Fair Hiring in Banking
| Published date | 30 September 2024 |
| Citation | 89 FR 79380 |
| Pages | 79380-79397 |
| FR Document | 2024-21887 |
| Section | Rules and Regulations |
| Issuer | National Credit Union Administration |
Federal Register, Volume 89 Issue 189 (Monday, September 30, 2024)
[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]
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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.
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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\
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\1\ 12 U.S.C. 1785(d)(1).
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[[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\
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\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).
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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\
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\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.
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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.
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\7\ 84 FR 65907 (Dec. 2, 2019).
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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.
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\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).
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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.
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\10\ 12 U.S.C. 1829(a).
\11\ See 84 FR 68353 (Dec. 16, 2019).
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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\
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\12\ Id.; 85 FR 51312 (Aug. 20, 2020) (FDIC 2020 final rule).
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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\
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\13\ 88 FR 77906 (Nov. 14, 2023).
\14\ 89 FR 64353 (Aug. 7, 2024).
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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.
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\15\ 12 U.S.C. 1785(d)(5)(I), and 12 U.S.C. 1829(f)(9).
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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 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\
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\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.
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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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
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\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.
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\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).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\52\ See 88 FR 77906.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\54\ NCUA IRPS 15-1, 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------
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\
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\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
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