Proposed Rule2023-23509
Fair Hiring in Banking
Primary source
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Published
November 7, 2023
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) proposes to incorporate its "Second Chance" Interpretive Ruling and Policy Statement 19-1 (IRPS 19-1) and the Fair Hiring in Banking Act (FHBA) into its regulations. The Federal Credit Union Act prohibits, except with the Board's prior written consent, any person who has been convicted of certain criminal offenses involving dishonesty or breach of trust (a covered offense), or who has entered into a pretrial diversion or similar program in connection with a prosecution for such offense (program entry), from participating in the conduct of the affairs of an insured credit union.
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<title>Federal Register, Volume 88 Issue 214 (Tuesday, November 7, 2023)</title>
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[Federal Register Volume 88, Number 214 (Tuesday, November 7, 2023)]
[Proposed Rules]
[Pages 76702-76717]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-23509]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 88 , No. 214 / Tuesday, November 7, 2023 /
Proposed Rules
[[Page 76702]]
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: Notice of proposed rulemaking.
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SUMMARY: The NCUA Board (Board) proposes to incorporate its ``Second
Chance'' Interpretive Ruling and Policy Statement 19-1 (IRPS 19-1) and
the Fair Hiring in Banking Act (FHBA) into its regulations. The Federal
Credit Union Act prohibits, except with the Board's prior written
consent, any person who has been convicted of certain criminal offenses
involving dishonesty or breach of trust (a covered offense), or who has
entered into a pretrial diversion or similar program in connection with
a prosecution for such offense (program entry), from participating in
the conduct of the affairs of an insured credit union.
DATES: Comments must be received by January 8, 2024.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF55, by any of the following methods (Please send comments by one
method only):
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
The docket number for this proposed rule is NCUA-2023-0023. Follow the
instructions for submitting comments. A plain language summary of the
proposed rule is also available on the docket website.
<bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
<bullet> Hand Delivery/Courier: Same as mailing address.
Public inspection: You may view all public comments on the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. If you are unable to access public comments on the
internet, you may contact the NCUA for alternative access by calling
(703) 518-6540 or emailing <a href="/cdn-cgi/l/email-protection#c28d85818fa3abae82aca1b7a3eca5adb4"><span class="__cf_email__" data-cfemail="b0fff7f3fdd1d9dcf0ded3c5d19ed7dfc6">[email protected]</span></a>.
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
telephone (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, a person who has been convicted of any criminal
offense involving dishonesty or breach of trust, or has agreed to enter
into a pretrial diversion or similar program in connection with a
prosecution for such offense, may not:
<bullet> Become, or continue as, an institution-affiliated party
(IAP) with respect to any insured credit union; or
<bullet> 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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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 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
<a href="https://ncua.gov/news/enforcement-actions/administrative-orders">https://ncua.gov/news/enforcement-actions/administrative-orders</a>.
\3\ 73 FR 48399, 48401 (Aug. 19, 2008).
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In 2008, the Board adopted Interpretive Rule and Policy Statement
08-1 (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
[[Page 76703]]
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 to those who are truly penitent was
consistent with our nation's shared values of forgiveness and
redemption. In keeping with this spirit of clemency, the Board expanded
career opportunities for those who had demonstrated remorse and
responsibility for past indiscretions and who wished to set forth on a
path to productive living.
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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. 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).
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Section 19 of the Federal Deposit Insurance Act
Section 19 of the Federal Deposit Insurance Act (FDI Act) (section
19) contains a prohibition provision similar to section 205(d) of the
FCU Act.\9\ 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.\10\ 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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\9\ 12 U.S.C. 1829(a).
\10\ 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.\11\
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\11\ 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
October 2023.
Coordination With the FDIC
In the past, the NCUA has drawn extensively on the FDIC's guidance
related to section 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.\12\ The Board finds that adopting similar definitions,
terminology, and procedures in all aspects of this proposed 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.
Staffs of the NCUA and the FDIC have consulted and coordinated on this
proposed rulemaking as directed by the FHBA.
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\12\ 12 U.S.C. 1785(d)(5)(I), and 12 U.S.C. 1829(f)(9).
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Additionally, in developing this proposed rule, NCUA staff has
consulted with staffs at the Board of Governors of the Federal Reserve
Board and the Office of the Comptroller of the Currency.
II. The Proposed Rule
Section-by-Section Analysis
The Board is now issuing a proposed rule 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.\13\ The proposed rule would address, 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 would add new part 752 to Chapter VII of Title 12 of the
U.S. Code of Federal Regulations. A section-by-section analysis of the
proposed rule follows.
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\13\ The NCUA is issuing a proposed rule to codify its policy
regarding section 205(d) consent applications due to the FDIC's
recent codification of its similar section 19 Statement of Policy.
The NCUA believes codifying IRPS 19-1 will provide for greater
transparency as to its application, provide greater certainty as to
the NCUA's application process, and help both credit unions and
individuals who may be affected by section 205(d) to understand its
impact and potentially seek relief from its provisions.
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1. Section 752.1--What is section 205(d) of the FCU Act?
This section sets out the scope of proposed new part 752. Paragraph
(a) would generally describe the requirements of section 205(d).
Paragraph (b) would set out insured credit unions' obligations
under section 205(d), including that insured credit unions would be
required to make a reasonable inquiry regarding an applicant's history
to ensure that a
[[Page 76704]]
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. Paragraph (b) also
would set out that insured credit unions would be permitted to make
conditional offers of employment to prospective applicants.
Paragraph (c) would address the need for a consent application and
establishes the standard for an application's approval. The NCUA would
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. Section 752.1
includes no substantive changes as compared to IRPS 19-1.
