of the
convictions or program entries; and (iii)
the individual has no more than one
other de minimis offense.
The FHBA and the final rule do not
require a consent application for
convictions or program entries for
small-dollar, simple theft. Under
paragraph (b)(3), convictions or program
entries based on the simple theft of
goods, services, or currency (or other
monetary instrument) are considered de
36 See
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minimis offenses if the following
conditions apply: (i) the value of the
currency, goods, or services taken is
$1,000 or less; (ii) the theft was not
committed against an depository
institution or credit union; (iii) the
individual has no more than one other
de minimis offense under this section;
and (iv) if there are two de minimis
offenses under this section, each
conviction or program entry was entered
at least 3 years prior to the date a
consent application would otherwise be
required, or at least 18 months prior to
the date a consent application would
otherwise be required if the actions that
resulted in the conviction or program
entry all occurred when the individual
was 21 years of age or younger. This
exception excludes burglary, forgery,
robbery, identity theft, and fraud.
Finally, the Board notes that the
FHBA includes ‘‘designated lesser
offenses’’ in addition to de minimis
offenses. Designated lesser offenses,
including use of fake identification,
shoplifting, trespass, fare evasion, or
driving with an expired license or tag,
are described in the FHBA as low-risk
offenses statutorily excluded from the
scope of section 205(d). Redesignated
paragraph (b)(4), which appeared as
§ 752.3(d) in the proposed rule,
excludes from the scope of covered
offenses ‘‘designated lesser offenses,’’
(for example, using fake identification),
as specified in 12 U.S.C.
1785(d)(4)(C)(iv), if 1 year or more has
passed since the applicable conviction
or program entry. As explained in
paragraph (a) in the final rule, these
offenses do not need to meet the other
criteria specified for de minimis
offenses.
The Board has deleted proposed
§ 752.8(c) concerning fidelity bond
coverage and disclosure of de minimis
offenses to insured credit unions. This
now-deleted paragraph had required
that, ‘‘Any person who meets the
criteria under this section shall be
covered by a fidelity bond to the same
extent as others in similar positions and
shall disclose the presence of the
conviction(s) or program entry(ies) to all
insured credit unions in the affairs of
which he or she intends to participate.’’
One commenter expressed concern
that § 752.8(c), as proposed, could be
misinterpreted as imposing a mandate
on fidelity bond carriers to provide
coverage to individuals meeting the de
minimis criteria. Specifically, the use of
the phrase ‘‘shall be covered by a
fidelity bond’’ could be read to imply
that the burden for fidelity coverage is
on bond providers to provide the
required coverage, rather than on the
credit union to obtain the required
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coverage. This commenter’s concern
was seemingly borne out in another
comment that recommended that the
same ‘‘mandate’’ for fidelity bond
coverage for individuals meeting the de
minimis criteria should also be
extended to individuals whose consent
applications have been approved. This
commenter’s recommendation
illustrated that a misunderstanding of
the phrase ‘‘shall be covered by a
fidelity bond’’ could occur as suggested.
Additionally, one commenter
responding to the FDIC’s parallel notice
asked for clarification concerning de
minimis offenses and another
commenter suggested that de minimis
offenses should be treated the same way
as ‘‘designated lesser offenses’’ by
excluding both types of offenses from
the scope of the statutory prohibition.
Since the FHBA has excluded de
minimis offenses from the scope of
section 205(d), the Board believes that
these requirements should no longer
attach to individuals who have
committed such offenses and has
removed this provision from the final
rule. Deleting proposed § 752.8(c) also
removes the ambiguity of the phrase
‘‘shall be covered by a fidelity bond.’’
The Board emphasizes, however, that all
federally insured credit union
employees and officials continue to be
subject to the fidelity bond and
insurance coverage rules under 12 CFR
713 and must be bondable to work for
or participate in the conduct of the
affairs of the credit union.37
Paragraph (c), redesignated from
proposed paragraph (d), states that any
conviction or program entry for specific
criminal offenses under Title 18 set out
in 12 U.S.C. 1785(d)(2) cannot qualify
for a de minimis exemption.
9. Section 752.9—How does an
individual or a credit union file an
application?
This section, adopted as proposed,
eliminates the credit union filing
requirement and waiver process and
indicates that an insured credit union
may file an application on behalf of an
individual. The individual may also file
an application. This section also
provides that applications filed by a
credit union should be filed with the
NCUA field office where the credit
union’s home office is located (or with
ONES for credit unions that office
supervises), and applications filed by an
individual should be filed with the
NCUA field office where the person
37 Federally insured, state-chartered credit unions
are required by 12 CFR 741.201 to comply with the
fidelity bond coverage requirements of part 713.
Corporate credit unions must comply with 12 CFR
704.18 in lieu of part 713.
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lives. States covered by each NCUA
field office are listed in 12 CFR 790.2.
Along with this final rule, the Board
is revising its delegations of authority
related to consent applications.
Formerly, the Regional Directors and the
ONES Director only had delegated
authority to act on credit unionsponsored applications, and the Board
had retained the authority to approve or
disapprove individual applications.
Under the revised delegations, the
Regional Directors and the ONES
Director will have authority to act on
both individual and credit unionsponsored applications. Any
disapproval of an individual or credit
union-sponsored application for
consent, including a disapproval of a
request for reconsideration, will require
the prior concurrence of the General
Counsel. Consistent with the FHBA, the
General Counsel’s concurrence must
certify that the denial is consistent with
section 205(d). Under the revised
delegation, the Board will retain
authority to approve or disapprove
individual applications for consent
involving an offense described under
section 205(d)(2)(A) and such other
high-level security cases it designates.
10. Section 752.10—How will the
NCUA evaluate an application?
Paragraph (a) sets out the factors the
NCUA will assess to determine the level
of risk the applicant poses to an insured
credit union and whether the NCUA
will consent to the person’s
participation in a credit union’s affairs.
The paragraph reflects new statutory
requirements related to the NCUA’s
review process, including the
requirement that the NCUA primarily
rely on the criminal history record of
the Federal Bureau of Investigation (FBI)
in its review and provide such record to
the applicant to review for accuracy.38
The Board interprets the term ‘‘criminal
history record’’ to mean ‘‘identity
history summary checks,’’ which are
commonly known as ‘‘rap sheets.’’
Under paragraph (a)—and in accordance
with the FHBA—the NCUA, in
reviewing an application, will provide
‘‘such record’’ (a copy of the rap sheet)
to the individual to review for
accuracy.39 The NCUA will not provide
it to the credit union, but only to the
individual who is the subject of the
application. One commenter stated that
the requirement to rely primarily on FBI
rap sheets will help improve the
consent application process.
One commenter, to the FDIC’s parallel
FHBA notice of proposed rulemaking,
38 See
12 U.S.C. 1785(d)(5)(F).
39 Id.
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requested that the FDIC establish a
deadline to evaluate the application
once received and a deadline of 5 days
to return the copy of the criminal
history record once received from the
FBI. The FDIC has adopted this
recommendation in part; 40 however, the
Board declines to adopt the suggested
deadlines in this final rule. While the
Board remains mindful that the consent
application process may impose
inconveniences and uncertainties to
covered individuals and credit unions
as they await the agency’s
determination, the Board maintains it is
impracticable to establish a timetable for
action on applications because each
application is fact specific and varies in
complexity. Past applications submitted
to the NCUA have generally been
adjudicated within 60 days from receipt,
and often the processing time was
significantly less. The Board remains
committed to processing consent
applications as promptly as practicable.
In addition, the NCUA will make
reasonable efforts to communicate with
the subject of the application within 15
calendar days of receipt of the criminal
history record from the FBI to inform
the individual that the NCUA will be
providing them with a copy of the
report and to verify the individual’s
contact information. The NCUA will
also make reasonable efforts to send the
report to the individual within 5
business days of successful verification
of the individual’s contact information.
If the individual believes that there are
any inaccuracies in the report, the
NCUA will direct the individual to the
FBI, where the individual can seek
corrections.
Paragraph (b) states that the NCUA
will not require an applicant to provide
certified copies of criminal history
records unless the NCUA determines
that there is a clear and compelling
justification to require additional
information to verify the accuracy of the
criminal history record of the FBI.
Paragraph (c) states that the
determining factors in assessing an
application are whether the person has
demonstrated their fitness to participate
in the conduct of the affairs of an
40 Under revised 12 CFR 303.229(a)(2), the FDIC
will make reasonable efforts to communicate with
the subject of the application within 15 calendar
days of receipt of this record from the FBI to inform
the individual that the FDIC will be providing them
with a copy of the report and to verify the
individual’s contact information. The FDIC will
also make reasonable efforts to send the report to
the individual within 5 business days of successful
verification of the individual’s contact information.
If the individual believes that there are any
inaccuracies in the report, the FDIC will direct the
individual to an appropriate contact at the FBI,
where the individual can seek corrections.
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insured credit union, and whether the
affiliation, or participation by the
person in the conduct of the affairs of
the credit union, may constitute a threat
to the safety and soundness of the credit
union or the interests of its members or
threaten to impair public confidence in
the credit union.
Paragraph (d) sets forth the
considerations the NCUA will evaluate
in conducting an individualized
assessment. These considerations are
substantively similar to factors under
IRPS 19–1. The final rule also clarifies
how the NCUA will evaluate evidence
of rehabilitation and other evidence, as
required by the FHBA.41
Paragraph (e) provides that the
question of whether a person, who was
convicted of a crime or who agreed to
a program entry, was guilty of that crime
shall not be at issue in a proceeding
under this subpart or under 12 CFR part
746, subpart B.
Paragraph (f) provides that the NCUA
will also apply the considerations in
paragraph (d) to determine whether the
interests of justice are served in seeking
an exception in the appropriate court
when a consent application is made
prior to 10 years after the final
conviction or agreement to program
entry for certain Federal offenses.42
Paragraph (g) provides that all
approvals or orders will be subject to
the condition that the person be covered
by a fidelity bond to the same extent as
others in similar positions. The final
rule clarifies that paragraph (g) applies
whether the approval is conferred by
order or less formal means, such as an
approval letter from a field office.
Paragraph (h) includes statutory
language explaining when a new credit
union-sponsored application would be
necessary due to changes in the scope
of an applicant’s employment. It
provides that when deemed appropriate
by the NCUA, credit union-sponsored
applications are intended to allow the
individual to work for the same
employer and across positions. NCUA
consent will be required for any
proposed significant changes in the
individual’s security-related duties or
responsibilities, such as promotion to an
officer or other positions that the
employer determines will require higher
security-screening credentials (that is,
any position with higher level access or
41 While the statute uses the terms
‘‘rehabilitation’’ and ‘‘mitigating’’ as separate
categories of evidence, the terms appear to be
substantially similar in the context of section 205(d)
consent applications, and the use of both terms in
these regulations may create confusion. Therefore,
the final rule uses the term rehabilitation, not
mitigating.
42 See 12 U.S.C. 1785(d)(2)(A).
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responsibility, not only security
personnel or individuals in the security
field).
Paragraph (i) provides that when a
person who has received approval
under section 205(d) subsequently seeks
to participate in the conduct of the
affairs of another insured credit union,
another application must be submitted.
11. Section 752.11—What will the
NCUA do if the application is denied?
Paragraph (a) provides that the NCUA
will provide a written denial that will
summarize or cite the relevant factors
from § 752.10. Paragraph (b) provides
that the applicant (either the insured
credit union or the subject individual,
or both, as a consolidated request) may
file a written request for reconsideration
or appeal under the administrative
review process contained in 12 CFR part
746, subpart B. That subpart includes
uniform procedures by which
petitioners may appeal initial agency
determinations to the Board.
Under part 746, subpart B, prior to
submitting an appeal to the Board, the
petitioner may make a written request to
the appropriate field office to reconsider
an initial agency determination within
30 calendar days of the date of that
determination. Within 60 calendar days
of the date of an initial agency
determination or, as applicable, a
determination by the field office on any
request for reconsideration, a petitioner
may file an appeal seeking review of the
determination by the Board. Under part
746, subpart B, a petitioner may also
request an oral hearing before the Board.
These procedures meet the statutory
requirement for ‘‘national office review’’
of any consent application that is
denied by a ‘‘regional office,’’ if the
individual requests a review by the
Board.43 This option is also
substantially similar to the FDIC’s
current parts 303 and 308, except that
under those regulations, an oral hearing
is conducted unless the applicant or the
insured depository institution waives it
in writing and instead makes a written
submission.44
Technical or Non-Substantive
Modifications
In addition to the modifications to the
proposal described above, the final rule
includes a few minor, technical, or nonsubstantive revisions. For example, the
Board has updated subject headings for
clarity and for consistency with the
FDIC’s final rule. Several paragraphs
have also been combined and
redesignated for efficiency.
43 12
44 12
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CFR 308.158(d).
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Additionally, some adjustments to
terminology and for plain language have
been adopted in the final rule, such as
using ‘‘will’’ instead of ‘‘shall’’ when
explaining actions the NCUA will take.
NCUA Practice on Section 205(d)
In general, the final rule mirrors the
FDIC’s part 303, and the FDIC’s separate
rulemaking to implement the FHBA,
with minimal, non-substantive changes.
Additionally, while there were a few
differences between the FDIC’s part 303
and IRPS 19–1 before the FHBA, such
as some details on de minimis offenses,
expungements, and treatment of drugrelated offenses, the enactment of the
FBHA resolved most differences
between the two agencies’ rules and
created a more uniform standard.
However, there are a few areas in which
IRPS 19–1 provided additional context
and discussion on policy and
procedures related to section 205(d)
compared to part 303. In general, the
additional information does not provide
any substantive difference from part 303
and instead provides additional
clarifying information.
The Board has chosen to omit much
of the clarifying information in the final
rule to ensure its consistency with part
303; however, the Board also believes
credit unions may generally have less
experience with section 205(d) than
insured depository institutions and are
typically smaller in size with fewer
resources, so additional guidance may
help insured credit unions to discharge
their responsibilities under section
205(d). One commenter was supportive
of the NCUA issuing guidance to go
along with the final rule and suggested
that examples be given in the guidance.
Accordingly, after finalizing and
implementing this rule, the NCUA
intends to issue guidance that provides
insured credit unions with additional
information about section 205(d). The
guidance will include portions of IRPS
19–1 that were not incorporated into the
final rule.
For example, IRPS 19–1 provided that
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 a consent application is not
required because the covered offense is
considered de minimis and meets all of
the criteria for the exception, or—if the
credit union is willing to sponsor the
prospective employee’s consent
application—submit an application
requesting the Board’s consent. The
credit union could also extend a
conditional offer of employment and
notify the prospective employee that it
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is contingent upon a satisfactory
background check to determine whether
the individual is prohibited under
section 205(d). The Board intends no
change of position regarding these
policies even though they are not
included in the final rule.
IRPS 19–1 also stated that persons
who will occupy clerical, maintenance,
service, or purely administrative
positions generally can be approved
without an extensive review. A more
detailed analysis, however, would be
performed in the case of persons who
will be able to influence or control the
management or affairs of the insured
credit union. The final rule does not
include a similar delineation between
how the NCUA intends to approve
consent applications for different types
of positions. However, the Board
continues to believe that applications
for clerical, maintenance, service, or
purely administrative positions do not
require the same review as applications
for other positions that have access to
more of the day-to-day financial
operations of a credit union. The NCUA
plans to address this issue in the
guidance.
Other Conforming Amendments
Both the standard FCU Bylaws in
appendix A of part 701 and the criteria
for determining the insurability of a
credit union in 12 CFR 741.3(c)
reference section 205(d). In general,
both sections prohibit a person who has
been convicted of any criminal offense
involving dishonesty or breach of trust
from serving at an insured credit union,
except with the written consent of the
Board. The Board believes these
references are incomplete because not
all convictions of criminal offenses
involving dishonesty or breach of trust
now serve as the valid basis for a section
205(d) prohibition. Therefore, the final
rule replaces the current reference to
‘‘any crime involving dishonesty or a
breach of trust’’ to refer to the specific
crimes covered under section 205(d).
Referring directly to the FCU Act also
automatically incorporates future
statutory changes to section 205(d).
Additionally, as required by the
Gramm-Leach-Bliley Act, appendix B to
part 748 (Appendix B) contains
guidance on creating an effective
incident response plan in the event of
unauthorized access to member
information and the requirements of the
notices distributed to the affected
members.45 Appendix B states that
credit unions should also conduct
background checks of employees to
ensure that the credit union does not
45 12
CFR 748, App. B.
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violate 12 U.S.C. 1785(d). The final rule
requires a background check in
§ 752.1(b), which is consistent with
current expectations.46 Therefore, the
final rule amends this footnote to state
that insured credit unions must also
conduct background checks of
employees.
Amendments to § 701.14 on Change in
Official or Senior Executive Officer in
Credit Unions That Are Newly
Chartered or Are in Troubled Condition
In addition to the prohibition on
certain individuals participating in the
conduct of the affairs of a credit union
included in section 205(d), the FCU Act
also sets forth conditions under which
certain insured credit unions must
notify the NCUA in writing of any
proposed changes in its board of
directors, committee members, or senior
executive staff (section 212).47 The
Board implements section 212 through
§ 701.14 of its rules.48 Section 701.14
requires generally that insured credit
unions that are newly chartered or
troubled file notice with the NCUA
before adding, replacing, or changing
the duties of a board or committee
member or a senior executive officer.
The Board has not substantively
amended § 701.14 since 2012 when the
Board revised the definition of troubled
condition.49 The Board proposed to
make minor amendments to § 701.14 to
clarify when a notice is required, how
the NCUA would process the notice,
and what information must be included
in the NCUA’s notice of disapproval to
the applicant. Specifically, the Board
proposed to:
• Clarify when notice is required by
specifying that a credit union must
provide notice when adding or
replacing any member of its board of
directors or committees, employing any
person as a senior executive officer of
the credit union, or changing the
responsibilities of a board member,
committee member, or a senior
executive officer so that the person
would assume a different position;
• Increase the amount of time for
NCUA to initially review a notice after
its receipt from 10 calendar to 15
calendar days; 50
• Specify that Regional Director and
ONES Director communications under
46 The Board notes that insured credit unions may
extend a conditional offer of employment
contingent on the completion of a background
check satisfactory to the credit union to determine
if the applicant is barred under section 205(d).
47 12 U.S.C. 1790a.
48 12 CFR 701.14.
49 77 FR 45285 (July 31, 2012).
50 See 12 CFR 701.14(c)(3)(iii).
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§ 701.14 may be done through email;
and
• Explicitly state that the notice of
disapproval will identify the reason(s)
for the denial.
One commenter supported the
proposed amendment to clarify that a
notice is required when a newly
chartered or troubled credit union is
adding or replacing any member of its
board of directors or committees,
employing any person as a senior
executive officer of the credit union, or
changing the responsibilities of a board
member, committee member, or senior
executive officer if the person is
assuming a different position. The
commenter stated that the amendment
would provide a necessary clarification
but encouraged the NCUA to ensure
federally insured state-chartered credit
unions remain aware of the notification
requirement to their respective state
supervisory authority, as currently
required under § 701.14(c)(3).
The same commenter, however, was
opposed to increasing the amount of
time for the agency to initially review a
notice for a change in official or senior
executive officer from the current 10
calendar day limit to 15 calendar days
under § 701.14(c)(3)(iii). While the
commenter agreed it is important to
conduct a thorough review of each
request, the commenter felt that the
current timeframe is sufficient and did
not support extending the time for
NCUA’s initial review because of the
time sensitivity in these situations,
particularly for a troubled credit union.
After careful consideration, the Board
is adopting the amendment to the
notification requirement as proposed.
As discussed in the notice of proposed
rulemaking, the 10-day notification
requirement is not specified in the
statute, and the NCUA has found the 10day timeframe difficult to meet, as
additional information to analyze the
request may be required. The Board
continues to believe that the additional
5 calendar days will not unduly delay
the start or change in position of board
members, committee members, or senior
executive officers. In making this
change, the Board emphasizes that the
increase from 10 to 15 days applies only
to the amount of time the NCUA has to
either determine an application is
complete or request additional
information. The current 30-day
approval timeline remains the same,
unless the agency is waiting on
additional requested information. An
applicant can mitigate any delay by
producing requested information
expeditiously. The NCUA endeavors to
process all applications as quickly as
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possible, irrespective of whether
additional information is requested.
The agency did not receive any
comments on the other amendments to
§ 701.14 and the Board is finalizing
those changes as proposed. The Board
notes that other authorities bear on an
individual’s ability to work for or
participate in the conduct of the affairs
of a federally insured credit union.51
IV. Other Alternatives Considered
Comments Received by the FDIC
On November 14, 2023, the FDIC
published a notice of proposed
rulemaking to conform the FDIC’s
section 19 regulations with the FHBA 52
and the FDIC received several
comments and recommendations on its
proposal. The NCUA considered these
other comments as part of its statutory
obligation to consult and coordinate
with the FDIC to promote consistent
implementation of the FHBA. Aside
from the modifications described earlier
in this preamble, the Board has decided
not to incorporate those
recommendations into the final rule.
As discussed previously, almost all of
the substantive requirements
incorporated into the agency’s
regulations stem from the FHBA’s
revisions to section 205(d). The Board
had limited discretion in adopting
alternatives to those statutory revisions.
The Board considered other
recommendations that were submitted
by the commenters but believes that the
final rule represents the most
appropriate option for covered entities
and individuals.
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V. Regulatory Procedures
Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) applies to rulemakings in which
an agency creates a new or amends
existing information collection
requirements.53 For purposes of the
PRA, an information collection
requirement may take the form of a
reporting, recordkeeping, or a thirdparty disclosure requirement. The
NCUA may not conduct or sponsor, and
the respondent is not required to
respond to, an information collection,
unless it displays a valid Office of
Management and Budget (OMB) control
number.
The NCUA will revise its section
205(d) application form to conform with
the changes to section 205(d) under the
FHBA. These changes amend the
51 See 12 U.S.C. 1786(i)(1)(A); 12 U.S.C. 5101 et
seq.; 12 U.S.C. 5104; Public Law 116–283, codified
at 31 U.S.C. 5321(g).
52 See 88 FR 77906.
53 44 U.S.C. 3507(d); 5 CFR part 1320.
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NCUA’s existing information collection
associated with this rule, entitled
‘‘Application Pursuant to Section 205(d)
of the Federal Credit Union Act’’ (3133–
0203). For this reason, the informationcollection requirements contained in
this final rule will be submitted by the
NCUA to OMB for review and approval
under section 3507(d) of the PRA (44
U.S.C. 3507(d)) and § 1320.11 of the
OMB’s implementing regulations (5 CFR
part 1320). The final rule extends
greater relief than what was formerly
available to certain individuals with
prior convictions seeking employment
with an insured credit union, thereby
eliminating the need to submit consent
applications for certain offenses,
particularly older or expunged
convictions, prior misdemeanors, drug
possession offenses, and other lesser
offenses. The final rule should reduce
the number of respondents applying for
consent, but it may also increase the
number of applications because of a
renewed awareness of the statutory
prohibition. Thus, the estimated number
of respondents applying for consent
remains at one. The final rule requires
credit unions to make a reasonable,
documented, inquiry to verify an
applicant’s history to ensure that a
person who has a conviction or program
entry covered by the provisions of
section 205(d) is not hired or permitted
to participate in its affairs without the
written consent of the NCUA. This
recordkeeping requirement is minimal.
These program changes would revise
the information collection requirement
currently approved OMB control
number 3133–0203, as follows:
Title of Information Collection: Part
752, Application Pursuant to Section
205(d) of the Federal Credit Union Act.
Estimated Number of Respondents: 4.
Estimated Number of Responses per
Respondent: 1.
Estimated Annual Frequency of
Response: 1.
Estimated Hours per Response: 0.75.
Estimated Total Annual Burden
Hours: 3.
Affected Public: Private Sector: Notfor-profit institutions; Individual or
Household.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule or a final rule
pursuant to the Administrative
Procedure Act or another law, the
agency must prepare a regulatory
flexibility analysis that meets the
requirements of the RFA and publish
such analysis in the Federal Register.
Specifically, the RFA normally requires
agencies to describe the effect of a
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79391
rulemaking on small entities by
providing a regulatory impact analysis.
For purposes of the RFA, the Board
considers credit unions with assets less
than $100 million to be small entities.54
A regulatory flexibility analysis is not
required, however, if the agency
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities and
publishes its certification and a short,
explanatory statement in the Federal
Register together with the rule.
The Board does not believe the final
rule will have a significant economic
impact on a substantial number of small
entities. In the period from 2019
through 2023, the NCUA received four
consent applications. This averages out
to one application a year. Therefore, on
average, only about one small entity—at
most—will be affected by the proposed
rule annually.
As discussed in the SUPPLEMENTARY
INFORMATION section, the final rule will
align the NCUA’s regulations with the
FHBA’s provisions and more closely
align the NCUA’s section 205(d)
regulations with those of other Federal
financial regulators. Most of the changes
were precipitated by the FHBA—which
was effective immediately upon
passage—and the final rule aligns the
NCUA’s regulations with these elements
of the FHBA; therefore, most of the
associated changes in the final rule will
have no direct effect on individuals or
credit unions. Further, since the NCUA
estimates that on average approximately
one NCUA-insured institution could be
affected by the final rule annually, any
direct effects realized because of the
final rule are likely to be small and
affect a relatively small number of
entities.
In light of the foregoing, the NCUA
certifies that the final rule will not have
a significant economic impact on a
substantial number of small entities.
Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. The NCUA, an
independent regulatory agency as
defined in 44 U.S.C. 3502(5), voluntarily
complies with the executive order to
adhere to fundamental federalism
principles.
This final rule will apply to all
insured credit unions, including
federally insured, state-chartered credit
unions. The Board has determined that
the final amendments will not have a
substantial direct effect on the states, on
the connection between the national
54 NCUA
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government and the states, or on the
distribution of power and
responsibilities among the various
levels of government. Further, the final
rule implements a statutory amendment,
and the NCUA does not have discretion
in implementing the statutory changes
to section 205(d). In particular, the
Board does not believe that these
changes will affect its existing
agreements and division of supervisory
responsibilities with state regulatory
agencies. The Board expects to continue
to coordinate with these agencies as
appropriate in carrying out its
responsibilities under section 205(d)
and related provisions. Therefore, the
Board has determined that this rule does
not constitute a policy that has
federalism implications for purposes of
the executive order.
Assessment of Federal Regulations and
Policies on Families
The NCUA has determined that this
final rule may affect family well-being
positively within the meaning of section
654 of the Treasury and General
Government Appropriations Act, 1999,
Public Law 105–277, 112 Stat. 2681
(1998). In particular, the NCUA has
reviewed the criteria specified in
section 654(c)(1) of that act, by
evaluating whether this final regulatory
action (1) affects the stability or safety
of the family, particularly in terms of
marital commitment; (2) affects the
authority of parents in the education,
nurture, and supervision of their
children; (3) helps the family perform
its functions; (4) affects disposable
income or poverty of families and
children; (5) only financially impacts
families, if at all, to the extent such
impacts are justified; (6) may be carried
out by state or local government or by
the family; or (7) establishes a policy
concerning the relationship between the
behavior and personal responsibility of
youth and the norms of society. Under
this statute, if the agency determines the
regulation may negatively affect family
well-being, then the agency must
provide an adequate rationale for its
implementation.
The final rule implements legislative
amendments that increase employment
opportunities for individuals with
certain older or minor criminal offenses
involving dishonesty or breach of trust.
These increased employment
opportunities may strengthen the
stability of families, help families
perform their functions, and increase
disposable income. These changes are
not likely to affect the rights of parents
in the education or nurture of their
children. The changes call for Federal
rather than state or local government
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action because the legislation affects the
Federal statute governing all federally
insured credit unions. The Board also
notes that it has limited discretion in
whether and how to implement the
legislative amendments and thus cannot
substantially vary from the legislation.
The Board has determined that this final
rule may affect family well-being
positively within the meaning of this
statute.55
Small Business Regulatory Enforcement
Fairness Act—Congressional Review Act
The Congressional Review chapter of
the Small Business Regulatory
Enforcement Fairness Act of 1996
generally provides for congressional
review of agency rules.56 A reporting
requirement is triggered in instances
where the NCUA issues a final rule as
defined in the Administrative Procedure
Act.57 Besides being subject to
congressional oversight, an agency rule
may also be subject to a delayed
effective date if it is a ‘‘major rule.’’ The
NCUA does not believe this rule is a
‘‘major rule’’ within the meaning of the
relevant sections of the statute. As
required by the statute, the NCUA will
submit this final rule OMB for it to
determine if this final rule is a ‘‘major
rule’’ for purposes of the statute. The
NCUA also will file appropriate reports
with Congress and the U.S. Government
Accountability Office so this rule may
be reviewed.
List of Subjects
12 CFR Part 701
Administrative practice and
procedure, Credit, Credit unions.
12 CFR Part 741
Bank deposit insurance, Credit
unions, Reporting and recordkeeping
requirements.
12 CFR Part 746
Administrative practice and
procedure, Claims, Credit unions,
Investigations.
12 CFR Part 748
Computer technology, Confidential
business information, Credit unions,
Internet, Personally identifiable
information, Privacy, Reporting and
recordkeeping requirements, Security
measures.
12 CFR Part 752
Administrative practice and
procedure.
55 Public
Law 105–277, 112 Stat. 2681 (1998).
U.S.C. 551.
57 Id.
56 5
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By the NCUA Board on September 19,
2024.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the
preamble, the Board amends 12 CFR
chapter VII as follows:
PART 701—ORGANIZATION AND
OPERATION OF FEDERAL CREDIT
UNIONS
1. The authority citation for part 701
continues to read as follows:
■
Authority: 12 U.S.C. 1752(5), 1755, 1756,
1757, 1758, 1759, 1761a, 1761b, 1766, 1767,
1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C.
3717. Section 701.31 is also authorized by 15
U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601–
3610. Section 701.35 is also authorized by 42
U.S.C. 4311–4312.
2. Amend § 701.14 by revising
paragraphs (c)(1), (c)(3)(iii), and the
second sentence in paragraph (e) to read
as follows:
■
§ 701.14 Change in official or senior
executive officer in credit unions that are
newly chartered or are in troubled
condition.
*
*
*
*
*
(c) * * *
(1) Prior notice requirement. An
insured credit union must give the
NCUA written notice at least 30 days
before the effective date of adding or
replacing any member of its board of
directors or committee member,
employing any person as a senior
executive officer of the credit union, or
changing the responsibilities of a board
member, committee member, or a senior
executive officer so that the person
would assume a different position if:
(i) The credit union has been
chartered for less than 2 years; or
(ii) The credit union meets the
definition of troubled condition in
paragraph (b)(3) or (4) of this section.
*
*
*
*
*
(3) * * *
(iii) Processing. Within 15 calendar
days after receiving the notice, the
Regional Director will inform the credit
union either that the notice is complete
or that additional, specified information
is needed and must be submitted within
30 calendar days. If the initial notice is
complete, the Regional Director will
issue a written decision of approval or
disapproval to the individual and the
credit union within 30 calendar days of
receipt of the notice. If the initial notice
is not complete, the Regional Director
will issue a written decision within 30
calendar days of receipt of the original
notice plus the amount of time the
credit union takes to provide the
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requested additional information. If the
additional information is not submitted
within 30 calendar days of the Regional
Director’s request, the Regional Director
may either disapprove the proposed
individual or review the notice based on
the information provided. If the credit
union and the individual have
submitted all requested information and
the Regional Director has not issued a
written decision within the applicable
time period, the individual is approved.
Regional Director communications may
be done through electronic mail.
*
*
*
*
*
(e) * * * The Notice of Disapproval
will identify the reason(s) for the denial
and advise the parties of their rights to
request reconsideration from the
Regional Director and/or file an appeal
with the NCUA Board in accordance
with the procedures set forth in 12 CFR
part 746, subpart B.
■ 3. Amend appendix A to part 701,
under the heading ‘‘Official NCUA
Commentary—Federal Credit Union
Bylaws,’’ under ‘‘Article V. Elections,’’
by revising paragraph i.(b) to read as
follows:
Appendix A to Part 701—Federal
Credit Union Bylaws
*
*
*
*
*
*
*
Authority: 12 U.S.C. 1766, 1787, and 1789.
§ 746.201
[Amended]
7. Amend § 746.201, in paragraph (c),
by adding ‘‘752.11(b),’’ between
‘‘745.201(c),’’ and ‘‘subpart J to part 747
of this chapter,’’.
■
PART 748—SECURITY PROGRAM,
SUSPICIOUS TRANSACTIONS,
CATASTROPHIC ACTS, CYBER
INCIDENTS, AND BANK SECRECY
ACT COMPLIANCE
8. The authority citation for part 748
continues to read as follows:
■
Authority: 12 U.S.C. 1766(a), 1786(b)(1),
1786(q), 1789(a)(11); 15 U.S.C. 6801–6809; 31
U.S.C. 5311 and 5318.
9. Amend appendix B to part 748 by
revising footnote 7 to read as follows.
■
Appendix B to Part 748—Guidance on
Response Programs for Unauthorized
Access to Member Information and
Member Notice
*
*
*
*
7 Credit
*
*
unions must also conduct
background checks of employees to ensure
that the credit union does not violate 12
U.S.C. 1785(d), which prohibits a credit
union from hiring an individual convicted of
certain criminal offenses or who is subject to
a prohibition order under 12 U.S.C. 1786(g).
Article V. Elections
i. * * *
(b) The individual cannot have been
convicted of a crime covered under section
205(d) of the Federal Credit Union Act (12
U.S.C. 1785(d)) unless the NCUA Board has
waived the prohibition for the conviction;
and
*
*
Sec.
752.1 What is section 205(d) of the FCU
Act?
752.2 Who is covered by section 205(d)?
752.3 Which offenses qualify as ‘‘Covered
Offenses’’ under section 205(d)?
752.4 What constitutes a conviction under
section 205(d)?
752.5 What constitutes a pretrial diversion
or similar program under section 205(d)?
752.6 What are the types of applications
that can be filed?
752.7 When may an application be filed?
752.8 What is the de minimis exemption?
752.9 How does an individual or a credit
union file an application?
752.10 How will the NCUA evaluate an
application?
752.11 What will the NCUA do if the
application is denied?
*
*
*
*
PART 741—REQUIREMENTS OF
INSURANCE
4. The authority citation for part 741
continues to read as follows:
■
Authority: 12 U.S.C. 1757, 1766(a), 1781–
1790, and 1790d; 31 U.S.C. 3717.
5. Amend § 741.3 by revising the
second sentence of paragraph (c) to read
as follows:
■
§ 741.3
Criteria.
*
ddrumheller on DSK120RN23PROD with RULES1
6. The authority citation for part 746
continues to read as follows:
■
*
Official NCUA Commentary—Federal Credit
Union Bylaws
*
PART 746—APPEALS PROCEDURES
*
*
*
*
(c) * * * No person shall serve as a
director, officer, committee member, or
employee of an insured credit union
who has been convicted of a crime
covered under section 205(d) of the
Federal Credit Union Act (12 U.S.C.
1785(d)), except with the written
consent of the Board.
*
*
*
*
*
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■
*
*
*
*
10. Add part 752 to read as follows:
PART 752—CONSENT TO SERVICE OF
PERSONS CONVICTED OF, OR WHO
HAVE PROGRAM ENTRIES FOR,
CERTAIN CRIMINAL OFFENSES
Authority: 12 U.S.C. 1785(d).
§ 752.1. What is section 205(d) of the
Federal Credit Union Act?
(a) This part covers applications
under section 205(d) of the Federal
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79393
Credit Union Act (FCU Act), 12 U.S.C.
1785(d). The NCUA refers to such
applications as ‘‘consent applications.’’
Under section 205(d), any 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
(program entry) in connection with a
prosecution for such offense
(collectively, Covered Offenses), may
not become, or continue as, an
institution-affiliated party (IAP) of an
insured credit union; or otherwise
participate, directly or indirectly, in the
conduct of the affairs of any insured
credit union without the prior written
consent of the NCUA. Section 205(d)
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
(U.S.C.). In order for the Board to grant
consent during the 10-year period, the
Board must file a motion with, and
obtain the approval of, the sentencing
court.
(b) In addition, the law prohibits an
insured credit union from permitting
such a person to engage in any conduct
or to continue any relationship
prohibited by section 205(d). Insured
credit unions must therefore make a
reasonable, documented, inquiry to
verify an applicant’s history to ensure
that a person who has a Covered Offense
under section 205(d) is not hired or
permitted to participate in its affairs
without the written consent of the
NCUA issued under this subpart.
Insured credit unions may extend a
conditional offer of employment
contingent on the completion of a
background check satisfactory to the
credit union to determine if the
applicant is prohibited under section
205(d), but the applicant may not work
for, be employed by, or otherwise
participate in the affairs of the insured
credit union until the credit union has
determined that the applicant is not
prohibited under section 205(d)
(including persons who have had a
consent application approved).
(c) If there is a conviction or program
entry covered by the prohibitions of
section 205(d), an application under this
subpart must be filed seeking the
NCUA’s consent to become, or to
continue as, an IAP; or to otherwise
participate, directly or indirectly, in the
affairs of the insured credit union. The
application must be filed, and
consented to, prior to serving in any of
the foregoing capacities unless such
application is not required under the
subsequent provisions of this subpart.
The purpose of an application is to
provide the applicant an opportunity to
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demonstrate that, notwithstanding the
prohibition, a 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
credit union. The burden is upon the
applicant to establish that the
application warrants approval.
(d) The term field office, for purposes
of this subpart, means a Regional Office
or the Office of National Examinations
and Supervision, as described in 12 CFR
790.2.
§ 752.2
Who is covered by section 205(d)?
(a) Persons covered by section 205(d)
include IAPs, as defined by 12 U.S.C.
1786(r), and others who are participants
in the conduct of the affairs of an
insured credit union. Therefore, all
directors, officers, and employees of an
insured credit union who fall within the
scope of section 205(d), including de
facto employees, as determined by the
NCUA based upon generally applicable
standards of employment law, will also
be subject to section 205(d). Whether
other persons are covered by section
205(d) depends upon their degree of
influence or control over the
management or affairs of an insured
credit union. For example, section
205(d) would apply to directors and
officers of affiliates, subsidiaries, or
joint ventures of an insured credit union
if they participate in the affairs of the
insured credit union or are able to
influence or control the management or
affairs of the insured credit union.
Typically, an independent contractor
does not have a relationship with the
insured credit union other than the
activity for which the credit union has
contracted. However, an independent
contractor who also influences or
controls the management or affairs of
the insured credit union would be
covered by section 205(d).