2. Section 752.2--Who is covered by section 205(d)?
This section identifies who is covered by section 205(d). Paragraph
(a) would state that IAPs, as defined by 12 U.S.C. 1786(r), would be
covered. Similar to IRPS 19-1, volunteer and de facto employees would
be 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.
Those who exercise major policymaking functions of an insured credit
union are deemed to be covered by section 205(d). The proposed rule
includes less detail than IRPS 19-1 regarding how the NCUA would
determine whether a person participates in the conduct of the affairs
of an insured credit union. For example, the proposed rule would not
state that the NCUA would analyze each individual's conduct on a case-
by-case basis and make a determination or that agency and court
decisions will provide the guide as to what standards will be applied.
The Board does not intend any substantive changes by these omissions.
Instead, the proposed rule includes more streamlined language regarding
persons who participate in the conduct of the affairs of an insured
credit union, consistent with the FDIC's comparable part 303. The NCUA
intends to publish guidance that further clarifies its intent about
other persons who are not IAPs. The guidance would include language
similar to IRPS 19-1.
The proposed rule would also state directors and officers of
affiliates, or joint ventures of an insured credit union, would be
covered if they participate in the conduct of affairs of the insured
credit union or are in a position to influence or control the
management or affairs of the insured credit union. IRPS 19-1 does not
specifically state these persons would be covered if they participate
in the conduct of affairs of the insured credit union; however, this is
not a policy change because these persons would have been covered under
the IRPS if they participated in the conduct of affairs of the credit
union.
Paragraph (b) would define the term ``person'' for the purposes of
section 205(d) as an individual only and not a legal entity.
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).\14\ Paragraph (a) would state that a conviction or
program entry must have been for a criminal offense involving
dishonesty or breach of trust. The paragraph would define 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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\14\ 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 proposed rule.
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The FHBA does not define breach of trust. Under the proposed rule,
breach of trust would mean 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 court
determinations that the statutory provisions of the offenses involve
dishonesty or breach of trust, as noted in paragraph (b) of proposed
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 Regional
Office or the Office of National Examinations and Supervision (ONES) if
they have questions about whether their offenses are covered under
section 205(d).
This 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. The Board believes that
the proposed revision is consistent with the text and purposes of the
FHBA, would align the Board's interpretation of section 205(d) as to
offenses involving controlled substances more closely with other
federal banking regulators, and would continue to recognize that a
drug-
[[Page 76705]]
related offense could potentially involve dishonesty or breach of
trust.\15\ The Board also notes that this proposed provision would 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.\16\
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\15\ See House Rpt. No. 117-314 (May 10, 2022), available at
<a href="https://www.congress.gov/congressional-report/117th-congress/house-report/314/1">https://www.congress.gov/congressional-report/117th-congress/house-report/314/1</a>.
\16\ 12 U.S.C. 1790a.
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Paragraph (b) would require that, to determine if the criminal
offense is one of dishonesty or breach of trust, the NCUA would look to
the statutory elements of the criminal offense or to court decisions in
the relevant jurisdiction that have interpreted these statutory
elements. This policy is similar to IRPS 19-1.
Paragraph (c) would include new language reflecting the FHBA's
exclusion of certain older offenses from the scope of section
205(d).\17\ 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.\18\
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\17\ See 12 U.S.C. 1785(d)(4)(A).
\18\ 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.
Paragraph (c) would track 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.\19\ The Board interprets ``sentencing occurred'' to mean the
date on which a court imposed the sentence, 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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\19\ 12 U.S.C. 1785(d)(4)(A)(ii).
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The FHBA also excludes designated lesser offenses, including the
use of fake identification, shoplifting, trespass, fare evasion,
driving with an expired license or tag (and such other low-risk
offenses as the NCUA may designate), if 1 year or more has passed since
the applicable conviction or program entry. Paragraph (d) would exclude
these ``designated lesser offenses'' to reflect the revised statutory
language.
Paragraph (e) would add language that reflects 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 parallel proposed rule. The Board has not previously had a
position on foreign offenses; however, given the congressional mandate
to consult and coordinate to promote consistent implementation on
consent application procedures where appropriate, the Board is
proposing to adopt the FDIC's interpretation. Under the proposed rule,
for example, if an insured credit union has operations outside the
United States, the 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.
4. Section 752.4--What constitutes a conviction under section 205(d)?
Paragraph (a) would state that there must have been a conviction of
record for section 205(d) to apply, and that section 205(d) would 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 notes, however, that covered offenses that have
been pardoned--and which are not otherwise excluded by Sec. 752.8--
would still require a consent application. Paragraph (a) is
substantively similar to IRPS 19-1.
Paragraph (b) would clarify 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 NCUA's provision would merely clarify that the conviction, not the
originally charged offense, is relevant under section 205(d).
Paragraph (c) would exclude covered offenses that have been
expunged or sealed by a court of competent jurisdiction or by operation
of law. 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). This
caveat to the general premise that an expunged conviction is not
considered a conviction of record is not included in the FDIC's current
part 303.
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.'' \20\
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\20\ 12 U.S.C. 1785(d)(4)(B)(ii).
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The FHBA does not address expungements, sealings, or dismissals by
operation of law, and the Board has sought to provide a more
comprehensive framework as to such records. The Board has added
language to the second (intent) proposed prong of the expungement
framework to encompass the language in the expungement order itself,
the legislative
[[Page 76706]]
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.
Paragraph (d) would exclude ``youthful offender'' judgments for
minors from the scope of section 205(d). The proposed rule would
clarify that it encompasses the term ``youthful offender'' and similar
terms, because paragraph (d) may apply even if a court does not
specifically use the term ``youthful offender'' in an adjudication.
5. Section 752.5--What constitutes a pretrial diversion or similar
program under section 205(d)?
Paragraph (a) would define 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.
Paragraph (b) would clarify 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) would state 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.
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. Specifically, the proposed rule would provide that the NCUA
will accept applications from an individual or an insured credit union
applying on behalf of an individual. The Board notes the FHBA uses the
terms ``national office'' and ``regional office,'' which are
inconsistent with the NCUA's organization.\21\ The Board is
contemplating addressing those technical inconsistencies in the final
rule.
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\21\ See 12 CFR 790.2. The NCUA is composed of the Board with a
Central Office; Field Offices, consisting of 3 Regional Offices and
ONES; the Asset Management and Assistance Center; the Community
Development Revolving Loan Program; and the NCUA Central Liquidity
Facility.
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Paragraph (b) would provide that an individual consent application
or a credit union-sponsored consent application may be filed separately
or contemporaneously with the appropriate NCUA Regional Office or ONES.
7. Section 752.7--When must a consent application be filed?
This section states that a consent application is not required for
covered offenses that are considered de minimis under this part or
where another exception under the part applies. A consent application
would not be considered by the NCUA until all sentencing requirements
associated with a conviction have been met or all requirements of the
program entry have been completed. The Board proposes to include this
revised 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.'' \22\ 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.'' \23\ While the
proposed rule would not codify these requirements, the agency will
comply with the statutory mandate to make appropriate forms and
instructions available to the public. The proposed rule would provide
generally that the NCUA's consent application forms as well as
additional information concerning section 205(d) can be accessed at the
NCUA's Regional Offices or on the NCUA's website.
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\22\ 12 U.S.C. 1785(d)(5)(E)(i).
\23\ 12 U.S.C. 1785(d)(5)(E)(ii).
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8. Section 752.8--De Minimis Offenses
IRPS 19-1 includes several offenses that would be otherwise covered
under section 205(d), but do not require a consent application because
they are considered de minimis. For these de minimis offenses, a person
is deemed automatically approved to serve in an insured credit union,
and no consent application is required.
IRPS 19-1 updated the general criteria for the de minimis offenses
to better align with developments in criminal reform and sentencing
guidelines. The FHBA largely codified the conditions included in IRPS
19-1; however, in several cases the FHBA expanded upon the relief
included in IRPS 19-1. The proposed rule generally would retain the de
minimis factors included in IRPS 19-1 but would amend the factors to
reflect the FHBA.
Paragraph (a)(1) would state an individual who has been convicted
of 2 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 2
convictions or program entries for a covered offense), and each covered
offense was not committed against an insured depository institution or
insured credit union. Jail time would be calculated based on the time
an individual spent incarcerated as a punishment or a sanction--not as
pretrial detention--and would 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 would include 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.
A consent application would also not be required if there are 2
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.
A consent application would also not be required under the proposed
rule 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
[[Page 76707]]
program entries 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 convictions or program entries; and (iii) the
individual has no more than 1 other de minimis offense.
The FHBA and the proposed rule would also not require a consent
application for convictions or program entries for small-dollar, simple
theft. Under the proposed rule, convictions or program entries based on
the simple theft of goods, services, or currency (or other monetary
instrument) would be 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
insured depository institution or insured credit union; (iii) the
individual has no more than 1 other de minimis offense under this
section; and (iv) if there are 2 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.
Paragraph (c) would provide that individuals must be covered by a
fidelity bond to the same extent as others in similar positions. This
policy is consistent with IRPS 19-1.\24\
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\24\ See 12 CFR 713 (Fidelity bond and insurance coverage for
federally insured credit unions).
---------------------------------------------------------------------------
Paragraph (d) would state 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.
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 low-risk
offenses statutorily excluded from the scope of section 205(d).
9. Sec. 752.9--How To File a Consent Application
This section would provide that consent applications filed by a
credit union should be filed with the NCUA's Regional Office where the
credit union's home office is located (or with ONES for credit unions
that office supervises), and consent applications filed by an
individual should be filed with the NCUA's Regional Office where the
person lives. States covered by each NCUA Regional Office are listed in
12 CFR 790.2.
When the proposed rule is finalized, the Board will revise
delegations of authority related to consent applications. Under the
revised delegations, Regional Directors and the ONES Director will have
authority to act on both individual and credit union-sponsored
applications. Currently, the Regional Directors and the ONES Director
only have delegated authority to act on credit union-sponsored
applications, and the Board has retained the authority to approve/
disapprove individual applications.
10. Section 752.10--How a Consent Application Is Evaluated
Paragraph (a) would set out the factors the NCUA would assess to
determine the level of risk the applicant poses to an insured credit
union and whether the NCUA would 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 in its review and provide such
record to the applicant to review for accuracy.\25\ 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 a consent application, would provide ``such record'' to the
individual to review for accuracy.\26\ The NCUA would not provide it to
the credit union, but only to the individual. In evaluating the risk
posed by the person's participation, the Board has proposed 8
considerations that it would evaluate. These considerations are
substantively similar to factors under IRPS 19-1.
---------------------------------------------------------------------------
\25\ See 12 U.S.C. 1785(d)(5)(F).
\26\ Id.
---------------------------------------------------------------------------
Paragraph (b) would state that the NCUA would 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 Federal Bureau of Investigation.
Paragraph (c) would state that the determining factors in assessing
a consent application would be 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.
Paragraph (d) would set forth the considerations the NCUA would
evaluate in conducting an individualized assessment. The proposed rule
also clarifies how the NCUA will evaluate evidence of rehabilitation
and other evidence, as required by the FHBA.\27\
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\27\ 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 consent
applications, and the use of both terms in these regulations may
create confusion. Therefore, the proposed rule uses the term
rehabilitation, not mitigating.
---------------------------------------------------------------------------
Paragraph (e) would provide 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) would provide 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.\28\
---------------------------------------------------------------------------
\28\ See 12 U.S.C. 1785(d)(2)(A).