(b) The term person, for purposes of
section 205(d), means an individual and
does not include a corporation, firm, or
other business entity.
ddrumheller on DSK120RN23PROD with RULES1
§ 752.3 Which offenses qualify as
‘‘Covered Offenses’’ under section 205(d)?
(a) Categories of Covered Offenses.
The conviction or program entry must
be for a criminal offense involving
dishonesty or breach of trust.
(1) The term criminal offense
involving dishonesty—
(i) Means an offense under which an
individual, directly or indirectly—
(A) Cheats or defrauds; or
(B) Wrongfully takes property
belonging to another in violation of a
criminal statute;
(ii) Includes an offense that Federal,
state, or local law defines as dishonest,
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or for which dishonesty is an element of
the offense; and
(iii) Does not include—
(A) A misdemeanor criminal offense
committed more than 1 year before the
date on which an individual files a
consent application, excluding any
period of incarceration; or
(B) An offense involving the
possession of controlled substances. At
a minimum, this exclusion applies to
criminal offenses involving the simple
possession of a controlled substance and
possession with intent to distribute a
controlled substance. This exclusion
may also apply to other drug-related
offenses depending on the statutory
elements of the offenses or from court
determinations that the statutory
provisions of the offenses do not involve
dishonesty or breach of trust as noted in
paragraph (b) of this section. Potential
applicants may contact their appropriate
NCUA field office if they have questions
about whether their offenses are covered
under section 205(d).
(iv) The term offense committed in
paragraph (a)(1)(iii)(A) of this section
means the last date of the underlying
misconduct. In instances with multiple
offenses, offense committed means the
last date of any of the underlying
offenses.
(2) The term breach of trust means a
wrongful act, use, misappropriation, or
omission with respect to any property or
fund that 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.
(b) Elements of the offense. Whether
a crime involves dishonesty or breach of
trust will be determined from the
statutory elements of the offense itself or
from court determinations that the
statutory provisions of the offense
involve dishonesty or breach of trust.
(c) Certain older offenses excluded—
(1) Exclusions for certain older offenses.
Section 205(d) does not apply to an
offense if—
(i) It has been 7 years or more since
the offense occurred; or
(ii) The individual was incarcerated
with respect to the offense, and it has
been 5 years or more since the
individual was released from
incarceration.
(iii) The term offense occurred means
the last date of the underlying
misconduct. In instances with multiple
Covered Offenses, offense occurred
means the last date of any of the
underlying offenses.
(2) Offenses committed by individuals
21 years of age or younger. For
individuals who committed an offense
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when they were 21 years of age or
younger, section 205(d) does not apply
to the offense if it has been more than
30 months since the sentencing
occurred. The term sentencing occurred
means the date on which a court
imposed the sentence (as indicated by
the date on the court’s sentencing
order), not the date on which all
conditions of sentencing were
completed.
(3) Limitation. This paragraph (c) does
not apply to an offense described under
12 U.S.C. 1785(d)(2).
(d) Foreign convictions. Individuals
who are convicted of, or enter into a
pretrial diversion program for, a
criminal offense involving dishonesty or
breach of trust in any foreign
jurisdiction are subject to section
205(d), unless the offense is otherwise
excluded by this subpart.
§ 752.4 What constitutes a conviction
under section 205(d)?
(a) Convictions requiring an
application. There must be a conviction
of record. Section 205(d) does not cover
arrests or pending cases not brought to
trial, unless the person has a program
entry as set out in § 752.5. Section
205(d) does not cover acquittals or any
conviction that has been reversed on
appeal, unless the reversal was for the
purpose of re-sentencing. A conviction
with regard to which an appeal is
pending requires an application. A
conviction for which a pardon has been
granted requires an application.
(b) Convictions not requiring an
application. When an individual is
charged with a Covered Offense and, in
the absence of a program entry as set out
in § 752.5, is subsequently convicted of
an offense that is not a Covered Offense,
the conviction is not subject to section
205(d).
(c) Expungement, dismissal, and
sealing. A conviction is not considered
a conviction of record and does not
require an application if—
(1) There is an order of expungement,
sealing, or dismissal that has been
issued regarding the conviction in
connection with such offense, or if a
conviction has been otherwise
expunged, sealed, or dismissed by
operation of law; and
(2) It is intended by the language in
the order itself, or in the legislative
provisions under which the order was
issued, or in other legislative provisions,
that the conviction shall be destroyed or
sealed from the individual’s state,
Tribal, or Federal record, even if
exceptions allow the conviction to be
considered for certain character and
fitness evaluation purposes.
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(d) Youthful offenders. An
adjudication by a court against a person
as a ‘‘youthful offender’’ (or similar
term) under any youth-offender law
applicable to minors as defined by state
law, or any judgment as a ‘‘juvenile
delinquent’’ (or similar term) by any
court having jurisdiction over minors as
defined by state law, does not require an
application. Such an adjudication does
not constitute a matter covered under
section 205(d) and is not a conviction or
program entry for determining the
applicability of § 752.8.
§ 752.5 What constitutes a pretrial
diversion or similar program under section
205(d)?
(a) The term ‘‘pretrial diversion or
similar program’’ (program entry) means
a program characterized by a suspension
or eventual dismissal or reversal of
charges or criminal prosecution upon
agreement by the accused to restitution,
drug or alcohol rehabilitation, anger
management, or community service.
Whether the outcome of a case
constitutes a program entry is
determined by relevant Federal, state, or
local law, and, if not so designated
under applicable law, then the
determination of whether a disposition
is a program entry will be made by the
Board on a case-by-case basis.
(b) When a Covered Offense either is
reduced by a program entry to an
offense that would otherwise not be
covered by section 205(d) or is
dismissed upon successful completion
of a program entry, the offense remains
a Covered Offense for purposes of
section 205(d). The Covered Offense
will require an application unless it is
de minimis as provided by § 752.8.
(c) Expungements, dismissals, or
sealings of program entries will be
treated the same as those for
convictions.
ddrumheller on DSK120RN23PROD with RULES1
§ 752.6 What are the types of applications
that can be filed?
(a) The NCUA will accept
applications from—
(1) An individual; or
(2) An insured credit union applying
on behalf of an individual.
(b) An individual or an insured credit
union may file applications at separate
times. Under either approach, the
application(s) must be filed with the
appropriate NCUA field office, as
required by this part.
§ 752.7
When may an application be filed?
Except for situations in which no
application is required under section
205(d) and this subpart, an application
must be filed when there is a conviction
by a court of competent jurisdiction for
a Covered Offense by any adult or minor
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treated as an adult or when such person
has a program entry regarding that
offense. Before an application may be
filed, all of the sentencing requirements
associated with a conviction, or
conditions imposed by the program
entry, including but not limited to,
imprisonment, fines, conditions of
rehabilitation, and probation
requirements, must be completed, and
the case must be considered final by the
procedures of the applicable
jurisdiction. The NCUA’s application
forms as well as additional information
concerning section 205(d) can be
accessed on the NCUA’s website.
§ 752.8
What is the de minimis exemption?
(a) In general. The prohibitions of
section 205(d) will not apply, and an
application will therefore not be
required, where all of the following de
minimis criteria are met. (Paragraph
(b)(4) of this section contains separate
exemption criteria from paragraphs (a)
through (b)(3) of this section, and an
offense that qualifies for exemption
under paragraph (b)(4) is excluded from
consideration in the criteria of
paragraphs (a) through (b)(3).)
(1) The individual has been convicted
of, or has program entries for, no more
than two Covered Offenses, including
those subject to paragraphs (b)(1)
through (3) of this section; and for each
Covered Offense, all of the sentencing
requirements associated with the
conviction, or conditions imposed by
the program entry, have been completed
(the sentence- or program-completion
requirement does not apply under
paragraph (b)(2) of this section).
(2) For each Covered Offense, the
individual could have been sentenced to
a term of confinement in a correctional
facility of 3 years or less and/or a fine
of $2,500 or less, and the individual
actually served 3 days or less of jail time
for each Covered Offense.
(3) Jail time under paragraph (a)(2) of
this section is calculated based on the
time an individual spent incarcerated as
a punishment or a sanction—not as
pretrial detention—and does not
include probation or parole where an
individual was restricted to a particular
jurisdiction or was required to report
occasionally to an individual or a
specific location. Jail time includes
confinement to a psychiatric treatment
center in lieu of a jail, prison, or house
of correction on mental-competency
grounds. The definition is not intended
to include either of the following:
persons who are restricted to a
substance-abuse treatment program
facility for part or all of the day; or
persons who are ordered to attend
outpatient psychiatric treatment.
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79395
(4) If there are two convictions or
program entries for a Covered Offense,
each conviction or program entry was
entered at least 3 years prior to the date
an application would otherwise be
required, except as provided in
paragraph (b)(1) of this section.
(5) Each Covered Offense must not
have been committed against an insured
depository institution or insured credit
union.
(b) Other types of offenses for which
the de minimis exemption applies and
no application is required—(1) Age of
person at time of Covered Offense. If
there are two convictions or program
entries for a Covered Offense, and the
actions that resulted in both convictions
or program entries all occurred when
the individual was 21 years of age or
younger, then the de minimis criteria in
paragraph (a)(4) of this section will be
met if the convictions or program
entries were entered at least 18 months
prior to the date an application would
otherwise be required. For this
reduction in waiting time to apply, the
convictions or program entries must
meet the other de minimis criteria in
paragraph (a) of this section.
(2) Convictions or program entries for
insufficient funds checks. The
prohibitions of section 205(d) will not
apply, and an application will therefore
not be required, as to convictions or
program entries of record based on the
writing of ‘‘bad’’ or insufficient funds
check(s) if the following conditions
apply:
(i) The aggregate total face value of all
‘‘bad’’ or insufficient funds check(s)
cited across all the conviction(s) or
program entry(ies) for ‘‘bad’’ or
insufficient funds checks is $2,000 or
less;
(ii) 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(ies); and
(iii) The individual has no more than
one other de minimis offense under this
section.
(3) Convictions or program entries for
small-dollar, simple theft. The
prohibitions of section 205(d) will not
apply, and an application will therefore
not be required, as to convictions or
program entries based on the simple
theft of goods, services, or currency (or
other monetary instrument) if the
following conditions apply:
(i) The value of the currency, goods,
or services taken was $1,000 or less;
(ii) The theft was not committed
against an insured depository institution
or insured credit union;
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(iii) The individual has no more than
one other offense that is considered
exempt under this section; and
(iv) If there are two offenses—each of
which, by itself, is considered exempt
under this section, each conviction or
program entry was entered at least 3
years prior to the date an application
would otherwise be required, or at least
18 months prior to the date an
application would otherwise be
required if the actions that resulted in
the conviction or program entry all
occurred when the individual was 21
years of age or younger.
(v) Simple theft excludes burglary,
forgery, robbery, identity theft, and
fraud.
(4) Convictions or program entries for
using fake identification, shoplifting,
trespassing, fare evasion, or driving with
an expired license or tag. The
prohibitions of section 205(d) will not
apply, and an application will therefore
not be required, as to the following
offenses, if 1 year or more has passed
since the applicable conviction or
program entry: using fake identification;
shoplifting; trespassing; fare evasion;
and driving with an expired license or
tag.
(c) Non-qualifying convictions or
program entries. No conviction or
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 exemptions set out in this
section.
§ 752.9 How does an individual or a credit
union file an application?
ddrumheller on DSK120RN23PROD with RULES1
Forms and instructions can be
obtained from the NCUA’s website
(www.ncua.gov), and the application(s)
must be filed with the appropriate field
office Director. An application may be
filed by an individual or by an insured
credit union on behalf of an individual,
or by both. The appropriate field office
for a credit union-sponsored application
is the office covering the state where the
insured credit union’s home office is
located, or the Office of National
Examinations and Supervision. The
appropriate field office for an
application filed by an individual is the
office covering the state where the
person resides. States covered by each
NCUA field office are listed in 12 CFR
790.2.
§ 752.10 How will the NCUA evaluate an
application?
(a) Criminal history records. In
reviewing an application, the NCUA
will—
(1) Primarily rely on the criminal
history record provided by the Federal
Bureau of Investigation (rap sheet); and
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16:22 Sep 27, 2024
Jkt 262001
(2) Provide such record to the subject
of the application to review for
accuracy.
(b) Certified copies. The NCUA will
not require an applicant to provide
certified copies of criminal history
records unless the NCUA determines
that there is a clear and compelling
justification to require additional
information to verify the accuracy of the
criminal history record provided by the
Federal Bureau of Investigation.
(c) Ultimate determinations. The
ultimate determinations in assessing an
application are whether the person has
demonstrated their fitness to participate
in the conduct of the affairs of an
insured credit union, and whether the
affiliation or participation by the person
in the conduct of the affairs of the credit
union may constitute a threat to the
safety and soundness of the credit union
or the interests of its members or
threaten to impair public confidence in
the credit union.
(d) Individualized assessment. When
evaluating applications, the NCUA will
conduct an individualized assessment
that will consider:
(1) Whether the conviction or program
entry is subject to section 205(d) and the
specific nature and circumstances of the
offense;
(2) Whether the 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 and soundness of the
credit union or the interests of its
members or threatens to impair public
confidence in the credit union;
(3) Evidence of rehabilitation
including the person’s age at the time of
the conviction or program entry, the
time that has elapsed since the
conviction or program entry, and the
relationship of the individual’s offense
to the responsibilities of the applicable
position;
(4) The individual’s employment
history, letters of recommendation,
certificates documenting participation
in substance-abuse programs, successful
participation in job preparation and
educational programs, and other
relevant evidence;
(5) The ability of management of the
insured credit union to supervise and
control the person’s activities;
(6) The applicability of the insured
credit union’s fidelity bond coverage to
the person; and
(7) For state-chartered, federally
insured credit unions, the opinion or
position of the state regulator; and
(8) Any additional factors in the
specific case that appear relevant to the
application or the individual.
PO 00000
Frm 00028
Fmt 4700
Sfmt 4700
(e) No re-consideration of guilt. The
question of whether a person, who was
convicted of a crime or who agreed to
a program entry, was guilty of that crime
will not be at issue in a proceeding
under this part or under 12 CFR part
746, subpart B.
(f) Factors considered for enumerated
offenses. The foregoing factors will also
be applied by the NCUA 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 10-year ban
prior to its expiration date under 12
U.S.C. 1785(d)(2)(A) for certain Federal
offenses.
(g) Mandatory conditions of approval.
All approvals or orders will be subject
to the condition that the person be
covered by a fidelity bond to the same
extent as others in similar positions. If
the NCUA has approved an application
filed by an individual and has issued a
consent order, the individual must
disclose the presence of the
conviction(s) or program entry(ies) to all
insured credit unions in the affairs of
which they wish to participate.
(h) Credit union-sponsored consent
applications: work at same employer.
When deemed appropriate by the
NCUA, credit union-sponsored
applications are to allow the individual
to work for the same employer (without
restrictions on the location) and across
positions, except that the prior consent
of the NCUA (which may require a new
application) will be required for any
proposed significant changes in the
individual’s security-related duties or
responsibilities, such as promotion to an
officer or other positions that the
employer determines will require higher
security screening credentials.
(i) Work at a different employer after
certain approvals. In situations in
which an approval has been granted for
a person to participate in the affairs of
a particular insured credit union and
the person subsequently seeks to
participate at another insured credit
union, another application must be
submitted and approved by the NCUA
prior to the person participating in the
affairs of the other insured credit union.
§ 752.11 What will the NCUA do if the
application is denied?
(a) The NCUA will inform the
applicant in writing that the application
has been denied and summarize or cite
the relevant considerations specified in
§ 752.10.
(b) The denial will also notify the
applicant of the right to request
reconsideration from the field office, or
to file an appeal with the Board, and
will include a description of applicable
E:\FR\FM\30SER1.SGM
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Federal Register / Vol. 89, No. 189 / Monday, September 30, 2024 / Rules and Regulations
filing deadlines and time frames for
agency responses. The field office and
the Board will apply the review process
contained in 12 CFR part 746, subpart
B, to any request for reconsideration or
appeal. For credit union-sponsored
applications, either the institution or the
subject individual (or both, as a
consolidated request) may file a request
for reconsideration or appeal. The
request for review must include a
statement of the underlying facts that
form the basis of the request for
reconsideration or appeal, a statement of
the basis for the denial to which the
applicant objects and the alleged error
in such denial, and any other support,
materials, or evidence relied upon by
the applicant that were not previously
provided.
[FR Doc. 2024–21887 Filed 9–27–24; 8:45 am]
BILLING CODE 7535–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 745
[NCUA–2023–0082]
RIN 3133–AF53
Simplification of Share Insurance
Rules
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
The NCUA Board (Board) is
amending its regulations governing
share insurance coverage. The final rule
simplifies the share insurance
regulations by establishing a ‘‘trust
accounts’’ category that will provide for
coverage of funds of both revocable
trusts and irrevocable trusts deposited at
federally insured credit unions (FICUs),
provides consistent share insurance
treatment for all mortgage servicing
account balances held to satisfy
principal and interest obligations to a
lender, and increases flexibility for the
NCUA to consider various records in
determining share insurance coverage in
liquidations. The changes also increase
consistency between the FDIC’s Federal
deposit insurance rules and the NCUA’s
share insurance rules.
DATES: This rule is effective on
December 1, 2026, except for the
amendments to 12 CFR 745.2(c)(2)
(instruction 5), 745.3 (instruction 7),
and 745.14 (instruction 13), which are
effective October 30, 2024.
FOR FURTHER INFORMATION CONTACT:
Office of General Counsel: Thomas Zells
and Rachel Ackmann, Senior Staff
Attorneys; or Robert Leonard,
ddrumheller on DSK120RN23PROD with RULES1
SUMMARY:
VerDate Sep<11>2014
16:22 Sep 27, 2024
Jkt 262001
Compliance Officer at (703) 518–6540 or
by mail at National Credit Union
Administration, 1775 Duke Street,
Alexandria, Virginia 22314. Office of
Credit Union Resources and Expansion
(CURE): Paul Dibble, Consumer Access
Program Officer; or Rita Woods, Director
of Consumer Access at (703) 518–1150
or by mail at National Credit Union
Administration, 1775 Duke Street,
Alexandria, Virginia 22314.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. General Background and Legal Authority
A. General Background
B. Legal Authority
II. Simplification of Share Insurance Trust
Rules
A. Notice of Proposed Rulemaking
B. Policy Objectives
C. Background and Need for Rulemaking
1. Evolution of Insurance Coverage of
Funds Held in Trust Accounts
2. Current Rules for Coverage of Funds
Held in Trust Accounts
3. Need for Further Rulemaking
D. Final Rule
E. Examples Demonstrating Coverage
Under Current and Final Rules
F. Discussion of Comments
III. Amendments to Mortgage Servicing
Account Rule
A. Policy Objectives
B. Background and Need for Rulemaking
C. Final Rule
D. Discussion of Comments
IV. Recordkeeping Requirements
A. Policy Objectives
B. Background and Need for Rulemaking
C. Final Rule
D. Discussion of Comments
V. Regulatory Procedures
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Executive Order 13132 on Federalism
D. Assessment of Federal Regulations and
Policies on Families
E. Small Business Regulatory Enforcement
Fairness Act (Congressional Review Act)
I. General Background and Legal
Authority
A. General Background
The NCUA is an independent Federal
agency that insures funds maintained in
accounts of members or those otherwise
eligible to maintain insured accounts
(member accounts) at FICUs, protects
the members who own FICUs, and
charters and regulates Federal credit
unions (FCUs). The NCUA protects the
safety and soundness of the credit union
system by identifying, monitoring, and
reducing risks to the National Credit
Union Share Insurance Fund (Share
Insurance Fund). Backed by the full
faith and credit of the United States, the
Share Insurance Fund provides Federal
share insurance to account holders in all
FCUs and the majority of state-chartered
credit unions.
PO 00000
Frm 00029
Fmt 4700
Sfmt 4700
79397
B. Legal Authority
The Board has issued this final rule
pursuant to its authority under the FCU
Act. Under the Federal Credit Union Act
(FCU Act), in the event of a FICU’s
failure the NCUA is responsible for
paying share insurance to any member,
or to any person with funds lawfully
held in a member account,1 up to the
standard maximum share insurance
amount (SMSIA), which is currently set
at $250,000.2 The FCU Act provides that
the NCUA Board must determine the
amount payable consistently with
actions taken by the FDIC under its
deposit insurance rules.3 The FCU Act
also grants the NCUA express authority
to issue regulations on the
determination of the net amount of
share insurance paid.4 The FCU Act
further provides that ‘‘in determining
the amount payable to any member,
there shall be added together all
accounts in the credit union maintained
by that member for that member’s own
benefit, either in the member’s own
name or in the names of others.’’ 5
However, the FCU Act also specifically
authorizes the Board to ‘‘define, with
such classifications and exceptions as it
may prescribe, the extent of the share
insurance coverage provided for
member accounts, including member
accounts in the name of a minor, in
trust, or in joint tenancy.’’ 6
The NCUA has implemented these
requirements by issuing regulations
recognizing particular categories of
accounts, such as single ownership
accounts, joint ownership accounts,
revocable trust accounts, and
irrevocable trust accounts.7 If an
account meets the requirements for a
particular category, the account is
insured, up to the $250,000 limit,
separately from shares held by the
member in a different account category
at the same FICU. For example,
provided all requirements are met,
shares in the single ownership category
will be separately insured from shares
in the joint ownership category held by
the same member at the same FICU.
The NCUA’s share insurance
categories have been defined through
both statute and regulation. Certain
categories, such as the accounts held by
1 See
12 U.S.C. 1752(5).
U.S.C. 1787(k)(1)(A), (k)(6).
3 12 U.S.C. 1787(k)(1)(A).
4 12 U.S.C. 1787(k)(1)(B). The FCU Act states that
‘‘[d]etermination of the net amount of share
insurance . . . ‘‘shall be in accordance with such
regulations as the Board may prescribe.’’
5 12 U.S.C. 1787(k)(1)(B).
6 12 U.S.C. 1787(k)(1)(C).
7 12 CFR part 745.
2 12
E:\FR\FM\30SER1.SGM
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Agencies
[Federal Register Volume 89, Number 189 (Monday, September 30, 2024)]
[Rules and Regulations]
[Pages 79380-79397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21887]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 701, 741, 746, 748, and 752
[NCUA-2023-0023]
RIN 3133-AF55
Fair Hiring in Banking
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board (Board) is issuing this final rule to
incorporate Interpretive Ruling and Policy Statement (IRPS) 19-1 and
the Fair Hiring in Banking Act (FHBA) into its regulations. The Federal
Credit Union Act (FCU Act) generally prohibits, except with the Board's
prior written consent, any person who has been convicted of or has a
program entry for certain criminal offenses involving dishonesty or
breach of trust from participating in the affairs of an insured credit
union. The final rule will expand career opportunities for individuals
to work and volunteer at insured credit unions. The Board also rescinds
IRPS 19-1.
DATES: The final rule is effective October 30, 2024.
FOR FURTHER INFORMATION CONTACT: Rachel Ackmann, Senior Staff Attorney,
Office of General Counsel, and Pamela Yu, Special Counsel to the
General Counsel, Office of General Counsel, at the above address or by
calling (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
Section 205(d) of the Federal Credit Union Act (Section 205(d))
Prior to December 23, 2022, section 205(d)(1) of the Federal Credit
Union Act (FCU Act) provided that, except with the prior written
consent of the Board (the NCUA refers to applications for such consent
as ``consent applications''), 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 the prosecution for such offense (collectively, covered offenses),
may not:
Become, or continue as, an institution-affiliated party
(IAP) with respect to any insured credit union; or
Otherwise participate, directly or indirectly, in the
conduct of the affairs of any insured credit union.\1\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1785(d)(1).
---------------------------------------------------------------------------
[[Page 79381]]
Section 205(d)(1)(B) further provides that an insured credit union
may not allow any person described above to participate in the conduct
of the affairs of the credit union without Board consent. Section
205(d)(2) restricts the Board from approving a consent application
related to a person convicted of certain crimes enumerated in Title 18
of the United States Code (U.S.C.) for 10 years, absent a motion by the
Board and approval by the sentencing court. Finally, section 205(d)(3)
states that ``whoever knowingly violates'' section (d)(1)(A) or
(d)(1)(B) commits a felony, punishable by up to 5 years in prison or a
fine of up to $1,000,000 a day, or both. Section 205(d) prohibitions
have existed in some form since 1970, and since then federally insured
credit unions have been required to make a diligent inquiry as to
whether prospective employees or IAPs \2\ are subject to a section
205(d) prohibition.\3\
---------------------------------------------------------------------------
\2\ The NCUA has made its administrative orders against IAPs
available in a searchable database on the agency's website. See
https://ncua.gov/news/enforcement-actions/administrative-orders.
\3\ 73 FR 48399, 48401 (Aug. 19, 2008).
---------------------------------------------------------------------------
In 2008, the Board adopted IRPS 08-1 to provide direction and
guidance to federally insured credit unions and those persons who may
be affected by section 205(d).\4\ The Board specifically sought
comments as to whether the format of the guidance as an IRPS was
appropriate or whether a regulation would be more suitable.\5\ The
Board received some comments supporting guidance in the form of an IRPS
and others supporting a regulation, but ultimately chose to issue the
guidance through an IRPS.\6\
---------------------------------------------------------------------------
\4\ Id.
\5\ The Board had not previously adopted any policies or
regulations on section 205(d), as the statute at that time imposed
no guidance or limitations on the information that the Board may
consider, and the Board received a limited number of applications
under section 205(d). However, due to an increasing number of
applications requesting the Board's consent under section 205(d),
the Board believed it was appropriate to issue guidance on the
topic.
\6\ Two commenters believed that a regulation was the more
appropriate format for the guidance. One of the commenters who
favored a regulation thought a regulation provided greater
protection to a credit union that might be challenged by a
prospective employee. Another commenter believed a regulation was
preferable because it would help reinforce a credit union's right to
appeal an adverse decision and subject future changes to public
notice and comment. The Board concluded that the source of the
requirement stems from Federal statute, namely section 205(d).
Therefore, the Board believed that the need to comply with Federal
law, as augmented by guidance in the form of an IRPS, was sufficient
to protect a credit union. The Board believed that credit union
officials should be able to adequately understand and apply the
guidance styled as an IRPS and that the right to request a hearing
contained in the IRPS provided a credit union a sufficient right to
appeal a denial of consent by the Board. Additionally, the Board
noted that it would not amend its IRPS without providing the public
notice and an opportunity to comment. For all these reasons, the
Board believed it appropriate to issue the final guidance in the
form of an IRPS.
---------------------------------------------------------------------------
IRPS 08-1 outlined the actions prohibited under the FCU Act and the
procedures for applying the Board's consent on a case-by-case basis.
Recognizing that certain offenses are so minor and dated that they
would not presently pose a substantial risk to the insured credit
union, IRPS 08-1 excluded certain de minimis offenses that met
specified requirements and juvenile offenses from the need to request
consent from the Board. In effect, the IRPS gave automatic consent for
these offenses without requiring a consent application or any notice.
In 2019, the Board rescinded IRPS 08-1 and issued IRPS 19-1, a
revised and updated IRPS to reduce regulatory burden (also known as the
Second Chance IRPS).\7\ IRPS 19-1 amended IRPS 08-1 to expand the
definition of de minimis offenses to reduce the scope and number of
offenses that would require submission of a consent application to the
Board. Specifically, the IRPS did not require a consent application for
convictions involving insufficient funds checks of moderate aggregate
value, small-dollar simple theft, false identification, simple drug
possession, and isolated minor offenses committed by covered persons as
young adults. The Board recognized that many Americans faced hiring
barriers due to a criminal record, a great number of whom are not
violent or career criminals, but rather people who made poor choices
early in life who have since paid their debt to society. The Board
found that offering second chances for career opportunities to those
who are truly penitent was consistent with our nation's shared values
of forgiveness and redemption.
---------------------------------------------------------------------------
\7\ 84 FR 65907 (Dec. 2, 2019).
---------------------------------------------------------------------------
On December 23, 2022, Congress passed the National Defense
Authorization Act for Fiscal Year 2023 (NDAA), which amended section
205(d).\8\ The NDAA included the FHBA--which became immediately
effective on December 23, 2022. The FHBA amends section 205(d) to
expand employment opportunities for those with a previous minor or
older criminal offense, among other provisions. Generally, the
amendments codify a number of elements already contained in the NCUA's
current policy regarding section 205(d) but also extend greater relief
than what is currently available to certain individuals with prior
convictions seeking employment with an insured credit union,
particularly individuals with older convictions, expunged convictions,
or prior convictions for a misdemeanor, any drug-related possession
offense, or certain designated ``lesser offenses.'' The FHBA also
clarifies several definitions and the procedures for processing a
consent application.\9\ The specific provisions of the FHBA are
discussed in detail later in this preamble.
---------------------------------------------------------------------------
\8\ Public Law 117-263 (Dec. 23, 2022).
\9\ Under the FHBA, a ``consent application'' means ``an
application filed with [the] Board by an individual (or by an
insured credit union on behalf of an individual) seeking the written
consent of the Board under [12 U.S.C. 1785(d)(1)(A).'' 12 U.S.C.
1785(d)(6)(A).
---------------------------------------------------------------------------
Section 19 of the Federal Deposit Insurance Act
Section 19 of the Federal Deposit Insurance Act (section 19)
contains a prohibition provision similar to section 205(d) of the FCU
Act.\10\ Before 2020, the Federal Deposit Insurance Corporation (FDIC)
provided the public with guidance relating to section 19 and the FDIC's
application thereof through a Statement of Policy similar to the NCUA's
IRPS 19-1.\11\ Similar to the NCUA's IRPS, the FDIC's Statement of
Policy, among other things, instituted a set of criteria to provide for
blanket approval of certain low-risk crimes and for persons convicted
of such de minimis crimes to forgo filing a section 19 consent
application.
---------------------------------------------------------------------------
\10\ 12 U.S.C. 1829(a).
\11\ See 84 FR 68353 (Dec. 16, 2019).
---------------------------------------------------------------------------
In 2020, the FDIC revised and incorporated its then existing
Statement of Policy into its regulations to, among other purposes,
provide for greater transparency as to its section 19 application,
provide greater certainty as to the FDIC's application process, and to
assist both insured depository institutions and individuals who may be
affected by section 19 with understanding its impact and potentially
seek relief from its provisions.\12\
---------------------------------------------------------------------------
\12\ Id.; 85 FR 51312 (Aug. 20, 2020) (FDIC 2020 final rule).
---------------------------------------------------------------------------
In December 2022, the FHBA made amendments to section 19 that are
comparable to the amendments made in section 205(d). The FDIC proposed
to implement these changes through a notice-and-comment rulemaking in
November 2023.\13\ The FDIC finalized its rulemaking on August 7,
2024.\14\
---------------------------------------------------------------------------
\13\ 88 FR 77906 (Nov. 14, 2023).
\14\ 89 FR 64353 (Aug. 7, 2024).
---------------------------------------------------------------------------
Coordination With the FDIC
In the past, the NCUA has drawn on the FDIC's guidance related to
section
[[Page 79382]]
19 due to the FDIC's greater experience processing section 19 consent
applications. Further, in the Board's view it is beneficial to both
insured financial institutions and covered individuals for the NCUA's
section 205(d) related requirements to be consistent, to the extent
possible, with the FDIC's section 19 requirements. Consistent
guidelines between the two agencies with respect to these parallel
statutory provisions help streamline the consent 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. The FHBA formalizes the expectation that the
agencies implement these comparable statutory provisions similarly and
requires the NCUA and the FDIC to consult and coordinate to promote
consistent procedures, where appropriate.\15\ The Board finds that
adopting similar definitions, terminology, and procedures in this final
rule will promote consistent implementation of consent applications
because even those provisions that fall outside the scope of consent
applications are likely to affect how the agency administers those
applications. The NCUA and the FDIC have consulted and coordinated on
this rulemaking as directed by the FHBA. Additionally, the NCUA has
consulted with the Board of Governors of the Federal Reserve System and
the Office of the Comptroller of the Currency.
---------------------------------------------------------------------------
\15\ 12 U.S.C. 1785(d)(5)(I), and 12 U.S.C. 1829(f)(9).
---------------------------------------------------------------------------
II. Proposed Rule and Public Comments
At its October 19, 2023, meeting, the Board issued a proposed rule
\16\ to add new part 752 to chapter VII of title 12 of the U.S. Code of
Federal Regulations (CFR) to codify IRPS 19-1, along with significant
changes that are consistent with the FHBA amendments to section 205(d)
and the FDIC's comparable implementing regulations.\17\ The proposed
rule addressed, among other topics, the individuals and types of
offenses covered by section 205(d), as well as the NCUA's procedures
for reviewing a consent application. The proposed rule provided for a
60-day comment period, which ended on January 8, 2024. The Board
received 10 public comments on the proposal from individuals, a
fidelity bond provider, a faith-based association advocating for the
rights of the accused and incarcerated, and national, state, and
regional organizations representing credit unions.\18\
---------------------------------------------------------------------------
\16\ The proposed rule was published in the Federal Register on
November 7, 2023. 88 FR 76702 (Nov. 7, 2023).
\17\ The NCUA is issuing a final rule to codify its policy
regarding section 205(d) consent applications due to the FDIC's
recent codification of its similar section 19 Statement of Policy.
The NCUA believes codifying IRPS 19-1 will provide for greater
transparency as to its application, provide greater certainty as to
the NCUA's application process, and help both credit unions and
individuals who may be affected by section 205(d) to understand its
impact and potentially seek relief from its provisions.
\18\ One comment was indecipherable and included an attachment
with no relevance to the proposed rule. This submission was counted
in the total number of comments received.
---------------------------------------------------------------------------
The NCUA requested comments on all aspects of its approach to
section 205(d) and, specifically, the following topics:
the date on which a criminal offense ``occurred'' or was
``committed;''
the date on which ``sentencing occurred;''
whether section 205(d) encompasses foreign convictions and
pretrial diversions;
the standard for expungements, sealings, and dismissals;
``offenses involving controlled substances;'' and
de minimis offenses.
Most commenters opted to provide general comments rather than
address the specific questions posed in the preamble. Only one
commenter specifically addressed each of the eight questions presented.
Four commenters expressed broad support for providing second
chances and expanding employment opportunities to those with criminal
offense backgrounds but did not provide substantive comments on the
proposed rule. Of those commenters that provided substantive comments,
all were generally supportive of the proposed rule. One commenter noted
that the proposed rule enhances the ability of credit unions to make
their own hiring decisions and decreases the instances where a consent
application would need to be submitted. Two commenters wrote that by
modifying and expanding the current de minimis offenses deemed
automatically approved by the Board, the proposal expands opportunities
for individuals seeking employment in the financial services sector.
Further, they noted that by expanding the category of de minimis
offenses, the NCUA better aligns itself with the FDIC.
Several of the commenters indicated their support for the proposed
rule but suggested changes to particular provisions or asked for
clarification on certain aspects of the proposal. The comments and the
Board's responses are addressed in the section-by-section discussion
below.
III. Final Rule
The Board is now rescinding IRPS 19-1 and issuing a final rule to
incorporate IRPS 19-1 and the FHBA into its regulations. The final rule
addresses, among other topics, the types of offenses covered by section
205(d), the effect of the completion of sentencing or pretrial-
diversion program requirements in the context of section 205(d), and
the NCUA's procedures for reviewing applications filed under section
205(d). The final rule also makes conforming changes and adopts
amendments to Sec. 701.14 on changes in official or senior executive
officer in credit unions that are newly chartered or are in troubled
condition.
Substantive comments on specific aspects of the proposed rule are
discussed in detail in the following sections of the preamble. For the
reasons described, the Board is adopting the proposal with some
modifications.
Section-by-Section Discussion
1. Section 752.1--What is section 205(d) of the FCU Act?
This section sets out the scope of new part 752. Paragraph (a)
generally describes the requirements of section 205(d). Paragraph (b)
of this section clarifies that insured credit unions must make a
reasonable, documented inquiry regarding an applicant's history to
ensure that a person who is subject to the prohibition provision of
section 205(d) is not hired or permitted to participate in the conduct
of credit unions' affairs without the written consent of the NCUA.
The Board reiterates that, consistent with the NCUA's current
policy, a federally insured credit union's reasonable, documented
inquiry should, at a minimum, establish a screening process to obtain
information about convictions and program entries from job applicants.
If a federally insured 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.
Paragraph (b) provides that insured credit unions are permitted to
make conditional offers of employment to prospective applicants. As per
the NCUA's existing policy, an insured credit union choosing to adopt a
policy to extend conditional offers of employment may establish its own
procedures to make criminal record inquiries at any stage of its
choosing in its hiring process, so long as applicants
[[Page 79383]]
do not commence work for or be employed by the credit union until the
applicant is determined to not be prohibited under section 205(d) or
receives consent from the Board.
Paragraph (c) addresses the need for a consent application and
establishes the standard for an application's approval. The NCUA will
evaluate a consent application to determine if a 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 credit union. The burden is upon the applicant to
establish that the application warrants approval.
The Board noted in the proposal that the FHBA uses the terms
``national office'' and ``regional office,'' which are inconsistent
with the NCUA's organization.\19\ To address those technical
inconsistencies in the final rule, the Board has replaced references to
the NCUA's regional offices and the Office of National Examinations and
Supervision (ONES) with the term ``field office'' throughout. The Board
has also added paragraph (d) to define the term ``field office'' as a
Regional Office or the Office of National Examinations and Supervision,
as described in 12 CFR 790.2.
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\19\ See 12 CFR 790.2. The NCUA is currently composed of the
Board with a Central Office; Field Offices, consisting of three
Regional Offices and ONES; the Asset Management and Assistance
Center; the Community Development Revolving Loan Program; and the
NCUA Central Liquidity Facility.
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Section 752.1 is otherwise adopted generally as proposed.
2. Section 752.2--Who is covered by section 205(d)?
This section identifies who is covered by section 205(d). Paragraph
(a) states that IAPs, as defined by 12 U.S.C. 1786(r), are covered.
Similar to IRPS 19-1, volunteer and de facto employees are deemed
covered under section 205(d) as well. Whether other persons who are not
IAPs, such as certain independent contractors, are covered depends upon
their degree of influence or control over the management or affairs of
an insured credit union. For example, directors and officers of
affiliates, or joint ventures of an insured credit union, are covered
if they participate in the conduct of affairs of the insured credit
union or are able to influence or control the management or affairs of
the insured credit union. Generally, those who exercise major
policymaking functions of an insured credit union are covered by
section 205(d).