---------------------------------------------------------------------------
Paragraph (g) would provide that all approvals and 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.
Paragraph (h) would provide that when deemed appropriate by the
NCUA, credit union-sponsored consent applications are intended to allow
the individual to work for the same employer and across positions. NCUA
consent would 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.
Paragraph (i) would provide 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 consent
application must be submitted.
[[Page 76708]]
11. Section 752.11--What will the NCUA do if the consent application is
denied?
Paragraph (a) would provide that the NCUA would provide a written
denial that would summarize or cite the relevant factors from the
proposed Sec. 752.10. Paragraph (b) would provide that the applicant
can file a written request for reconsideration or appeal under the
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
Regional Office or, if appropriate, ONES, 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 Regional Office
or, if appropriate, ONES, 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.\29\ 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.\30\
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\29\ 12 U.S.C. 1785(d)(5)(D).
\30\ 12 CFR 308.158(d).
---------------------------------------------------------------------------
NCUA Practice on Section 205(d)
In general, the proposed rule would mirror the FDIC's part 303 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 discrepancies 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 its 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 proposed rule to ensure its uniformity with part 303; however, the
Board also believes credit unions generally have less experience with
section 205(d) than insured depository institutions and are typically
smaller in size with fewer resources, so additional guidance would help
insured credit unions to discharge their responsibilities under section
205(d). Therefore, in finalizing and implementing this rule, the NCUA
will prepare guidance that provides insured credit unions additional
information about section 205(d). The guidance will include portions of
IRPS 19-1 that were not incorporated into the proposed rule.
For example, IRPS 19-1 provides 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 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 proposed rule.
IRPS 19-1 also states 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 in a
position to influence or control the management or affairs of the
insured credit union. The proposed rule would not include a similar
delineation between how the NCUA intends to approve consent
applications for different types of positions. 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 will address this
issue in future guidance.
Waiting Time for a Subsequent Consent Application if a Consent
Application Is Denied
The FDIC's current part 303 states that an applicant will need to
wait one year from the date of the denial or decision of the FDIC
Board, or its designee, before resubmitting a consent application. The
Board is not proposing to include similar language for several reasons.
First, the NCUA does not receive a significant volume of section 205(d)
consent applications and does not believe allowing credit unions or
individuals to resubmit consent applications at any time would present
a burden on the agency and its resources. Second, the NCUA would not
want to unfairly delay an individual from seeking employment if the
consent application was denied for a reason that could be immediately
addressed by the applicant. For example, if the consent application was
denied due to insufficient support showing rehabilitation, the
individual could immediately refile with additional evidence, such as
employment history, letters of recommendation, documentation of
participation in substance-abuse programs or job preparation and
educational programs, or other relevant evidence.
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 proposed rule
would replace 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 would also
automatically incorporate future statutory changes to section 205(d).
The Board may make other similar conforming amendments in finalizing
this proposed rule if it identifies other provisions that should be
clarified simply to reflect the changes that the FHBA made to the
statutory prohibitions.
Additionally, as required by the Gramm-Leach-Bliley Act, appendix B
to part 748 (Appendix B) contains
[[Page 76709]]
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.\31\ 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
proposed rule would require a background check in Sec. 752.1(b), which
is consistent with current expectations, as discussed in the
introductory portion of this preamble.\32\ Therefore, the proposed rule
would amend this footnote to state that insured credit unions must also
conduct background checks of employees.
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\31\ 12 CFR 748, App. B.
\32\ 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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Proposed 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).\33\ The Board implements section 212
through Sec. 701.14 of its rules.\34\ 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.\35\ The proposed rule would make minor amendments to Sec.
701.14 and would 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.
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\33\ 12 U.S.C. 1790a.
\34\ 12 CFR 701.14.
\35\ 77 FR 45285 (July 31, 2012).
---------------------------------------------------------------------------
First, the proposed rule would clarify when notice is required.
Currently, Sec. 701.14 specifies that notice is required whenever
there is ``any addition or replacement of a member of the board of
directors or committee member or the employment or change in
responsibilities of an individual to a position of senior executive
officer.'' NCUA staff has received questions on whether notice is
required when a member of the board or a committee moves to another
position, such as when an existing board member switches to the board
chair position. For clarity, the proposed rule would specify 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. The Board solicits
comment on whether this proposed change provides clarity or increases
burden on credit unions.
Second, the proposed rule would increase the amount of time the
NCUA has to initially review a notice. Currently, in Sec.
701.14(c)(3)(iii), the NCUA has 10 calendar days after receiving the
notice to inform the credit union that the notice is complete or that
additional information is needed. The 10-day notification requirement
is not specified in the statute, and NCUA staff has found the 10-day
timeframe difficult to meet, as additional information to analyze the
request may be required. The Board does not believe that the additional
5 calendar days would unduly delay the start or change in position of
board members, committee members, or senior executive officers.
However, the Board solicits comments on whether insured credit unions
believe this change would pose any significant operational burden, in
addition to the general solicitation for comments included in this
proposed rule.
The proposed rule would also specify that Regional Director and
ONES Director communications under Sec. 701.14 may be done through
email. This is not a substantive change but rather a clarification of
existing practices and common use of electronic communications in time-
sensitive matters.
Finally, the proposed rule would explicitly state that the notice
of disapproval will identify the reason(s) for the denial. On occasion,
when appealing such a denial, the NCUA has received complaints that
applicants were not provided sufficient information in the notice of
disapproval about the reason for the decision. Appellants have
expressed frustrations that they could not adequately support their
appeal without sufficient information on the rationale for the NCUA's
decision. The Board believes any notice of disapproval should
explicitly state the reason(s) for denial and has included clarifying
language in the proposed rule.