Paragraph (b) defines the term ``person'' for the purposes of
section 205(d) as an individual only and not a legal entity.
One commenter indicated that the principles-based definition for
covered persons in Sec. 752.2 was sufficiently clear as proposed,
particularly when read in conjunction with the statutory definition of
``institution-affiliated party.'' The commenter noted that any
potential gray areas that arise can be resolved through legal opinions
on a case-by-case basis.
The Board is adopting this section largely as proposed. As noted in
the proposal, Sec. 752.2 includes less detail than IRPS 19-1 regarding
how the NCUA will determine whether a person participates in the
conduct of the affairs of an insured credit union. The NCUA intends to
publish guidance that further clarifies its intent about other persons
who are not IAPs. The guidance will include language similar to IRPS
19-1.
3. Section 752.3--Which offenses qualify as ``Covered Offenses'' under
section 205(d)?
This section addresses what constitutes a covered offense under
section 205(d).\20\ Paragraph (a) states that a conviction or program
entry must have been for a criminal offense involving dishonesty or
breach of trust. The paragraph defines criminal offenses involving
dishonesty and breach of trust. The FHBA defines ``criminal offense
involving dishonesty'' as ``an offense under which an individual,
directly or indirectly, cheats or defrauds or wrongfully takes property
belonging to another in violation of a criminal statute.'' The FHBA
further provides that the term includes an offense that Federal, state,
or local law defines as dishonest or for which dishonesty is an element
of the offense. However, the term does not include a misdemeanor
criminal offense committed more than 1 year before the date on which an
individual files a consent application, excluding any period of
incarceration, or an offense involving the possession of controlled
substances.
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\20\ The Board notes that the approach to criminal offenses
mandated by the statute and rulemaking would not have an impact on
other processes related to criminal convictions. For example, the
NCUA may consider a more expansive scope of convictions related to
controlled substances under section 212 of the Federal Credit Union
Act in disapproving directors, committee members, and senior
executive officers of troubled or newly chartered insured credit
unions. See 12 CFR 701.14 for the NCUA's implementation of this
provision, also addressed elsewhere in this final rule.
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The FHBA does not define breach of trust. Under this section,
breach of trust means a wrongful act, use, misappropriation, or
omission with respect to any property or fund that 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. This definition is identical to the
definition in IRPS 19-1.
As discussed previously, the FHBA excludes from the scope of such
offenses ``an offense involving the possession of controlled
substances.'' The Board interprets this phrase concerning controlled
substances to exclude from the scope of the prohibition, at a minimum,
criminal offenses involving the simple possession of controlled
substances and possession with intent to distribute a controlled
substance. This exclusion may also apply to other drug-related offenses
depending on the statutory elements of the offenses or from court
determinations that the statutory provisions of the offenses do not
involve dishonesty or breach of trust, as noted in paragraph (b) of
Sec. 752.3. The Board notes that in processing other applications,
such as change in official or senior executive officer in credit unions
that are newly chartered or are in troubled condition, the NCUA may
still consider excluded offenses as appropriate. For example, an
offense that is not covered under section 205(d) may bear on an
individual's competence, experience, character, or integrity under 12
U.S.C. 1790a and 12 CFR 701.14. Potential applicants may contact their
appropriate NCUA field office if they have questions about whether
their offenses are covered under section 205(d).
This new regulatory language marks a shift from IRPS 19-1, which
requires consent applications for certain simple misdemeanor drug
possession offenses. Under IRPS 19-1, a consent application for a
simple misdemeanor drug possession offense is required except if the
conviction or program entry was classified as a misdemeanor at the time
of conviction or program entry, the person had no other conviction or
program entry described in section 205(d), and it had been 5 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 the conviction did not involve the illegal distribution
(including an intent to distribute), sale, trafficking, or manufacture
of a controlled substance or other related offense.
Commenters were generally supportive of the Board's proposal
concerning controlled substances. One
[[Page 79384]]
commenter wrote that credit unions in rural areas with high addiction
rates have indicated that the classification of possession of an
illegal substance as a de minimis offense would increase the pool of
potential employment candidates. The same commenter noted studies have
shown employment has therapeutic effects in drug addiction treatment
and, in the spirit of assisting communities in reaching their fullest
potential, credit unions should have the ability to offer employment
opportunities to more eligible candidates, including those battling
addiction. Another commenter supported the NCUA's review of its
interpretation of crimes involving possession.
The Board believes that the final rule is consistent with the text
and purposes of the FHBA and will align the Board's interpretation of
section 205(d) as to offenses involving controlled substances more
closely with other Federal banking regulators. The FHBA explicitly
excludes from the category of ``criminal offense involving dishonesty''
``an offense involving the possession of controlled substances,'' not
just the offense of ``possession of controlled substances.'' \21\ The
modifier ``involving,'' in the Board's view, expands that exclusion
beyond simple-possession offenses. The regulatory language, however,
will continue to recognize that a drug-related offense could
potentially involve dishonesty, breach of trust, or money
laundering.\22\ Moreover, while section 205(d) provides statutory
barriers to the employment of certain individuals due to their criminal
history, insured credit unions otherwise retain the discretion, under
that statute, as to which applicants they want to hire. The Board also
notes that this provision does not affect its ability to consider drug-
related offenses as they pertain to the suitability of an individual
under other statutory provisions, including section 212 of the FCU
Act.\23\
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\21\ See 12 U.S.C. 1785(d)(6)(B)(iii) (emphasis added).
\22\ See House Rpt. No. 117-314 (May 10, 2022), available at
https://www.congress.gov/congressional-report/117th-congress/house-report/314/1.
\23\ 12 U.S.C. 1790a.
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Paragraph (b) requires that, to determine if the criminal offense
is one of dishonesty or breach of trust, the NCUA will look to the
statutory elements of the criminal offense or to court decisions in the
relevant jurisdiction that have interpreted these statutory elements.
This provision is similar to the policy under IRPS 19-1 and is
unchanged from the proposed rule.
The FHBA also states that the term ``criminal offense involving
dishonesty'' does not include ``a misdemeanor criminal offense
committed more than one year before the date on which an individual
files a consent application, excluding any period of incarceration.''
\24\ The Board interprets the term ``offense committed'' to mean the
``last date of the underlying misconduct,'' based on the plain text of
the statute. In instances with multiple offenses, ``offense committed''
means the last date of any of the underlying offenses.
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\24\ 12 U.S.C. 1785(d)(6)(B)(iii)(I).
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Paragraph (c) includes language reflecting the FHBA's exclusion of
certain older offenses from the scope of section 205(d).\25\ The FHBA
provides that individuals are not subject to a prohibition under
section 205(d) if they committed a covered offense and it has been 7
years or more since the offense occurred; or if the individual was
incarcerated with respect to the offense, it has been 5 years or more
since the individual was released from incarceration; or the individual
committed the offense when they were 21 years of age or younger, and it
has been more than 30 months since the sentencing occurred.\26\
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\25\ See 12 U.S.C. 1785(d)(4)(A).
\26\ Note that these exceptions do not apply to the offenses
described under 12 U.S.C. 1785(d)(2).
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The Board considers the phrases ``offense committed''--noted
previously--and ``offense occurred'' to be substantially similar.
Accordingly, the Board interprets the term ``offense occurred'' to mean
the ``last date of the underlying misconduct.'' In instances with
multiple offenses, ``offense occurred'' means the last date of any of
the underlying offenses.
One commenter supported the Board's proposal, noting its
interpretation of the term ``offense occurred'' is reasonable and
logical.
Paragraph (c) contains another FHBA exception: section 205(d)'s
restrictions do not apply to an offense if ``the individual was
incarcerated with respect to the offense and it has been 5 years or
more since the individual was released from incarceration.'' \27\ While
the language of the statute is clear, the Board notes that there could
be situations in which an individual who was incarcerated with respect
to an offense would be permitted to work at an insured credit union
before a similarly situated individual who was not incarcerated in
connection with an offense. This difference is due to the FHBA's use of
a shorter time period for individuals who were incarcerated for an
offense than for individuals who did not serve jail time.
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\27\ See 12 U.S.C. 1785(d)(4)(A)(i)(II).
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Paragraph (c) also tracks the FHBA's language concerning offenses
committed by individuals 21 years of age or younger. The FHBA states
that, for individuals who committed an offense when the individual was
21 years of age or younger, section 205(d) shall not apply to the
offense if it has been more than 30 months since the sentencing
occurred.\28\ The Board interprets ``sentencing occurred'' to mean the
date on which a court imposed the sentence (as indicated by the date on
the court's sentencing order), not the date on which all conditions of
sentencing were completed. Moreover, paragraph (c) notes that its
exclusions--which are derived from the FHBA--do not apply to the
enumerated offenses described under 12 U.S.C. 1785(d)(2).
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\28\ 12 U.S.C. 1785(d)(4)(A)(ii).
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One commenter suggested that the term ``sentencing occurred''
should mean the date that appears on the applicable sentencing order,
instead of the date the court's clerk entered the order on the docket,
which often occurs days after the order is signed by the judge. The
commenter pointed out that the date on the sentencing order can be
easily and definitively ascertained from the court records. The Board
agrees with this commenter and has modified this paragraph to add a
clarifying parenthetical, as indicated previously.
Proposed paragraph (d) added parallel language reflecting the
FDIC's long-held position that individuals who are convicted of, or
enter into a pretrial diversion program for, a criminal offense
involving dishonesty or breach of trust in foreign jurisdictions are
subject to section 19, unless the offense is otherwise excluded by 12
CFR 303, subpart L, as stated in the FDIC's rule.
One commenter agreed that section 205(d) should include foreign
criminal convictions and pretrial diversions for offenses in foreign
jurisdictions involving dishonesty, like fraud and embezzlement, unless
the conviction has been expunged, dismissed, or pardoned. Another
commenter noted that, as a fidelity bond carrier, it will continue to
require full disclosure of all pertinent, known facts in the bond
application and renewal process, and all facts related to current or
prospective employees will remain relevant to its underwriting
decisions.
The Board has not previously had a position on foreign offenses;
however, given the congressional mandate to
[[Page 79385]]
consult and coordinate to promote consistent implementation on consent
application procedures where appropriate, the Board is adopting the
FDIC's interpretation, as proposed. Employers may be unaware of an
applicant's foreign offenses without conducting their own inquiry, and
many countries have their own application processes to conduct criminal
background checks.
The Board notes several non-exhaustive ways in which insured credit
unions could comply with this requirement. For credit union operations
outside the United States, the insured credit union could conduct a
reasonable, documented inquiry to verify an applicant's history by
inquiring about potential covered offenses that may have occurred in
that foreign country (or countries) in which the credit union conducts
operations, as well as the United States. As another example of such an
inquiry, if an insured credit union plans to hire someone in the United
States who is from a foreign country, the credit union could inquire
about potential covered offenses that may have occurred in the United
States and in that foreign country. And if a foreign jurisdiction
forbade background investigations by an insured credit union, the
credit union could note this restriction as part of its reasonable,
documented inquiry.
4. Section 752.4--What constitutes a conviction under section 205(d)?
Paragraph (a) states that there must have been a conviction of
record for section 205(d) to apply, and that section 205(d) does not
apply to arrests, pending cases not brought to trial (unless the person
has a program entry as set out in Sec. 752.5), or any conviction
reversed on appeal unless the reversal was for the purpose of re-
sentencing. The Board is generally adopting paragraph (a) as proposed,
with non-substantive modifications to Sec. 752.4(a) to change the
tense of the final sentence for consistency with the preceding
sentence.
Paragraph (b) clarifies that, absent a program entry, when an
individual is charged with a covered offense but is subsequently
convicted of an offense that is not a covered offense, that conviction
is not subject to section 205(d). IRPS 19-1 does not have this
clarification; however, it is included in the FDIC's current part 303.
The final rule clarifies that the conviction, not the originally
charged offense, is relevant under section 205(d).
Paragraph (c) of this section reflects statutory language related
to the treatment of orders of expungement, sealing, or dismissal of
criminal records. Under IRPS 19-1, a conviction that has been
completely expunged is not considered a conviction of record and does
not require a consent application. However, IRPS 19-1 further noted
that where an order of expungement has been issued and is intended to
be a complete expungement, the jurisdiction 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. Also,
the failure to destroy or seal the records will not prevent the
expungement from being considered complete for the purposes of section
205(d).
The FHBA provides a two-pronged test to determine whether a covered
offense should be considered expunged, dismissed, or sealed and
therefore excluded from the scope of section 205(d). First, there must
be an ``order of expungement, sealing, or dismissal that has been
issued in regard to the conviction in connection with such offense'';
second, it must be ``intended by the language in the order itself, or
in the legislative provisions under which the order was issued, that
the conviction shall be destroyed or sealed from the individual's
state, Tribal, or Federal record, even if exceptions allow the
conviction to be considered for certain character and fitness
evaluation purposes.'' \29\
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\29\ 12 U.S.C. 1785(d)(4)(B)(ii).
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The FHBA does not address expungements, sealings, or dismissals by
operation of law, and the Board has sought to provide a more
comprehensive framework as to such records. The Board proposed to add
language to the second (intent) prong of the expungement framework to
encompass the language in the expungement order itself, the legislative
provisions under which the order was issued, and other legislative
provisions. The Board believes that the additional language is
consistent with the purposes of the statute and congressional intent to
provide relief to individuals with older or minor offenses. One
commenter agreed that the proposed interpretation of expungement to
include those by application of law is reasonable and supported
finalizing that provision as proposed.
The proposal noted that, similar to IRPS 19-1, covered offenses
that have been pardoned--and which are not otherwise excluded by Sec.
752.8--would still require a consent application.
One commenter suggested that pardons should also qualify as an
expungement by operation of law. The commenter observed that requiring
a consent application for a conviction that has been pardoned seems
inconsistent with congressional intent and the presidential pardon
power. The commenter suggested that if a conviction has been officially
nullified due to a pardon by the President or a state governor, that
conviction should be nullified in all respects, including pursuant to
the NCUA's regulations. The commenter asked that the Board exclude
pardons from the scope of section 205(d) and suggested that pardoned
offenses should be treated similarly to expungements, dismissals, or
the sealing of a conviction.
The Board declines to adopt this recommendation and notes its
longstanding position that covered offenses that have been pardoned,
and which are not otherwise excluded from the scope of section 205(d),
will still require an application. A pardon typically cancels the
punishment for a criminal offense, not the underlying finding of guilt.
In contrast, an expungement or sealing is significantly more likely to
result, by applicable statute or court order, in the removal of the
finding of guilt or otherwise result in a legal determination that the
offense should not be used against an individual for employment
purposes. Accordingly, in the Board's view, a person with such an
expunged or sealed offense tends to present less of a risk to the
credit union system than a person whose same offense has been pardoned.
The Board notes, however, that while a covered offense that has been
pardoned but not expunged will still require an application, in most
cases the pardon would generally weigh in favor of approval.
Paragraph (d) excludes ``youthful offender'' judgments for minors
from the scope of section 205(d). Paragraph (d) clarifies that it
encompasses the term ``youthful offender'' and ``juvenile delinquent''
and similar terms, since a court does not have to specifically use
these terms in an adjudication in order for paragraph (d)'s provisions
to apply.
5. Section 752.5--What constitutes a pretrial diversion or similar
program under section 205(d)?
Paragraph (a) defines what constitutes a pretrial diversion or
similar program (a program entry). A pretrial diversion or similar
program means a program characterized by a suspension or eventual
dismissal or reversal of charges or criminal prosecution upon agreement
by the accused to restitution, drug or alcohol rehabilitation, anger
management, or community service. The FHBA establishes this definition.
[[Page 79386]]
Paragraph (b) clarifies that when a covered offense either is
reduced by a program entry to an offense that would otherwise not be
covered by section 205(d) or is dismissed upon successful completion of
a program entry, the offense remains a covered offense for purposes of
section 205(d). The covered offense will require a consent application
unless it is de minimis as provided by Sec. 752.8. This language is
new as compared to IRPS 19-1 and comes from the FDIC's part 303.
Paragraph (c) states that expungements or sealings of program entry
records will be treated the same as expungements or sealings of
convictions. This language is new as compared to IRPS 19-1 and comes
from the FDIC's part 303.
No commenters objected to these provisions, which the Board
generally adopts as proposed.
6. Section 752.6--What are the types of consent applications that can
be filed?
The FHBA codifies procedures for consent applications filed with
the NCUA. The statute removes the NCUA's existing policy that an
insured credit union sponsor a consent application or that an
individual seek a waiver of the credit union filing requirement.
Specifically, the proposed rule provides that the NCUA will accept
applications from an individual or an insured credit union applying on
behalf of an individual.
Paragraph (b) provides that an individual consent application or a
credit union-sponsored consent application may be filed separately or
contemporaneously with the appropriate NCUA field office.
7. Section 752.7--When may an application be filed?
This section notes that before a consent application may be filed,
``all of the sentencing requirements associated with a conviction, or
conditions imposed by the program entry, including but not limited to,
imprisonment, fines, conditions of rehabilitation, and probation
requirements must be completed, and the case must be considered final
by the procedures of the applicable jurisdiction.'' The Board includes
this language to accord with several of the FHBA's exclusions from
section 205(d) that are not tied to the completion of sentencing
requirements.
Furthermore, the FHBA requires the NCUA to ``make all forms and
instructions related to consent applications available to the public,
including on [its] website.'' \30\ These forms and instructions ``shall
provide a sample cover letter and a comprehensive list of items that
may accompany the consent application, including clear guidance on
evidence that may support a finding of rehabilitation.'' \31\ While the
final rule does not codify these requirements, the agency will comply
with the statutory mandate to make appropriate forms and instructions
available to the public. The final rule provides generally that the
NCUA's consent application forms as well as additional information
concerning section 205(d) can be accessed on the NCUA's website. One
commenter noted that the availability of forms on the agency's public
website will be helpful.
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\30\ 12 U.S.C. 1785(d)(5)(E)(i).
\31\ 12 U.S.C. 1785(d)(5)(E)(ii).
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No commenters objected to these provisions, which the Board
generally adopts as proposed.
8. Section 752.8--What is the de minimis exemption?
The Board has made a number of changes to this section based on the
statutory revisions and helpful comments received. One commenter--to
the FDIC's parallel notice of proposed rulemaking under the FHBA \32\--
requested that this section be revised to exempt de minimis offenses
from the scope of the statutory prohibition, to align with the FHBA.
The Board agrees, and this section has been revised in the final rule
to treat de minimis offenses, a category that includes the sub-category
``designated lesser offenses,'' as offenses that are excluded from the
prohibitions of section 205(d) (assuming certain conditions are met)
and for which offenses no application is required. This is a
substantive departure from the Board's longstanding treatment of de
minimis offenses, in which potential applicants with such offenses on
their records did not need to file an application with the Board
because the NCUA deemed their (potential) application automatically
approved. In other words, the NCUA considered such offenses covered
under section 205(d), while the FHBA exempts those offenses entirely
from section 205(d). Accordingly, this section of the final rule
includes additional language to clarify that the prohibitions of
section 205(d) will not apply, and an application will therefore not be
required, as to offenses meeting the conditions to qualify for the de
minimis exemption.
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\32\ See 88 FR 77906 (Nov. 14, 2023).
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The FHBA removed the use of fake identification from the scope of
section 205(d), and paragraphs (a)(1) and (b)(4) reflect this
exclusion.\33\
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\33\ See 12 U.S.C. 1785(d)(4)(C)(iv).
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Paragraph (a)(1) states an individual who has been convicted of two
or fewer covered offenses need not file if the individual could have
been sentenced to a term of confinement in a correctional facility of 3
years or less and/or a fine of $2,500 or less, and the individual
actually served 3 days or less of jail time for each, provided that all
of the sentencing requirements associated with the conviction have been
completed, each conviction or program entry was entered at least 3
years prior to the date of a consent application (assuming there are
two convictions or program entries for a covered offense), and each
covered offense was not committed against an insured depository
institution or insured credit union.
One commenter suggested that the maximum potential fine amount for
the de minimis criterion in paragraph (a)(1) should be increased from
$2,500 to $5,000, in keeping with a certain Federal criminal statute
that provides for fines up to $5,000 for certain misdemeanors or
infractions. The commenter noted that under the statutory provision
there are very few violations of Federal criminal laws for which the
potential fine for a violation would be less than $5,000, making many
Federal offenses ineligible for de minimis treatment. The Board
declines to expand the de minimis framework as suggested because it
considers the current threshold appropriate. The $2,500 amount is
comparable to the $2,000 de minimis threshold for insufficient-fund
offenses under the FHBA.
While the Board acknowledges that offenses falling under the
statute the commenter cited may require an application, two factors
mitigate this concern. First, some of the offenses or infractions may
not involve dishonesty or a breach of trust, which would make them
irrelevant under section 205(d). Second, many of those offenses are
likely to be misdemeanors, which receive significant relief under Sec.
752.3. Thus, the Board finds the rule gives appropriate relief for
minor offenses with the $2,500 threshold.
Paragraph (a)(2) reflects the FHBA's confinement criteria as to the
Board's determination of de minimis offenses.\34\
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\34\ See 12 U.S.C. 1785(d)(4)(C)(ii).
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To improve the clarity of this section, the final rule adds a
sentence explaining that designated lesser offenses need not
[[Page 79387]]
meet the other criteria that apply to de minimis offenses.
For greater ease of reference, proposed paragraphs (a)(2)(i)-(iii)
have been reorganized in the final rule. Under redesignated paragraph
(a)(3), jail time is calculated based on the time an individual spent
incarcerated as a punishment or a sanction--not as pretrial detention--
and does not include probation or parole where an individual was
restricted to a particular jurisdiction or was required to report
occasionally to an individual or a specific location. Jail time
includes confinement to a psychiatric treatment center in lieu of a
jail, prison, or house of correction on mental competency grounds. The
definition is not intended to include any of the following: persons who
are restricted to a substance-abuse treatment program facility for part
or all of the day; and persons who are ordered to attend outpatient
psychiatric treatment.
Paragraph (a)(4), redesignated from proposed paragraph (a)(3),
requires that if there are two convictions or program entries for a
covered offense, each conviction or program entry must have been
entered at least 3 years prior to the date a consent application would
otherwise be required.
Paragraph (a)(5) (redesignated from proposed paragraph (a)(4))
requires that, in order for an offense or offenses to qualify under the
general de minimis framework, each offense ``must not have been''
committed against an insured depository institution or insured credit
union. This language aligns with the current FDIC regulations.
Under the proposed rule, several de minimis criteria had qualifiers
for offenses committed against ``insured'' credit unions.\35\ Two
commenters noted that the proposal's references to covered offenses
committed against ``insured credit unions'' or ``insured depository
institutions'' for determining whether a given offense is de minimis
was too narrowly focused on whether an institution is insured. One
commenter suggested that if an offense is committed against any credit
union or financial institution, it should not be considered a de
minimis offense irrespective of the institution's insurance status.
Another commenter noted that any prior offense by a covered individual
committed against a financial institution, insured or not, increases
risks to insured credit unions. Both commenters suggested eliminating
the ``insured'' qualifier so that the de minimis exemption would not be
available for offenses committed against any depository institution or
credit union--not just insured depository institutions and insured
credit unions. After careful consideration, the Board declines to adopt
this recommendation. The FHBA and its legislative history indicate
lawmakers' preference for broad relief and granting second chances.
Adopting the commenters' recommendation would provide less relief for
individuals with minor offenses committed against non-federally insured
credit unions or depository institutions. While this approach to the de
minimis framework marks a departure from IRPS 19-1, in the Board's
view, providing greater relief for de minimis offenses--not less--is
consistent with the FHBA and congressional intent.
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\35\ See proposed Sec. Sec. 752.8(a)(4), (b)(2), (b)(3).
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Paragraph (b)(1) (age of person at time of covered offense)
provides that a consent application is not required if there are two
convictions or program entries for a covered offense, and the actions
that resulted in both convictions or program entries all occurred when
the individual was 21 years of age or younger and the convictions or
program entries were entered at least 18 months prior to the date of a
consent application. For a reduced waiting period to apply before an
individual may qualify for the de minimis exemption, the underlying
convictions or program entries must meet the other de minimis criteria
in paragraph (a) of Sec. 752.8.
The Board has revised the de minimis requirement related to the
aggregate total face value of all ``bad'' or insufficient funds checks
from $1,000 to $2,000, to conform with the statute.\36\ Under paragraph
(b)(2), a consent application is not required if an individual has
convictions or program entries of record based on the writing of
``bad'' or insufficient funds checks and the following conditions
apply: (i) the aggregate total face value of all ``bad'' or
insufficient funds checks cited across all the convictions or program
entries for ``bad'' or insufficient funds checks is $2,000 or less;
(ii) no depository institution or credit union was a payee on any of
the ``bad'' or insufficient funds checks that were the basis of the
convictions or program entries; and (iii) the individual has no more
than one other de minimis offense.
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\36\ See 12 U.S.C. 1785(d)(4)(C)(iii).
---------------------------------------------------------------------------
The FHBA and the final rule do not require a consent application
for convictions or program entries for small-dollar, simple theft.
Under paragraph (b)(3), convictions or program entries based on the
simple theft of goods, services, or currency (or other monetary
instrument) are considered de minimis offenses if the following
conditions apply: (i) the value of the currency, goods, or services
taken is $1,000 or less; (ii) the theft was not committed against an
depository institution or credit union; (iii) the individual has no
more than one other de minimis offense under this section; and (iv) if
there are two de minimis offenses under this section, each conviction
or program entry was entered at least 3 years prior to the date a
consent application would otherwise be required, or at least 18 months
prior to the date a consent application would otherwise be required if
the actions that resulted in the conviction or program entry all
occurred when the individual was 21 years of age or younger. This
exception excludes burglary, forgery, robbery, identity theft, and
fraud.
Finally, the Board notes that the FHBA includes ``designated lesser
offenses'' in addition to de minimis offenses. Designated lesser
offenses, including use of fake identification, shoplifting, trespass,
fare evasion, or driving with an expired license or tag, are described
in the FHBA as low-risk offenses statutorily excluded from the scope of
section 205(d). Redesignated paragraph (b)(4), which appeared as Sec.
752.3(d) in the proposed rule, excludes from the scope of covered
offenses ``designated lesser offenses,'' (for example, using fake
identification), as specified in 12 U.S.C. 1785(d)(4)(C)(iv), if 1 year
or more has passed since the applicable conviction or program entry. As
explained in paragraph (a) in the final rule, these offenses do not
need to meet the other criteria specified for de minimis offenses.
The Board has deleted proposed Sec. 752.8(c) concerning fidelity
bond coverage and disclosure of de minimis offenses to insured credit
unions. This now-deleted paragraph had required that, ``Any person who
meets the criteria under this section shall be covered by a fidelity
bond to the same extent as others in similar positions and shall
disclose the presence of the conviction(s) or program entry(ies) to all
insured credit unions in the affairs of which he or she intends to
participate.''
One commenter expressed concern that Sec. 752.8(c), as proposed,
could be misinterpreted as imposing a mandate on fidelity bond carriers
to provide coverage to individuals meeting the de minimis criteria.
Specifically, the use of the phrase ``shall be covered by a fidelity
bond'' could be read to imply that the burden for fidelity coverage is
on bond providers to provide the required coverage, rather than on the
credit union to obtain the required
[[Page 79388]]
coverage. This commenter's concern was seemingly borne out in another
comment that recommended that the same ``mandate'' for fidelity bond
coverage for individuals meeting the de minimis criteria should also be
extended to individuals whose consent applications have been approved.
This commenter's recommendation illustrated that a misunderstanding of
the phrase ``shall be covered by a fidelity bond'' could occur as
suggested.
Additionally, one commenter responding to the FDIC's parallel
notice asked for clarification concerning de minimis offenses and
another commenter suggested that de minimis offenses should be treated
the same way as ``designated lesser offenses'' by excluding both types
of offenses from the scope of the statutory prohibition.
Since the FHBA has excluded de minimis offenses from the scope of
section 205(d), the Board believes that these requirements should no
longer attach to individuals who have committed such offenses and has
removed this provision from the final rule. Deleting proposed Sec.
752.8(c) also removes the ambiguity of the phrase ``shall be covered by
a fidelity bond.'' The Board emphasizes, however, that all federally
insured credit union employees and officials continue to be subject to
the fidelity bond and insurance coverage rules under 12 CFR 713 and
must be bondable to work for or participate in the conduct of the
affairs of the credit union.\37\
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\37\ Federally insured, state-chartered credit unions are
required by 12 CFR 741.201 to comply with the fidelity bond coverage
requirements of part 713. Corporate credit unions must comply with
12 CFR 704.18 in lieu of part 713.
---------------------------------------------------------------------------
Paragraph (c), redesignated from proposed paragraph (d), states
that any conviction or program entry for specific criminal offenses
under Title 18 set out in 12 U.S.C. 1785(d)(2) cannot qualify for a de
minimis exemption.
9. Section 752.9--How does an individual or a credit union file an
application?
This section, adopted as proposed, eliminates the credit union
filing requirement and waiver process and indicates that an insured
credit union may file an application on behalf of an individual. The
individual may also file an application. This section also provides
that applications filed by a credit union should be filed with the NCUA
field office where the credit union's home office is located (or with
ONES for credit unions that office supervises), and applications filed
by an individual should be filed with the NCUA field office where the
person lives. States covered by each NCUA field office are listed in 12
CFR 790.2.
Along with this final rule, the Board is revising its delegations
of authority related to consent applications. Formerly, the Regional
Directors and the ONES Director only had delegated authority to act on
credit union-sponsored applications, and the Board had retained the
authority to approve or disapprove individual applications. Under the
revised delegations, the Regional Directors and the ONES Director will
have authority to act on both individual and credit union-sponsored
applications. Any disapproval of an individual or credit union-
sponsored application for consent, including a disapproval of a request
for reconsideration, will require the prior concurrence of the General
Counsel. Consistent with the FHBA, the General Counsel's concurrence
must certify that the denial is consistent with section 205(d). Under
the revised delegation, the Board will retain authority to approve or
disapprove individual applications for consent involving an offense
described under section 205(d)(2)(A) and such other high-level security
cases it designates.
10. Section 752.10--How will the NCUA evaluate an application?
Paragraph (a) sets out the factors the NCUA will assess to
determine the level of risk the applicant poses to an insured credit
union and whether the NCUA will consent to the person's participation
in a credit union's affairs. The paragraph reflects new statutory
requirements related to the NCUA's review process, including the
requirement that the NCUA primarily rely on the criminal history record
of the Federal Bureau of Investigation (FBI) in its review and provide
such record to the applicant to review for accuracy.\38\ The Board
interprets the term ``criminal history record'' to mean ``identity
history summary checks,'' which are commonly known as ``rap sheets.''
Under paragraph (a)--and in accordance with the FHBA--the NCUA, in
reviewing an application, will provide ``such record'' (a copy of the
rap sheet) to the individual to review for accuracy.\39\ The NCUA will
not provide it to the credit union, but only to the individual who is
the subject of the application. One commenter stated that the
requirement to rely primarily on FBI rap sheets will help improve the
consent application process.
---------------------------------------------------------------------------
\38\ See 12 U.S.C. 1785(d)(5)(F).
\39\ Id.
---------------------------------------------------------------------------
One commenter, to the FDIC's parallel FHBA notice of proposed
rulemaking, requested that the FDIC establish a deadline to evaluate
the application once received and a deadline of 5 days to return the
copy of the criminal history record once received from the FBI. The
FDIC has adopted this recommendation in part; \40\ however, the Board
declines to adopt the suggested deadlines in this final rule. While the
Board remains mindful that the consent application process may impose
inconveniences and uncertainties to covered individuals and credit
unions as they await the agency's determination, the Board maintains it
is impracticable to establish a timetable for action on applications
because each application is fact specific and varies in complexity.
Past applications submitted to the NCUA have generally been adjudicated
within 60 days from receipt, and often the processing time was
significantly less. The Board remains committed to processing consent
applications as promptly as practicable. In addition, the NCUA will
make reasonable efforts to communicate with the subject of the
application within 15 calendar days of receipt of the criminal history
record from the FBI to inform the individual that the NCUA will be
providing them with a copy of the report and to verify the individual's
contact information. The NCUA will also make reasonable efforts to send
the report to the individual within 5 business days of successful
verification of the individual's contact information. If the individual
believes that there are any inaccuracies in the report, the NCUA will
direct the individual to the FBI, where the individual can seek
corrections.
---------------------------------------------------------------------------
\40\ Under revised 12 CFR 303.229(a)(2), the FDIC will make
reasonable efforts to communicate with the subject of the
application within 15 calendar days of receipt of this record from
the FBI to inform the individual that the FDIC will be providing
them with a copy of the report and to verify the individual's
contact information. The FDIC will also make reasonable efforts to
send the report to the individual within 5 business days of
successful verification of the individual's contact information. If
the individual believes that there are any inaccuracies in the
report, the FDIC will direct the individual to an appropriate
contact at the FBI, where the individual can seek corrections.
---------------------------------------------------------------------------
Paragraph (b) states that the NCUA will not require an applicant to
provide certified copies of criminal history records unless the NCUA
determines that there is a clear and compelling justification to
require additional information to verify the accuracy of the criminal
history record of the FBI.
Paragraph (c) states that the determining factors in assessing an
application are whether the person has demonstrated their fitness to
participate in the conduct of the affairs of an
[[Page 79389]]
insured credit union, and whether the affiliation, or participation by
the person in the conduct of the affairs of the credit union, may
constitute a threat to the safety and soundness of the credit union or
the interests of its members or threaten to impair public confidence in
the credit union.
Paragraph (d) sets forth the considerations the NCUA will evaluate
in conducting an individualized assessment. These considerations are
substantively similar to factors under IRPS 19-1. The final rule also
clarifies how the NCUA will evaluate evidence of rehabilitation and
other evidence, as required by the FHBA.\41\
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\41\ While the statute uses the terms ``rehabilitation'' and
``mitigating'' as separate categories of evidence, the terms appear
to be substantially similar in the context of section 205(d) consent
applications, and the use of both terms in these regulations may
create confusion. Therefore, the final rule uses the term
rehabilitation, not mitigating.
---------------------------------------------------------------------------
Paragraph (e) provides that the question of whether a person, who
was convicted of a crime or who agreed to a program entry, was guilty
of that crime shall not be at issue in a proceeding under this subpart
or under 12 CFR part 746, subpart B.
Paragraph (f) provides that the NCUA will also apply the
considerations in paragraph (d) to determine whether the interests of
justice are served in seeking an exception in the appropriate court
when a consent application is made prior to 10 years after the final
conviction or agreement to program entry for certain Federal
offenses.\42\
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\42\ See 12 U.S.C. 1785(d)(2)(A).
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Paragraph (g) provides that all approvals or orders will be subject
to the condition that the person be covered by a fidelity bond to the
same extent as others in similar positions. The final rule clarifies
that paragraph (g) applies whether the approval is conferred by order
or less formal means, such as an approval letter from a field office.
Paragraph (h) includes statutory language explaining when a new
credit union-sponsored application would be necessary due to changes in
the scope of an applicant's employment. It provides that when deemed
appropriate by the NCUA, credit union-sponsored applications are
intended to allow the individual to work for the same employer and
across positions. NCUA consent will be required for any proposed
significant changes in the individual's security-related duties or
responsibilities, such as promotion to an officer or other positions
that the employer determines will require higher security-screening
credentials (that is, any position with higher level access or
responsibility, not only security personnel or individuals in the
security field).
Paragraph (i) provides that when a person who has received approval
under section 205(d) subsequently seeks to participate in the conduct
of the affairs of another insured credit union, another application
must be submitted.
11. Section 752.11--What will the NCUA do if the application is denied?
Paragraph (a) provides that the NCUA will provide a written denial
that will summarize or cite the relevant factors from Sec. 752.10.
Paragraph (b) provides that the applicant (either the insured credit
union or the subject individual, or both, as a consolidated request)
may file a written request for reconsideration or appeal under the
administrative review process contained in 12 CFR part 746, subpart B.
That subpart includes uniform procedures by which petitioners may
appeal initial agency determinations to the Board.
Under part 746, subpart B, prior to submitting an appeal to the
Board, the petitioner may make a written request to the appropriate
field office to reconsider an initial agency determination within 30
calendar days of the date of that determination. Within 60 calendar
days of the date of an initial agency determination or, as applicable,
a determination by the field office on any request for reconsideration,
a petitioner may file an appeal seeking review of the determination by
the Board. Under part 746, subpart B, a petitioner may also request an
oral hearing before the Board. These procedures meet the statutory
requirement for ``national office review'' of any consent application
that is denied by a ``regional office,'' if the individual requests a
review by the Board.\43\ This option is also substantially similar to
the FDIC's current parts 303 and 308, except that under those
regulations, an oral hearing is conducted unless the applicant or the
insured depository institution waives it in writing and instead makes a
written submission.\44\
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\43\ 12 U.S.C. 1785(d)(5)(D).
\44\ 12 CFR 308.158(d).
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Technical or Non-Substantive Modifications
In addition to the modifications to the proposal described above,
the final rule includes a few minor, technical, or non-substantive
revisions. For example, the Board has updated subject headings for
clarity and for consistency with the FDIC's final rule. Several
paragraphs have also been combined and redesignated for efficiency.
Additionally, some adjustments to terminology and for plain language
have been adopted in the final rule, such as using ``will'' instead of
``shall'' when explaining actions the NCUA will take.
NCUA Practice on Section 205(d)
In general, the final rule mirrors the FDIC's part 303, and the
FDIC's separate rulemaking to implement the FHBA, with minimal, non-
substantive changes. Additionally, while there were a few differences
between the FDIC's part 303 and IRPS 19-1 before the FHBA, such as some
details on de minimis offenses, expungements, and treatment of drug-
related offenses, the enactment of the FBHA resolved most differences
between the two agencies' rules and created a more uniform standard.
However, there are a few areas in which IRPS 19-1 provided additional
context and discussion on policy and procedures related to section
205(d) compared to part 303. In general, the additional information
does not provide any substantive difference from part 303 and instead
provides additional clarifying information.
The Board has chosen to omit much of the clarifying information in
the final rule to ensure its consistency with part 303; however, the
Board also believes credit unions may generally have less experience
with section 205(d) than insured depository institutions and are
typically smaller in size with fewer resources, so additional guidance
may help insured credit unions to discharge their responsibilities
under section 205(d). One commenter was supportive of the NCUA issuing
guidance to go along with the final rule and suggested that examples be
given in the guidance.