Other Relevant Authorities on Prohibitions
Under section 206(i) of the FCU Act (section 206(i)), the Board is
authorized to suspend or prohibit an IAP from further participation in
the conduct of the affairs of any credit union if: (1) an IAP is
charged in any information, indictment, or complaint with a crime
involving dishonesty or breach of trust which is punishable by
imprisonment for a term exceeding 1 year under state or federal law or
certain specific violations of federal criminal law relating to anti-
money laundering provisions; and (2) continued service or participation
by the IAP may pose a threat to the interests of the credit union's
members or may threaten to impair public confidence in the credit
union.\36\ Despite the similar language between section 206(i) and
section 205(d), the FHBA did not make similar amendments to section
206(i) as were made to section 205(d). Section 206(i) is narrower in
scope than section 205(d), as it applies to current IAPs and requires
an additional showing by the agency to suspend or prohibit an IAP.
Because the FHBA did not amend section 206(i), the Board retains
statutory authority to suspend or prohibit an IAP for all crimes
involving dishonesty or breach of trust, provided that the IAP's
continued service or participation may pose a threat to the interests
of the credit union's members or may threaten to impair public
confidence in the credit union.
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\36\ 12 U.S.C. 1786(i)(1)(A).
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The Board also notes that the Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (commonly known as the S.A.F.E. Act)
mandates a nationwide licensing and registration system for residential
mortgage loan originators.\37\ The S.A.F.E. Act includes certain
requirements related to minimum standards for state-licensed loan
originators--including those working at credit union service
organizations--and related to felonies involving dishonesty and breach
of trust.\38\ Additionally, regulations implementing the S.A.F.E. Act
impose an obligation on depository institutions to adopt certain
policies, including a requirement that the depository institution
review employee criminal background reports, including the criminal
background standards for employees in section 206(i) of the FCU Act, 12
U.S.C. 1786(i). The Board notes
[[Page 76710]]
these requirements are not included in the FHBA and remain applicable
to credit unions and credit union service organizations.
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\37\ 12 U.S.C. 5101 et seq.
\38\ 12 U.S.C. 5104.
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Similarly, under the Anti-Money Laundering Act of 2020, individuals
who are found to have committed an ``egregious violation'' of the Bank
Secrecy Act or its rules are barred from serving on a U.S. financial
institution's board of directors for 10 years from the date of
conviction or judgment.\39\ The FHBA does not affect this separate
statutory prohibition, and it remains applicable to credit unions.
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\39\ Public Law 116-283, codified at 31 U.S.C. 5321(g).
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III. Request for Comments
The Board seeks comments on all aspects of this proposed rule and
its approach to section 205(d) and more specifically on the questions
that follow.
1. Scope. Should the final rule include additional information on
who may fall within the scope of section 205(d), including persons who
participate in the conduct of the affairs of an insured credit union?
2. Offense date. Section 205(d)(4)(A)(i) provides for an exception
for an offense if ``it has been 7 years or more since the offense
occurred.'' \40\ There is a similar provision that removes from the
definition of ``criminal offense involving dishonesty'' ``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[.]'' \41\ Historically, the NCUA's position has been that
actions do not amount to a covered ``offense,'' for section 205(d)
purposes, until there has been either a conviction via a guilty plea,
finding of guilt, or an entry into a pretrial-diversion program. This
is because culpability and responsibility for the actions do not attach
until one of those events occurs.\42\ However, for purposes of
evaluating whether the 7-year or 1-year exception applies, the Board
must evaluate if it has been 7 years or more since the ``offense
occurred'' or if an ``offense [was] committed more than one year before
the date on which an individual files a consent application, excluding
any period of incarceration.'' The Board proposes to interpret the
phrases ``offense occurred'' and ``offenses committed'' as the ``last
date of the underlying misconduct'' given the text of the statute. In
instances with multiple offenses, ``offense occurred'' or ``offense
committed'' would mean the last date of any of the underlying offenses.
However, the Board acknowledges that there may be other, supportable
interpretations of this phrase. For example, the Board is aware of
legislative history indicating that the timeframes established by the
FHBA were chosen because of their relation to an individual's
likelihood of rehabilitation and that an individual's rehabilitation
likely begins only with conviction or program entry, rather than the
date of their misconduct. As such, the Board seeks public comment on
the following topic: Is the Board's interpretation of the phrases
``offense occurred'' and ``offense committed'' as the ``last date of
underlying misconduct'' appropriate, or are there other interpretations
the Board should consider? What support do commenters have for other
interpretations given the language of the statute?
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\40\ 12 U.S.C. 1785(d)(4)(A).
\41\ 12 U.S.C. 1785(d)(6)(B)(iii).
\42\ See 84 FR 65907, 65917 (Dec. 2, 2019) (``There must be a
conviction of record. Section 205(d) does not apply to arrests,
pending cases not brought to trial, acquittals, or any conviction
which has been reversed on appeal.'')
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3. ``Sentencing occurred.'' The FHBA exempts offenses committed by
individuals 21 years of age or younger if it has been more than 30
months since the sentencing occurred.\43\ However, the statute does not
define the phrase ``sentencing occurred.'' The Board proposes to
interpret ``sentencing occurred'' to mean the date on which a court
imposed the sentence, not the date on which all conditions of
sentencing were completed. The Board seeks public comment on the
following topic: Is the Board's proposed interpretation of the phrase
``sentencing occurred'' appropriate?
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\43\ 12 U.S.C. 1785(d)(4)(A)(ii).