Accordingly, after finalizing and implementing this rule, the NCUA
intends to issue guidance that provides insured credit unions with
additional information about section 205(d). The guidance will include
portions of IRPS 19-1 that were not incorporated into the final rule.
For example, IRPS 19-1 provided that 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 a consent application is not required
because the covered offense is considered de minimis and meets all of
the criteria for the exception, or--if the credit union is willing to
sponsor the prospective employee's consent application--submit an
application requesting the Board's consent. The credit union could also
extend a conditional offer of employment and notify the prospective
employee that it
[[Page 79390]]
is contingent upon a satisfactory background check to determine whether
the individual is prohibited under section 205(d). The Board intends no
change of position regarding these policies even though they are not
included in the final rule.
IRPS 19-1 also stated that persons who will occupy clerical,
maintenance, service, or purely administrative positions generally can
be approved without an extensive review. A more detailed analysis,
however, would be performed in the case of persons who will be able to
influence or control the management or affairs of the insured credit
union. The final rule does not include a similar delineation between
how the NCUA intends to approve consent applications for different
types of positions. However, the Board continues to believe that
applications for clerical, maintenance, service, or purely
administrative positions do not require the same review as applications
for other positions that have access to more of the day-to-day
financial operations of a credit union. The NCUA plans to address this
issue in the guidance.
Other Conforming Amendments
Both the standard FCU Bylaws in appendix A of part 701 and the
criteria for determining the insurability of a credit union in 12 CFR
741.3(c) reference section 205(d). In general, both sections prohibit a
person who has been convicted of any criminal offense involving
dishonesty or breach of trust from serving at an insured credit union,
except with the written consent of the Board. The Board believes these
references are incomplete because not all convictions of criminal
offenses involving dishonesty or breach of trust now serve as the valid
basis for a section 205(d) prohibition. Therefore, the final rule
replaces the current reference to ``any crime involving dishonesty or a
breach of trust'' to refer to the specific crimes covered under section
205(d). Referring directly to the FCU Act also automatically
incorporates future statutory changes to section 205(d).
Additionally, as required by the Gramm-Leach-Bliley Act, appendix B
to part 748 (Appendix B) contains guidance on creating an effective
incident response plan in the event of unauthorized access to member
information and the requirements of the notices distributed to the
affected members.\45\ Appendix B states that credit unions should also
conduct background checks of employees to ensure that the credit union
does not violate 12 U.S.C. 1785(d). The final rule requires a
background check in Sec. 752.1(b), which is consistent with current
expectations.\46\ Therefore, the final rule amends this footnote to
state that insured credit unions must also conduct background checks of
employees.
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\45\ 12 CFR 748, App. B.
\46\ The Board notes that insured credit unions may extend a
conditional offer of employment contingent on the completion of a
background check satisfactory to the credit union to determine if
the applicant is barred under section 205(d).
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Amendments to Sec. 701.14 on Change in Official or Senior Executive
Officer in Credit Unions That Are Newly Chartered or Are in Troubled
Condition
In addition to the prohibition on certain individuals participating
in the conduct of the affairs of a credit union included in section
205(d), the FCU Act also sets forth conditions under which certain
insured credit unions must notify the NCUA in writing of any proposed
changes in its board of directors, committee members, or senior
executive staff (section 212).\47\ The Board implements section 212
through Sec. 701.14 of its rules.\48\ Section 701.14 requires
generally that insured credit unions that are newly chartered or
troubled file notice with the NCUA before adding, replacing, or
changing the duties of a board or committee member or a senior
executive officer. The Board has not substantively amended Sec. 701.14
since 2012 when the Board revised the definition of troubled
condition.\49\ The Board proposed to make minor amendments to Sec.
701.14 to clarify when a notice is required, how the NCUA would process
the notice, and what information must be included in the NCUA's notice
of disapproval to the applicant. Specifically, the Board proposed to:
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\47\ 12 U.S.C. 1790a.
\48\ 12 CFR 701.14.
\49\ 77 FR 45285 (July 31, 2012).
---------------------------------------------------------------------------
Clarify when notice is required by specifying that a
credit union must provide notice when adding or replacing any member of
its board of directors or committees, employing any person as a senior
executive officer of the credit union, or changing the responsibilities
of a board member, committee member, or a senior executive officer so
that the person would assume a different position;
Increase the amount of time for NCUA to initially review a
notice after its receipt from 10 calendar to 15 calendar days; \50\
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\50\ See 12 CFR 701.14(c)(3)(iii).
---------------------------------------------------------------------------
Specify that Regional Director and ONES Director
communications under Sec. 701.14 may be done through email; and
Explicitly state that the notice of disapproval will
identify the reason(s) for the denial.
One commenter supported the proposed amendment to clarify that a
notice is required when a newly chartered or troubled credit union is
adding or replacing any member of its board of directors or committees,
employing any person as a senior executive officer of the credit union,
or changing the responsibilities of a board member, committee member,
or senior executive officer if the person is assuming a different
position. The commenter stated that the amendment would provide a
necessary clarification but encouraged the NCUA to ensure federally
insured state-chartered credit unions remain aware of the notification
requirement to their respective state supervisory authority, as
currently required under Sec. 701.14(c)(3).
The same commenter, however, was opposed to increasing the amount
of time for the agency to initially review a notice for a change in
official or senior executive officer from the current 10 calendar day
limit to 15 calendar days under Sec. 701.14(c)(3)(iii). While the
commenter agreed it is important to conduct a thorough review of each
request, the commenter felt that the current timeframe is sufficient
and did not support extending the time for NCUA's initial review
because of the time sensitivity in these situations, particularly for a
troubled credit union.
After careful consideration, the Board is adopting the amendment to
the notification requirement as proposed. As discussed in the notice of
proposed rulemaking, the 10-day notification requirement is not
specified in the statute, and the NCUA has found the 10-day timeframe
difficult to meet, as additional information to analyze the request may
be required. The Board continues to believe that the additional 5
calendar days will not unduly delay the start or change in position of
board members, committee members, or senior executive officers. In
making this change, the Board emphasizes that the increase from 10 to
15 days applies only to the amount of time the NCUA has to either
determine an application is complete or request additional information.
The current 30-day approval timeline remains the same, unless the
agency is waiting on additional requested information. An applicant can
mitigate any delay by producing requested information expeditiously.
The NCUA endeavors to process all applications as quickly as
[[Page 79391]]
possible, irrespective of whether additional information is requested.
The agency did not receive any comments on the other amendments to
Sec. 701.14 and the Board is finalizing those changes as proposed. The
Board notes that other authorities bear on an individual's ability to
work for or participate in the conduct of the affairs of a federally
insured credit union.\51\
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\51\ See 12 U.S.C. 1786(i)(1)(A); 12 U.S.C. 5101 et seq.; 12
U.S.C. 5104; Public Law 116-283, codified at 31 U.S.C. 5321(g).
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IV. Other Alternatives Considered
Comments Received by the FDIC
On November 14, 2023, the FDIC published a notice of proposed
rulemaking to conform the FDIC's section 19 regulations with the FHBA
\52\ and the FDIC received several comments and recommendations on its
proposal. The NCUA considered these other comments as part of its
statutory obligation to consult and coordinate with the FDIC to promote
consistent implementation of the FHBA. Aside from the modifications
described earlier in this preamble, the Board has decided not to
incorporate those recommendations into the final rule.
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\52\ See 88 FR 77906.
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As discussed previously, almost all of the substantive requirements
incorporated into the agency's regulations stem from the FHBA's
revisions to section 205(d). The Board had limited discretion in
adopting alternatives to those statutory revisions. The Board
considered other recommendations that were submitted by the commenters
but believes that the final rule represents the most appropriate option
for covered entities and individuals.
V. Regulatory Procedures
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency creates a new or amends existing information collection
requirements.\53\ For purposes of the PRA, an information collection
requirement may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection, unless it displays a valid Office of Management
and Budget (OMB) control number.
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\53\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
The NCUA will revise its section 205(d) application form to conform
with the changes to section 205(d) under the FHBA. These changes amend
the NCUA's existing information collection associated with this rule,
entitled ``Application Pursuant to Section 205(d) of the Federal Credit
Union Act'' (3133-0203). For this reason, the information-collection
requirements contained in this final rule will be submitted by the NCUA
to OMB for review and approval under section 3507(d) of the PRA (44
U.S.C. 3507(d)) and Sec. 1320.11 of the OMB's implementing regulations
(5 CFR part 1320). The final rule extends greater relief than what was
formerly available to certain individuals with prior convictions
seeking employment with an insured credit union, thereby eliminating
the need to submit consent applications for certain offenses,
particularly older or expunged convictions, prior misdemeanors, drug
possession offenses, and other lesser offenses. The final rule should
reduce the number of respondents applying for consent, but it may also
increase the number of applications because of a renewed awareness of
the statutory prohibition. Thus, the estimated number of respondents
applying for consent remains at one. The final rule requires credit
unions to make a reasonable, documented, inquiry to verify an
applicant's history to ensure that a person who has a conviction or
program entry covered by the provisions of section 205(d) is not hired
or permitted to participate in its affairs without the written consent
of the NCUA. This recordkeeping requirement is minimal.
These program changes would revise the information collection
requirement currently approved OMB control number 3133-0203, as
follows:
Title of Information Collection: Part 752, Application Pursuant to
Section 205(d) of the Federal Credit Union Act.
Estimated Number of Respondents: 4.
Estimated Number of Responses per Respondent: 1.
Estimated Annual Frequency of Response: 1.
Estimated Hours per Response: 0.75.
Estimated Total Annual Burden Hours: 3.
Affected Public: Private Sector: Not-for-profit institutions;
Individual or Household.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule or a final rule pursuant to the
Administrative Procedure Act or another law, the agency must prepare a
regulatory flexibility analysis that meets the requirements of the RFA
and publish such analysis in the Federal Register. Specifically, the
RFA normally requires agencies to describe the effect of a rulemaking
on small entities by providing a regulatory impact analysis. For
purposes of the RFA, the Board considers credit unions with assets less
than $100 million to be small entities.\54\ A regulatory flexibility
analysis is not required, however, if the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities and publishes its certification and a short,
explanatory statement in the Federal Register together with the rule.
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\54\ NCUA IRPS 15-1, 80 FR 57512 (Sept. 24, 2015).
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The Board does not believe the final rule will have a significant
economic impact on a substantial number of small entities. In the
period from 2019 through 2023, the NCUA received four consent
applications. This averages out to one application a year. Therefore,
on average, only about one small entity--at most--will be affected by
the proposed rule annually.
As discussed in the SUPPLEMENTARY INFORMATION section, the final
rule will align the NCUA's regulations with the FHBA's provisions and
more closely align the NCUA's section 205(d) regulations with those of
other Federal financial regulators. Most of the changes were
precipitated by the FHBA--which was effective immediately upon
passage--and the final rule aligns the NCUA's regulations with these
elements of the FHBA; therefore, most of the associated changes in the
final rule will have no direct effect on individuals or credit unions.
Further, since the NCUA estimates that on average approximately one
NCUA-insured institution could be affected by the final rule annually,
any direct effects realized because of the final rule are likely to be
small and affect a relatively small number of entities.
In light of the foregoing, the NCUA certifies that the final rule
will not have a significant economic impact on a substantial number of
small entities.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. The
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order to adhere to fundamental
federalism principles.
This final rule will apply to all insured credit unions, including
federally insured, state-chartered credit unions. The Board has
determined that the final amendments will not have a substantial direct
effect on the states, on the connection between the national
[[Page 79392]]
government and the states, or on the distribution of power and
responsibilities among the various levels of government. Further, the
final rule implements a statutory amendment, and the NCUA does not have
discretion in implementing the statutory changes to section 205(d). In
particular, the Board does not believe that these changes will affect
its existing agreements and division of supervisory responsibilities
with state regulatory agencies. The Board expects to continue to
coordinate with these agencies as appropriate in carrying out its
responsibilities under section 205(d) and related provisions.
Therefore, the Board has determined that this rule does not constitute
a policy that has federalism implications for purposes of the executive
order.
Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final rule may affect family
well-being positively within the meaning of section 654 of the Treasury
and General Government Appropriations Act, 1999, Public Law 105-277,
112 Stat. 2681 (1998). In particular, the NCUA has reviewed the
criteria specified in section 654(c)(1) of that act, by evaluating
whether this final regulatory action (1) affects the stability or
safety of the family, particularly in terms of marital commitment; (2)
affects the authority of parents in the education, nurture, and
supervision of their children; (3) helps the family perform its
functions; (4) affects disposable income or poverty of families and
children; (5) only financially impacts families, if at all, to the
extent such impacts are justified; (6) may be carried out by state or
local government or by the family; or (7) establishes a policy
concerning the relationship between the behavior and personal
responsibility of youth and the norms of society. Under this statute,
if the agency determines the regulation may negatively affect family
well-being, then the agency must provide an adequate rationale for its
implementation.
The final rule implements legislative amendments that increase
employment opportunities for individuals with certain older or minor
criminal offenses involving dishonesty or breach of trust. These
increased employment opportunities may strengthen the stability of
families, help families perform their functions, and increase
disposable income. These changes are not likely to affect the rights of
parents in the education or nurture of their children. The changes call
for Federal rather than state or local government action because the
legislation affects the Federal statute governing all federally insured
credit unions. The Board also notes that it has limited discretion in
whether and how to implement the legislative amendments and thus cannot
substantially vary from the legislation. The Board has determined that
this final rule may affect family well-being positively within the
meaning of this statute.\55\
---------------------------------------------------------------------------
\55\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------
Small Business Regulatory Enforcement Fairness Act--Congressional
Review Act
The Congressional Review chapter of the Small Business Regulatory
Enforcement Fairness Act of 1996 generally provides for congressional
review of agency rules.\56\ A reporting requirement is triggered in
instances where the NCUA issues a final rule as defined in the
Administrative Procedure Act.\57\ Besides being subject to
congressional oversight, an agency rule may also be subject to a
delayed effective date if it is a ``major rule.'' The NCUA does not
believe this rule is a ``major rule'' within the meaning of the
relevant sections of the statute. As required by the statute, the NCUA
will submit this final rule OMB for it to determine if this final rule
is a ``major rule'' for purposes of the statute. The NCUA also will
file appropriate reports with Congress and the U.S. Government
Accountability Office so this rule may be reviewed.
---------------------------------------------------------------------------
\56\ 5 U.S.C. 551.
\57\ Id.
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List of Subjects
12 CFR Part 701
Administrative practice and procedure, Credit, Credit unions.
12 CFR Part 741
Bank deposit insurance, Credit unions, Reporting and recordkeeping
requirements.
12 CFR Part 746
Administrative practice and procedure, Claims, Credit unions,
Investigations.
12 CFR Part 748
Computer technology, Confidential business information, Credit
unions, Internet, Personally identifiable information, Privacy,
Reporting and recordkeeping requirements, Security measures.
12 CFR Part 752
Administrative practice and procedure.
By the NCUA Board on September 19, 2024.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the Board amends 12 CFR
chapter VII as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
0
2. Amend Sec. 701.14 by revising paragraphs (c)(1), (c)(3)(iii), and
the second sentence in paragraph (e) to read as follows:
Sec. 701.14 Change in official or senior executive officer in credit
unions that are newly chartered or are in troubled condition.
* * * * *
(c) * * *
(1) Prior notice requirement. An insured credit union must give the
NCUA written notice at least 30 days before the effective date of
adding or replacing any member of its board of directors or committee
member, employing any person as a senior executive officer of the
credit union, or changing the responsibilities of a board member,
committee member, or a senior executive officer so that the person
would assume a different position if:
(i) The credit union has been chartered for less than 2 years; or
(ii) The credit union meets the definition of troubled condition in
paragraph (b)(3) or (4) of this section.
* * * * *
(3) * * *
(iii) Processing. Within 15 calendar days after receiving the
notice, the Regional Director will inform the credit union either that
the notice is complete or that additional, specified information is
needed and must be submitted within 30 calendar days. If the initial
notice is complete, the Regional Director will issue a written decision
of approval or disapproval to the individual and the credit union
within 30 calendar days of receipt of the notice. If the initial notice
is not complete, the Regional Director will issue a written decision
within 30 calendar days of receipt of the original notice plus the
amount of time the credit union takes to provide the
[[Page 79393]]
requested additional information. If the additional information is not
submitted within 30 calendar days of the Regional Director's request,
the Regional Director may either disapprove the proposed individual or
review the notice based on the information provided. If the credit
union and the individual have submitted all requested information and
the Regional Director has not issued a written decision within the
applicable time period, the individual is approved. Regional Director
communications may be done through electronic mail.
* * * * *
(e) * * * The Notice of Disapproval will identify the reason(s) for
the denial and advise the parties of their rights to request
reconsideration from the Regional Director and/or file an appeal with
the NCUA Board in accordance with the procedures set forth in 12 CFR
part 746, subpart B.
0
3. Amend appendix A to part 701, under the heading ``Official NCUA
Commentary--Federal Credit Union Bylaws,'' under ``Article V.
Elections,'' by revising paragraph i.(b) to read as follows:
Appendix A to Part 701--Federal Credit Union Bylaws
* * * * *
Official NCUA Commentary--Federal Credit Union Bylaws
* * * * *
Article V. Elections
i. * * *
(b) The individual cannot have been convicted of a crime covered
under section 205(d) of the Federal Credit Union Act (12 U.S.C.
1785(d)) unless the NCUA Board has waived the prohibition for the
conviction; and
* * * * *
PART 741--REQUIREMENTS OF INSURANCE
0
4. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31
U.S.C. 3717.
0
5. Amend Sec. 741.3 by revising the second sentence of paragraph (c)
to read as follows:
Sec. 741.3 Criteria.
* * * * *
(c) * * * No person shall serve as a director, officer, committee
member, or employee of an insured credit union who has been convicted
of a crime covered under section 205(d) of the Federal Credit Union Act
(12 U.S.C. 1785(d)), except with the written consent of the Board.
* * * * *
PART 746--APPEALS PROCEDURES
0
6. The authority citation for part 746 continues to read as follows:
Authority: 12 U.S.C. 1766, 1787, and 1789.
Sec. 746.201 [Amended]
0
7. Amend Sec. 746.201, in paragraph (c), by adding ``752.11(b),''
between ``745.201(c),'' and ``subpart J to part 747 of this chapter,''.
PART 748--SECURITY PROGRAM, SUSPICIOUS TRANSACTIONS, CATASTROPHIC
ACTS, CYBER INCIDENTS, AND BANK SECRECY ACT COMPLIANCE
0
8. The authority citation for part 748 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1786(b)(1), 1786(q), 1789(a)(11);
15 U.S.C. 6801-6809; 31 U.S.C. 5311 and 5318.
0
9. Amend appendix B to part 748 by revising footnote 7 to read as
follows.
Appendix B to Part 748--Guidance on Response Programs for Unauthorized
Access to Member Information and Member Notice
* * * * *
\7\ Credit unions must also conduct background checks of
employees to ensure that the credit union does not violate 12 U.S.C.
1785(d), which prohibits a credit union from hiring an individual
convicted of certain criminal offenses or who is subject to a
prohibition order under 12 U.S.C. 1786(g).
* * * * *
0
10. Add part 752 to read as follows:
PART 752--CONSENT TO SERVICE OF PERSONS CONVICTED OF, OR WHO HAVE
PROGRAM ENTRIES FOR, CERTAIN CRIMINAL OFFENSES
Sec.
752.1 What is section 205(d) of the FCU Act?
752.2 Who is covered by section 205(d)?
752.3 Which offenses qualify as ``Covered Offenses'' under section
205(d)?
752.4 What constitutes a conviction under section 205(d)?
752.5 What constitutes a pretrial diversion or similar program under
section 205(d)?
752.6 What are the types of applications that can be filed?
752.7 When may an application be filed?
752.8 What is the de minimis exemption?
752.9 How does an individual or a credit union file an application?
752.10 How will the NCUA evaluate an application?
752.11 What will the NCUA do if the application is denied?
Authority: 12 U.S.C. 1785(d).
Sec. 752.1. What is section 205(d) of the Federal Credit Union Act?
(a) This part covers applications under section 205(d) of the
Federal Credit Union Act (FCU Act), 12 U.S.C. 1785(d). The NCUA refers
to such applications as ``consent applications.'' Under section 205(d),
any 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 (program entry) in connection with a
prosecution for such offense (collectively, Covered Offenses), may not
become, or continue as, an institution-affiliated party (IAP) of an
insured credit union; or otherwise participate, directly or indirectly,
in the conduct of the affairs of any insured credit union without the
prior written consent of the NCUA. Section 205(d) 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
(U.S.C.). In order for the Board to grant consent during the 10-year
period, the Board must file a motion with, and obtain the approval of,
the sentencing court.
(b) In addition, the law prohibits an insured credit union from
permitting such a person to engage in any conduct or to continue any
relationship prohibited by section 205(d). Insured credit unions must
therefore make a reasonable, documented, inquiry to verify an
applicant's history to ensure that a person who has a Covered Offense
under section 205(d) is not hired or permitted to participate in its
affairs without the written consent of the NCUA issued under this
subpart. Insured credit unions may extend a conditional offer of
employment contingent on the completion of a background check
satisfactory to the credit union to determine if the applicant is
prohibited under section 205(d), but the applicant may not work for, be
employed by, or otherwise participate in the affairs of the insured
credit union until the credit union has determined that the applicant
is not prohibited under section 205(d) (including persons who have had
a consent application approved).
(c) If there is a conviction or program entry covered by the
prohibitions of section 205(d), an application under this subpart must
be filed seeking the NCUA's consent to become, or to continue as, an
IAP; or to otherwise participate, directly or indirectly, in the
affairs of the insured credit union. The application must be filed, and
consented to, prior to serving in any of the foregoing capacities
unless such application is not required under the subsequent provisions
of this subpart. The purpose of an application is to provide the
applicant an opportunity to
[[Page 79394]]
demonstrate that, notwithstanding the prohibition, a 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 credit union. The burden is upon the applicant to
establish that the application warrants approval.
(d) The term field office, for purposes of this subpart, means a
Regional Office or the Office of National Examinations and Supervision,
as described in 12 CFR 790.2.
Sec. 752.2 Who is covered by section 205(d)?
(a) Persons covered by section 205(d) include IAPs, as defined by
12 U.S.C. 1786(r), and others who are participants in the conduct of
the affairs of an insured credit union. Therefore, all directors,
officers, and employees of an insured credit union who fall within the
scope of section 205(d), including de facto employees, as determined by
the NCUA based upon generally applicable standards of employment law,
will also be subject to section 205(d). Whether other persons are
covered by section 205(d) depends upon their degree of influence or
control over the management or affairs of an insured credit union. For
example, section 205(d) would apply to directors and officers of
affiliates, subsidiaries, or joint ventures of an insured credit union
if they participate in the affairs of the insured credit union or are
able to influence or control the management or affairs of the insured
credit union. Typically, an independent contractor does not have a
relationship with the insured credit union other than the activity for
which the credit union has contracted. However, an independent
contractor who also influences or controls the management or affairs of
the insured credit union would be covered by section 205(d).
(b) The term person, for purposes of section 205(d), means an
individual and does not include a corporation, firm, or other business
entity.
Sec. 752.3 Which offenses qualify as ``Covered Offenses'' under
section 205(d)?
(a) Categories of Covered Offenses. The conviction or program entry
must be for a criminal offense involving dishonesty or breach of trust.
(1) The term criminal offense involving dishonesty--
(i) Means an offense under which an individual, directly or
indirectly--
(A) Cheats or defrauds; or
(B) Wrongfully takes property belonging to another in violation of
a criminal statute;
(ii) Includes an offense that Federal, state, or local law defines
as dishonest, or for which dishonesty is an element of the offense; and
(iii) Does not include--
(A) A misdemeanor criminal offense committed more than 1 year
before the date on which an individual files a consent application,
excluding any period of incarceration; or
(B) An offense involving the possession of controlled substances.
At a minimum, this exclusion applies to criminal offenses involving the
simple possession of a controlled substance and possession with intent
to distribute a controlled substance. This exclusion may also apply to
other drug-related offenses depending on the statutory elements of the
offenses or from court determinations that the statutory provisions of
the offenses do not involve dishonesty or breach of trust as noted in
paragraph (b) of this section. Potential applicants may contact their
appropriate NCUA field office if they have questions about whether
their offenses are covered under section 205(d).
(iv) The term offense committed in paragraph (a)(1)(iii)(A) of this
section means the last date of the underlying misconduct. In instances
with multiple offenses, offense committed means the last date of any of
the underlying offenses.
(2) The term breach of trust means a wrongful act, use,
misappropriation, or omission with respect to any property or fund that
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.
(b) Elements of the offense. Whether a crime involves dishonesty or
breach of trust will be determined from the statutory elements of the
offense itself or from court determinations that the statutory
provisions of the offense involve dishonesty or breach of trust.
(c) Certain older offenses excluded--(1) Exclusions for certain
older offenses. Section 205(d) does not apply to an offense if--
(i) It has been 7 years or more since the offense occurred; or
(ii) The individual was incarcerated with respect to the offense,
and it has been 5 years or more since the individual was released from
incarceration.
(iii) The term offense occurred means the last date of the
underlying misconduct. In instances with multiple Covered Offenses,
offense occurred means the last date of any of the underlying offenses.
(2) Offenses committed by individuals 21 years of age or younger.
For individuals who committed an offense when they were 21 years of age
or younger, section 205(d) does not apply to the offense if it has been
more than 30 months since the sentencing occurred. The term sentencing
occurred means the date on which a court imposed the sentence (as
indicated by the date on the court's sentencing order), not the date on
which all conditions of sentencing were completed.
(3) Limitation. This paragraph (c) does not apply to an offense
described under 12 U.S.C. 1785(d)(2).
(d) Foreign convictions. Individuals who are convicted of, or enter
into a pretrial diversion program for, a criminal offense involving
dishonesty or breach of trust in any foreign jurisdiction are subject
to section 205(d), unless the offense is otherwise excluded by this
subpart.
Sec. 752.4 What constitutes a conviction under section 205(d)?
(a) Convictions requiring an application. There must be a
conviction of record. Section 205(d) does not cover arrests or pending
cases not brought to trial, unless the person has a program entry as
set out in Sec. 752.5. Section 205(d) does not cover acquittals or any
conviction that has been reversed on appeal, unless the reversal was
for the purpose of re-sentencing. A conviction with regard to which an
appeal is pending requires an application. A conviction for which a
pardon has been granted requires an application.
(b) Convictions not requiring an application. When an individual is
charged with a Covered Offense and, in the absence of a program entry
as set out in Sec. 752.5, is subsequently convicted of an offense that
is not a Covered Offense, the conviction is not subject to section
205(d).
(c) Expungement, dismissal, and sealing. A conviction is not
considered a conviction of record and does not require an application
if--
(1) There is an order of expungement, sealing, or dismissal that
has been issued regarding the conviction in connection with such
offense, or if a conviction has been otherwise expunged, sealed, or
dismissed by operation of law; and
(2) It is intended by the language in the order itself, or in the
legislative provisions under which the order was issued, or in other
legislative provisions, that the conviction shall be destroyed or
sealed from the individual's state, Tribal, or Federal record, even if
exceptions allow the conviction to be considered for certain character
and fitness evaluation purposes.
[[Page 79395]]
(d) Youthful offenders. An adjudication by a court against a person
as a ``youthful offender'' (or similar term) under any youth-offender
law applicable to minors as defined by state law, or any judgment as a
``juvenile delinquent'' (or similar term) by any court having
jurisdiction over minors as defined by state law, does not require an
application. Such an adjudication does not constitute a matter covered
under section 205(d) and is not a conviction or program entry for
determining the applicability of Sec. 752.8.
Sec. 752.5 What constitutes a pretrial diversion or similar program
under section 205(d)?
(a) The term ``pretrial diversion or similar program'' (program
entry) means a program characterized by a suspension or eventual
dismissal or reversal of charges or criminal prosecution upon agreement
by the accused to restitution, drug or alcohol rehabilitation, anger
management, or community service. Whether the outcome of a case
constitutes a program entry is determined by relevant Federal, state,
or local law, and, if not so designated under applicable law, then the
determination of whether a disposition is a program entry will be made
by the Board on a case-by-case basis.
(b) When a Covered Offense either is reduced by a program entry to
an offense that would otherwise not be covered by section 205(d) or is
dismissed upon successful completion of a program entry, the offense
remains a Covered Offense for purposes of section 205(d). The Covered
Offense will require an application unless it is de minimis as provided
by Sec. 752.8.
(c) Expungements, dismissals, or sealings of program entries will
be treated the same as those for convictions.
Sec. 752.6 What are the types of applications that can be filed?
(a) The NCUA will accept applications from--
(1) An individual; or
(2) An insured credit union applying on behalf of an individual.
(b) An individual or an insured credit union may file applications
at separate times. Under either approach, the application(s) must be
filed with the appropriate NCUA field office, as required by this part.
Sec. 752.7 When may an application be filed?
Except for situations in which no application is required under
section 205(d) and this subpart, an application must be filed when
there is a conviction by a court of competent jurisdiction for a
Covered Offense by any adult or minor treated as an adult or when such
person has a program entry regarding that offense. Before an
application may be filed, all of the sentencing requirements associated
with a conviction, or conditions imposed by the program entry,
including but not limited to, imprisonment, fines, conditions of
rehabilitation, and probation requirements, must be completed, and the
case must be considered final by the procedures of the applicable
jurisdiction. The NCUA's application forms as well as additional
information concerning section 205(d) can be accessed on the NCUA's
website.
Sec. 752.8 What is the de minimis exemption?
(a) In general. The prohibitions of section 205(d) will not apply,
and an application will therefore not be required, where all of the
following de minimis criteria are met. (Paragraph (b)(4) of this
section contains separate exemption criteria from paragraphs (a)
through (b)(3) of this section, and an offense that qualifies for
exemption under paragraph (b)(4) is excluded from consideration in the
criteria of paragraphs (a) through (b)(3).)
(1) The individual has been convicted of, or has program entries
for, no more than two Covered Offenses, including those subject to
paragraphs (b)(1) through (3) of this section; and for each Covered
Offense, all of the sentencing requirements associated with the
conviction, or conditions imposed by the program entry, have been
completed (the sentence- or program-completion requirement does not
apply under paragraph (b)(2) of this section).
(2) For each Covered Offense, the individual could have been
sentenced to a term of confinement in a correctional facility of 3
years or less and/or a fine of $2,500 or less, and the individual
actually served 3 days or less of jail time for each Covered Offense.
(3) Jail time under paragraph (a)(2) of this section is calculated
based on the time an individual spent incarcerated as a punishment or a
sanction--not as pretrial detention--and does not include probation or
parole where an individual was restricted to a particular jurisdiction
or was required to report occasionally to an individual or a specific
location. Jail time includes confinement to a psychiatric treatment
center in lieu of a jail, prison, or house of correction on mental-
competency grounds. The definition is not intended to include either of
the following: persons who are restricted to a substance-abuse
treatment program facility for part or all of the day; or persons who
are ordered to attend outpatient psychiatric treatment.
(4) If there are two convictions or program entries for a Covered
Offense, each conviction or program entry was entered at least 3 years
prior to the date an application would otherwise be required, except as
provided in paragraph (b)(1) of this section.
(5) Each Covered Offense must not have been committed against an
insured depository institution or insured credit union.
(b) Other types of offenses for which the de minimis exemption
applies and no application is required--(1) Age of person at time of
Covered Offense. If there are two convictions or program entries for a
Covered Offense, and the actions that resulted in both convictions or
program entries all occurred when the individual was 21 years of age or
younger, then the de minimis criteria in paragraph (a)(4) of this
section will be met if the convictions or program entries were entered
at least 18 months prior to the date an application would otherwise be
required. For this reduction in waiting time to apply, the convictions
or program entries must meet the other de minimis criteria in paragraph
(a) of this section.
(2) Convictions or program entries for insufficient funds checks.
The prohibitions of section 205(d) will not apply, and an application
will therefore not be required, as to convictions or program entries of
record based on the writing of ``bad'' or insufficient funds check(s)
if the following conditions apply:
(i) The aggregate total face value of all ``bad'' or insufficient
funds check(s) cited across all the conviction(s) or program entry(ies)
for ``bad'' or insufficient funds checks is $2,000 or less;
(ii) 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(ies); and
(iii) The individual has no more than one other de minimis offense
under this section.
(3) Convictions or program entries for small-dollar, simple theft.
The prohibitions of section 205(d) will not apply, and an application
will therefore not be required, as to convictions or program entries
based on the simple theft of goods, services, or currency (or other
monetary instrument) if the following conditions apply:
(i) The value of the currency, goods, or services taken was $1,000
or less;
(ii) The theft was not committed against an insured depository
institution or insured credit union;
[[Page 79396]]
(iii) The individual has no more than one other offense that is
considered exempt under this section; and
(iv) If there are two offenses--each of which, by itself, is
considered exempt under this section, each conviction or program entry
was entered at least 3 years prior to the date an application would
otherwise be required, or at least 18 months prior to the date an
application would otherwise be required if the actions that resulted in
the conviction or program entry all occurred when the individual was 21
years of age or younger.
(v) Simple theft excludes burglary, forgery, robbery, identity
theft, and fraud.
(4) Convictions or program entries for using fake identification,
shoplifting, trespassing, fare evasion, or driving with an expired
license or tag. The prohibitions of section 205(d) will not apply, and
an application will therefore not be required, as to the following
offenses, if 1 year or more has passed since the applicable conviction
or program entry: using fake identification; shoplifting; trespassing;
fare evasion; and driving with an expired license or tag.
(c) Non-qualifying convictions or program entries. No conviction or
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 exemptions
set out in this section.
Sec. 752.9 How does an individual or a credit union file an
application?
Forms and instructions can be obtained from the NCUA's website
(www.ncua.gov), and the application(s) must be filed with the
appropriate field office Director. An application may be filed by an
individual or by an insured credit union on behalf of an individual, or
by both. The appropriate field office for a credit union-sponsored
application is the office covering the state where the insured credit
union's home office is located, or the Office of National Examinations
and Supervision. The appropriate field office for an application filed
by an individual is the office covering the state where the person
resides. States covered by each NCUA field office are listed in 12 CFR
790.2.
Sec. 752.10 How will the NCUA evaluate an application?
(a) Criminal history records. In reviewing an application, the NCUA
will--
(1) Primarily rely on the criminal history record provided by the
Federal Bureau of Investigation (rap sheet); and
(2) Provide such record to the subject of the application to review
for accuracy.
(b) Certified copies. The NCUA will not require an applicant to
provide certified copies of criminal history records unless the NCUA
determines that there is a clear and compelling justification to
require additional information to verify the accuracy of the criminal
history record provided by the Federal Bureau of Investigation.
(c) Ultimate determinations. The ultimate determinations in
assessing an application are whether the person has demonstrated their
fitness to participate in the conduct of the affairs of an insured
credit union, and whether the affiliation or participation by the
person in the conduct of the affairs of the credit union may constitute
a threat to the safety and soundness of the credit union or the
interests of its members or threaten to impair public confidence in the
credit union.
(d) Individualized assessment. When evaluating applications, the
NCUA will conduct an individualized assessment that will consider:
(1) Whether the conviction or program entry is subject to section
205(d) and the specific nature and circumstances of the offense;
(2) Whether the 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 and soundness of the credit union or
the interests of its members or threatens to impair public confidence
in the credit union;
(3) Evidence of rehabilitation including the person's age at the
time of the conviction or program entry, the time that has elapsed
since the conviction or program entry, and the relationship of the
individual's offense to the responsibilities of the applicable
position;
(4) The individual's employment history, letters of recommendation,
certificates documenting participation in substance-abuse programs,
successful participation in job preparation and educational programs,
and other relevant evidence;
(5) The ability of management of the insured credit union to
supervise and control the person's activities;
(6) The applicability of the insured credit union's fidelity bond
coverage to the person; and
(7) For state-chartered, federally insured credit unions, the
opinion or position of the state regulator; and
(8) Any additional factors in the specific case that appear
relevant to the application or the individual.
(e) No re-consideration of guilt. The question of whether a person,
who was convicted of a crime or who agreed to a program entry, was
guilty of that crime will not be at issue in a proceeding under this
part or under 12 CFR part 746, subpart B.
(f) Factors considered for enumerated offenses. The foregoing
factors will also be applied by the NCUA 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 10-year
ban prior to its expiration date under 12 U.S.C. 1785(d)(2)(A) for
certain Federal offenses.
(g) Mandatory conditions of approval. All approvals or orders will
be subject to the condition that the person be covered by a fidelity
bond to the same extent as others in similar positions. If the NCUA has
approved an application filed by an individual and has issued a consent
order, the individual must disclose the presence of the conviction(s)
or program entry(ies) to all insured credit unions in the affairs of
which they wish to participate.
(h) Credit union-sponsored consent applications: work at same
employer. When deemed appropriate by the NCUA, credit union-sponsored
applications are to allow the individual to work for the same employer
(without restrictions on the location) and across positions, except
that the prior consent of the NCUA (which may require a new
application) will be required for any proposed significant changes in
the individual's security-related duties or responsibilities, such as
promotion to an officer or other positions that the employer determines
will require higher security screening credentials.
(i) Work at a different employer after certain approvals. In
situations in which an approval has been granted for a person to
participate in the affairs of a particular insured credit union and the
person subsequently seeks to participate at another insured credit
union, another application must be submitted and approved by the NCUA
prior to the person participating in the affairs of the other insured
credit union.
Sec. 752.11 What will the NCUA do if the application is denied?
(a) The NCUA will inform the applicant in writing that the
application has been denied and summarize or cite the relevant
considerations specified in Sec. 752.10.
(b) The denial will also notify the applicant of the right to
request reconsideration from the field office, or to file an appeal
with the Board, and will include a description of applicable
[[Page 79397]]
filing deadlines and time frames for agency responses. The field office
and the Board will apply the review process contained in 12 CFR part
746, subpart B, to any request for reconsideration or appeal. For
credit union-sponsored applications, either the institution or the
subject individual (or both, as a consolidated request) may file a
request for reconsideration or appeal. The request for review must
include a statement of the underlying facts that form the basis of the
request for reconsideration or appeal, a statement of the basis for the
denial to which the applicant objects and the alleged error in such
denial, and any other support, materials, or evidence relied upon by
the applicant that were not previously provided.
[FR Doc. 2024-21887 Filed 9-27-24; 8:45 am]
BILLING CODE 7535-01-P