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4. Foreign convictions. Section 205(d) applies to any person who
has been convicted of any criminal offense involving dishonesty or a
breach of trust, or has agreed to enter into a pretrial diversion or
similar program in connection with a prosecution for such offense.\44\
The phrase ``criminal offense involving dishonesty'' is defined in the
statute but is silent as to whether it includes convictions and
pretrial diversions for criminal offenses prosecuted by foreign
authorities (foreign convictions).\45\ The statute does not define
``offense involving . . . breach of trust.'' The FDIC's position has
been that foreign convictions and pretrial diversions are included
within the scope of section 19. The Board believes it is reasonable to
follow and adopt the FDIC's long-held position given the statutory
mandate for consistency and the FDIC's greater experience with section
19 consent applications. In addition, there are strong public policy
rationales for prohibiting a person who has been convicted of certain
foreign criminal offenses (or entered into a pretrial diversion program
in connection with such an offense) from becoming or continuing as an
IAP or participating in the affairs of an insured credit union.
However, the Board acknowledges that there may be case law, statutory
construction, and other arguments that support a reading of section
205(d) that would exclude foreign convictions and pretrial diversions
from the scope of section 205(d). Therefore, the Board seeks public
comment on the following topic: Does section 205(d) encompass foreign
convictions and pretrial diversions? What support do commenters have
for their position?
---------------------------------------------------------------------------
\44\ 12 U.S.C. 1785(d)(1).
\45\ See 12 U.S.C. 1785(d)(6).
---------------------------------------------------------------------------
5. Expungements, sealings, and dismissals. The FHBA establishes a
new statutory exemption for expunged, sealed, and dismissed convictions
(collectively, ``expungements'').\46\ The statutory language does not
mention expungements ``by operation of law''--as opposed to through a
court order. The proposed rule incorporates the new statutory language
but also includes a broad interpretation of ``expungement'' to
encompass covered offenses that have been expunged by operation of law.
The Board seeks public comment on the following topic: Given the new
statutory exemption for expunged offenses, is the Board's more
expansive proposed interpretation of expungement--which term includes
records that have been expunged by application of law--appropriate?
---------------------------------------------------------------------------
\46\ 12 U.S.C. 1785(d)(4)(B).
---------------------------------------------------------------------------
6. Offenses involving controlled substances. The FHBA states that
an ``offense involving the possession of controlled substances'' is not
included within the definition of ``criminal offense involving
dishonesty'' and, therefore, are not subject to the section 205(d)
prohibition.\47\ The proposed rule includes this definitional exclusion
and notes that the Board interprets the phrase ``offenses involving the
possession of controlled substances'' to include, at a minimum, the
offenses of simple possession of controlled substances and possession
with intent to distribute controlled substances. This interpretation
would mark an expansion from IRPS 19-1. At the same time, this
interpretation would track the statutory language of ``offenses
involving the possession of controlled substances'' by encompassing the
offense of possession
[[Page 76711]]
with intent to distribute controlled substances. The Board seeks public
comment on the following topic: Is the Board's interpretation of
``offense[s] involving the possession of controlled substances'' as
applying, at a minimum, to simple possession and possession with intent
to distribute appropriate?
---------------------------------------------------------------------------
\47\ 12 U.S.C. 1785(d)(6)(B)(iii)(II).
---------------------------------------------------------------------------
7. De minimis offenses. The FHBA states that the NCUA may exempt by
rule certain de minimis offenses from the section 205(d) prohibition.
The NCUA considers de minimis offenses to be covered offenses for which
a consent application is not required because the NCUA deems the
application automatically granted. The NCUA has previously promulgated
IRPS 19-1, which specified de minimis offenses under section 205(d).
However, given this new statutory language, the Board is reevaluating
its current approach to de minimis offenses. Accordingly, the Board
seeks public comment on the following topic: Is the Board's current
approach to de minimis offenses appropriate? Are there additional
offenses that the Board should consider de minimis under section 19?
Commenters should provide support for such a designation.
8. Conforming changes. The Board also requests comments on other
conforming changes or updates that it should make to its regulations or
guidance to implement the new statutory provisions. As noted, in the
final rule, the Board may adopt additional conforming amendments to its
regulations if it finds that other provisions should be changed solely
to indicate the new, more limited scope of the section 205(d)
prohibitions. The Board would not anticipate making substantive changes
to these provisions that would create new standards beyond those in the
statutory amendments.
IV. 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.\48\ 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.
---------------------------------------------------------------------------
\48\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
The proposed rule would extend greater relief than what is
currently 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 proposed 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 would remain at one. The proposed rule
continues to require credit unions to document when an application is
not required. This recordkeeping requirement is minimal and only
impacts those credit unions or individuals who would otherwise have
submitted an application for consent.
These program changes would revise the information collection
requirement currently approved OMB control number 3133-0203, as
follows:
Title of Information Collection: IRPS 19-1, Guidance Regarding
Prohibitions Imposed by Section 205(d) of the Federal Credit Union Act.
Estimated Number of Respondents: 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.
The NCUA invites comments on: (a) whether the collections of
information are necessary for the proper performance of the agencies'
functions, including whether the information has practical utility; (b)
the accuracy of the estimates of the burden of the information
collections, including the validity of the methodology and assumptions
used; (c) ways to enhance the quality, utility, and clarity of the
information to be collected; (d) ways to minimize the burden of the
information collections on respondents, including through the use of
automated collection techniques or other forms of information
technology; and (e) estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
All comments are a matter of public record. Comments regarding the
information collection requirements should be sent to (1) Jennifer
Harrison, NCUA PRA Clearance Officer, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314, or email
at <a href="/cdn-cgi/l/email-protection#6f3f3d2e0c0002020a011b1c2f010c1a0e41080019"><span class="__cf_email__" data-cfemail="34646675575b5959515a4047745a5741551a535b42">[email protected]</span></a> and the (2) Office of Information and
Regulatory Affairs, Office of Management and Budget, Attention: Desk
Officer for NCUA, New Executive Office Building, Room 10235,
Washington, DC 20503, or email at <a href="/cdn-cgi/l/email-protection#0f40465d4e505c7a6d62667c7c6660614f40424d214a405f21686079"><span class="__cf_email__" data-cfemail="430c0a11021c1036212e2a30302a2c2d030c0e016d060c136d242c35">[email protected]</span></a>.
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 impact 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.\49\ 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.
---------------------------------------------------------------------------
\49\ NCUA IRPS 15-1, 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------
The Board does not believe the proposed rule would have a
significant economic impact on a substantial number of small entities.
In the period from 2019 through 2023, the NCUA received 4 consent
applications. This averages to one application a year. Therefore, on
average, only about one small entity--at most--would be affected by the
proposed rule annually.
As discussed in the SUPPLEMENTARY INFORMATION section, the proposed
rule would 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 proposed changes were
precipitated by the FHBA--which was effective immediately upon
passage--and the proposed rule aligns the NCUA's regulations with these
elements of the FHBA; therefore, most of the associated changes in the
proposed 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 proposed rule
annually, any direct effects realized because of the proposed rule are
likely to be small and
[[Page 76712]]
affect a relatively small number of entities.
In light of the foregoing, the NCUA certifies that the proposed
rule would not have a significant economic impact on a substantial
number of small entities. The NCUA invites comments on all aspects of
the supporting information provided in this section. In particular,
would this proposed rule have any significant effects on small entities
that the NCUA has not identified?
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 proposed rule would apply to all insured credit unions,
including federally insured, state-chartered credit unions. The Board
has determined that the proposed amendments would not have a
substantial direct effect on the states, on the connection between the
national government and the states, or on the distribution of power and
responsibilities among the various levels of government. Further, the
proposed rule would implement 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 proposed 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 proposed regulatory action (1) impacts the stability or
safety of the family, particularly in terms of marital commitment; (2)
impacts 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 proposed regulation may negatively affect
family well-being, then the agency must provide an adequate rationale
for its implementation.
The proposed rule would implement 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 proposed rule may affect family well-being positively within the
meaning of this statute.\50\ As with all aspects of the proposed rule,
commenters are invited to offer their opinion on this issue.
---------------------------------------------------------------------------
\50\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------
Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023 (5
U.S.C. 553(b)(4)) (Act) requires that a notice of proposed rulemaking
include the internet address of a summary of not more than 100 words in
length of a proposed rule, in plain language, that shall be posted on
the internet website under section 206(d) of the E-Government Act of
2002 (44 U.S.C. 3501 note) (commonly known as <a href="http://regulations.gov">regulations.gov</a>). The
Act, under its terms, applies to notices of proposed rulemaking and
does not expressly include other types of documents that the Board
publishes voluntarily for public comment, such as notices and interim-
final rules that request comment despite invoking ``good cause'' to
forgo such notice and public procedure. The Board, however, has elected
to address the Act's requirement in these types of documents in the
interests of administrative consistency and transparency.
In summary, the proposal would incorporate the ``Second Chance''
Interpretive Ruling and Policy Statement 19-1 and the Fair Hiring in
Banking Act into the NCUA's regulations. Section 205(d) of the Federal
Credit Union Act prohibits, except with the Board's prior written
consent, any person who has been convicted of certain criminal offenses
involving dishonesty or breach of trust, or who has entered into a
pretrial diversion or similar program in connection with a prosecution
for such an offense, from participating in the conduct of the affairs
of an insured credit union.
The proposal and the required summary can be found at <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
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 October 19, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the Board proposes to
amend 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:
[[Page 76713]]
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. In 701.14, revise paragraphs (c)(1), (c)(3)(iii), and the second
sentence in paragraph (e) 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 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. In the Official Commentary to Appendix A to part 701, under
``Article V. Elections,'' revise 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. Eligibility Requirements: * * *
(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. In Sec. 741.3, revise the second sentence of paragraph (c) as
follows:
Sec. 741.3 Criteria.
(c) Fitness of management. * * * 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. In Sec. 746.201, in paragraph (c), add ``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. Revise footnote 7 in appendix B to part 748 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 What offenses are covered 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 consent applications that can be filed?
752.7 When must a consent application be filed?
752.8 De minimis offenses.
752.9 How to file a consent application.
752.10 How a consent application is evaluated.
752.11 What will the NCUA do if the consent 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 subpart covers consent 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. In
order for the Board to grant consent during the ten-year period, the
Board must file a
[[Page 76714]]
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 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 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).
(c) If there is a conviction or program entry covered by the
prohibitions of section 205(d), a consent 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 consent
application must be filed, and consented to, prior to serving in any of
the foregoing capacities unless such consent application is not
required under the subsequent provisions of this subpart. The purpose
of a consent application is to provide the applicant an opportunity to
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 consent application warrants approval.
Sec. 752.2 Who is covered by section 205(d)?
(a)(1) 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).
(2) Whether other persons who are not IAPs are covered depends upon
their degree of influence or control over the management or affairs of
an insured credit union. Those who exercise major policymaking
functions of an insured credit union are deemed participants in the
affairs of that institution and covered by section 205(d). Similarly,
directors and officers of subsidiaries or joint ventures of an insured
credit union will be covered if they participate in the affairs of the
insured credit union or are in a position 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 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) General definitions. 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 involve dishonesty or breach of trust as noted in
paragraph (b) of this section. Potential applicants may contact their
appropriate NCUA Regional Office or the Office of National Examinations
and Supervision, if applicable, 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) 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) Dishonesty or breach of trust. 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) General. 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 NCUA interprets the term ``offense occurred'' to mean 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) shall not apply to the offense if it has
been more than 30 months since the sentencing occurred. The NCUA
interprets ``sentencing occurred'' to mean the date on which a court
imposed the sentence, not the date on which all conditions of
sentencing were completed.
(3) Limitation. This paragraph (c) shall not apply to an offense
described under 12 U.S.C. 1785(d)(2).
(d) Designated lesser offenses excluded. Section 205(d) does not
apply to the following offenses, if 1 or more years has passed since
the applicable conviction or program entry: using fake identification;
shoplifting; trespassing; fare evasion; and driving with an expired
license or tag.
(e) Foreign convictions. The NCUA considers individuals who are
convicted of or enter into a pretrial diversion program for a criminal
offense involving
[[Page 76715]]
dishonesty or breach of trust in foreign jurisdictions to be 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 a consent 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 a consent application. A conviction for
which a pardon has been granted will require a consent application.
(b) Convictions not requiring a consent 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 shall not be
considered a conviction of record and shall not require a consent
application if--
(1) there is an order of expungement, sealing, or dismissal that
has been issued in regard to 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.
(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'' by any court having jurisdiction over minors as
defined by state law, does not require a consent 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 covered
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 of this subpart.
(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 consent applications that can be
filed?
(a) The NCUA will accept consent 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 consent
applications at separate times. Under either approach, the consent
application(s) must be filed with the appropriate NCUA Regional Office,
or the Office of National Examinations and Supervision, as required by
this subpart.
Sec. 752.7 When may a consent application be filed?
(a) Except for situations in which no consent application is
required under section 205(d) and this subpart, a consent 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 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,
condition of rehabilitation, and probation requirements, must be
completed, and the case must be considered final by the procedures of
the applicable jurisdiction.
(b) The NCUA's consent application forms as well as additional
information concerning section 205(d) can be accessed at the NCUA's
Regional Offices or the Office of National Examinations and
Supervision, if applicable, or on the NCUA's website.
Sec. 752.8 De minimis offenses
(a) In general. Approval is automatically granted, and a consent
application will not be required where all of the following de minimis
criteria are met.
(1) The individual has been convicted of, or has program entries
for, no more than 2 covered offenses, including those subject to
paragraph (b) 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.
(i) 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 either of the following:
(ii) Persons who are restricted to a substance-abuse treatment
program facility for part or all of the day; and
(iii) Persons who are ordered to attend outpatient psychiatric
treatment.
(3) If there are 2 convictions or program entries for a covered
offense, each conviction or program entry was entered at least 3 years
prior to the date a consent application would otherwise be required,
except as provided in paragraph (b)(1) of this section; and
(4) Each covered offense was not committed against an insured
depository institution or insured credit union.
(b) Other types of offenses for which the de minimis exception
applies and no consent application is required--(1)
[[Page 76716]]
Age of person at time of covered offense. If there are 2 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)(3) of this section shall be met if the convictions or
program entries were entered at least 18 months prior to the date a
consent application would otherwise be required.
(2) Convictions or program entries for insufficient funds checks.
Convictions or program entries of record based on the writing of
``bad'' or insufficient funds check(s) shall be considered de minimis
offenses under this provision 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 1 other de minimis offense
under this section.
(3) Convictions or program entries for small-dollar, simple theft.
Convictions or program entries based on the simple theft of goods,
services, or currency (or other monetary instrument) shall be
considered de minimis offenses under this provision 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 insured depository
institution or insured credit union;
(iii) The individual has no more than 1 other de minimis offense
under this section; and
(iv) If there are 2 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.
(v) Simple theft excludes burglary, forgery, robbery, identity
theft, and fraud.
(c) Fidelity bond coverage and disclosure to institutions. 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.
(d) 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 exceptions
set out in this section.
Sec. 752.9 How to file a consent application.
Forms and instructions should be obtained from the NCUA's website
(<a href="http://www.ncua.gov">www.ncua.gov</a>), and the consent application(s) must be filed with the
appropriate NCUA Regional Director. A consent application may be filed
by an individual and by an insured credit union on behalf of an
individual. The appropriate Regional 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 Regional Office
for an individual consent application is the office covering the state
where the person resides. States covered by each NCUA Regional Office
are listed in section 790.2 of this chapter.
Sec. 752.10 How a consent application is evaluated.
(a) Criminal history records. In reviewing a consent application,
the NCUA will--
(1) primarily rely on the criminal history record of the Federal
Bureau of Investigation; and
(2) provide such record to the applicant 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 of the Federal Bureau of Investigation.
(c) Factors for determination. The ultimate determinations in
assessing a consent 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 consent
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 applicant's age at the
time of the conviction or program entry, the time that has elapsed
since the conviction or program entry, 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 participating 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 consent application.
(e) Underlying merits not at issue. 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.
(f) Application of factors to 10-year ban exception. 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 a consent 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) Fidelity bond requirements not affected. All approvals and
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 a consent application filed by an individual and has
issued a consent order, the individual must disclose the presence of
the conviction(s) or program
[[Page 76717]]
entry(ies) to all insured credit unions in the affairs of which they
wish to participate.
(h) Sponsored consent applications. When deemed appropriate by the
NCUA, credit union-sponsored consent 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 consent 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) Subsequent consent applications. 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 consent
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 consent application is
denied?
(a) The NCUA will inform the applicant in writing that the consent
application has been denied and summarize or cite the relevant
considerations specified in Sec. 752.10 of this subpart.
(b) The denial will also notify the applicant of the right to
request reconsideration from the Regional Office or the Office of
National Examinations and Supervision, or to file an appeal with the
Board, and shall include a description of applicable filing deadlines
and time frames for agency responses. The Regional Office or the Office
of National Examinations and Supervision and the Board will apply the
review process contained in 12 CFR part 746, subpart B, to any 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. 2023-23509 Filed 11-6-23; 8:45 am]
BILLING CODE 7535-01-P
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</html>Indexed from Federal Register on November 7, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.