The following is the entire public NCUA Board Statement on the new Fair Hiring in Banking Regulation.
Todd Harper: The last item of business today is final rule parts of 701 741 746 748 and 752 fair hiring and banking Pamela you Special counsel officer general counsel will present the item and John Barry Policy officer or office of examination and insurance will be available for any questions the board may have Good morning to both of you I see that you are on point with here and skate blue today Pamela and I got to say I had no idea you could actually find a matching tie and sock Combination John well done Good morning, and please begin whenever you're ready
Pamala Yu: Thank you. Good morning, Chairman Harper, Vice Chairman Hoffman. John and I are here today to present a final rule to improve employment opportunities for individuals subject to Section 205-D of the Federal Credit Union Act. As you know, Section 205-D generally prohibits any person convicted of certain crimes involving dishonesty or reach of trust from working or volunteering at a credit union without the prior written consent of the NCAA. The employment prohibitions have existed in some forms since 1970, and the agency's current policies on Section 205-D are found in a 2019 interpretive ruling and policy statement that we refer to as ERPs 19-1.
In December of 2022, the Fair Hiring and Banking Act was signed into law and amended Section 205-D to expand career opportunities for those with prior minor or older criminal offenses. The Fair Hiring Act also made parallel amendments to Section 19 of the Federal Deposit Insurance Act. The legislation specifically required the FDIC and the NCAA to consult and coordinate to promote consistent implementation of the law. Under that mandate, the NCAA developed this rulemaking in coordination with the FDIC. We also consulted with the Federal Reserve and the OCC to identify common interpretations and areas for cooperation. The FDIC issued its final rule amending its regulations regarding Section 19 on July 30th of this year, and our final rule today is consistent with the FDIC's rule.
The most significant changes that the Fair Hiring Act made to Section 205-D include excluding certain older offenses from the scope of the prohibition, such as those older than seven years. It also excluded certain expunged, sealed, and dismissed offenses, excluded certain de minimis offenses, including specific specified designated lesser offenses. It also designated certain criminal offenses like most drug possession and older misdemeanors as not involving dishonesty, and therefore outside of the scope of the prohibition. It also specified standards and procedures for the NCAA's review of applications for board consent.
In October of last year, the board approved a proposed rule to codify Section 205-D and incorporate both the IRBs and the Fair Hiring provisions into the NCAA's regulations in a new part, appearing as part 752 in the Code of Federal Regulations. The proposal also made various conforming amendments as well as minor changes to Section 701.14. That's our regulation addressing changes in an official or officer and credit unions that are either newly chartered or in troubled condition. Those changes were proposed to clarify when a notice is required, how the NCAA would process the notice, and what information must be included in any notice of disapproval. The board issued the proposed rule for a 60-day comment period, which closed on January 8th, 2024.
We received 10 public comments on the proposal. We received comments from individual members of the public, Fidelity Bond provider, an association advocating for the rights of the accused and the incarcerated, and national, state, and regional organizations representing credit unions. All of the commenters were generally supportive of the proposal and most expressed broad support for providing second chances and increasing job prospects for those with criminal offense backgrounds. Several commenters did suggest changes to particular provisions or asked for clarifications on certain aspects of the proposal, and a number of those very helpful comments resulted in modifications and improvements to the final rule.
Substantively, however, the final rule is largely consistent with the proposed rule and the FDIC's parallel rule, as well as the statutory provisions in the Fair Hiring Act. Along with this final rule, we're also amending the board's delegations of authority to authorize the regional directors and director of the Office of National Examinations and Supervision to approve or disapprove individual and credit union sponsored consent applications. Formerly, those field office directors only had delegated authority to act on credit union sponsored applications. Under the revised delegation, field office directors will have authority to act on both types of consent applications, which will streamline the application process and improve efficiency for the agency.
The revisions to the delegations also require the prior concurrence of the general counsel for any disapproval of a consent application by a field office director. As required by the Fair Hiring Act, the general counsel's concurrence must certify that the denial is consistent with Section 205D. Finally, in any case where a consent application is denied, the denied applicant may request reconsideration from the field office or appeal the adverse decision to the board. The board will act on any appeals in accordance with our appeals process that we have contained in Part 746 of our regulations. Once finalized, Part 752 will supersede IRPS 19-1 and the current IRPS will be rescinded. The final rule will become effective 30 days following its publication in the Federal Register. Thank you and John and I would be happy to answer any questions.
Todd Harper: Thank you so much, Pamela, for your presentation on this final rule to implement the statutory requirements of the Fair Hiring and Banking Act. The Federal Deposit Insurance Corporation, as you noted, recently completed its work on a similar rulemaking, and it's good to time our actions to be in tandem with our sister agency. And John, thank you for being available to answer any questions. I appreciate all the work by the teams in the Office of Examination Insurance and the NCWAA Board. Providing career opportunities for those who want nothing more than a second chance to be responsible, to earn an honest wage, and to pursue a rewarding career in the credit union system is a tale of redemption and inspiration. It's also a matter of equity, and it proves people have the capacity to make amends and change the direction of their lives for the better. The final rule before the Board today aims to do all that, and I will support it.
This rulemaking aligns with the Fair Hiring and Banking Act and defines what criminal offenses are covered by the regulation, such as criminal offenses involving possession of controlled substances and other minor offenses. It adds a new Part 752 to the NCWAA's regulations and codifies the agency's policies and procedures for consent applications related to prohibition orders. Further, this final rule modifies the NCWAA's rules governing the conditions under which newly chartered or troubled federally insured credit unions must notify the NCWAA of proposed changes to their Board of Directors, committee members, or senior executive teams.
We are also updating the processes to streamline the implementation of this rule. Under this final rule, the heads of the NCWAA's regions and the Office of National Examinations and Supervision will have the authority to approve or disapprove both individual and credit union-sponsored applications meeting certain criteria, and the NCWAA Board itself will maintain and have the power to approve or disapprove individual applications for consent involving more severe criminal offenses and other high-level security cases it designates. The final rule also ensures the due process by laying out an appeals process for consent decisions. Providing the second chance now that only goes hand in glove with the credit union purpose of advancing economic opportunity for all.
We each make mistakes at one time or another, and most of the individuals who will benefit from this rulemaking are those who have committed minor offenses, paid their debt to society, and are now seeking to improve their lives by finding gainful employment in an industry that has people helping people at the heart of its mission. Before concluding, I do have two questions that I'll pose as one. In this rule, we know that after finalizing it, the NCWAA will issue guidance to credit unions. What will that guidance cover, and what is the timing for when we will issue it?
Pamala Yu: Sure. Thank you, Chairman. I'll take the question. So, yes, as you mentioned, the final rule does note that there are a few areas where ERBs 19-1 provided additional context and discussion on our policies and procedures related to Section 205-D as opposed to FDIC's regulation. So, in general, the additional information we had in the ERBs did not provide any substantively different information from the FDIC's rule, but instead provided just clarifying information and explanatory information. In the final rule, we have omitted much of that information just to ensure our consistency with the FDIC's parallel rule. But we do think some of that additional guidance may help credit unions in complying with their responsibilities under this statutory prohibition.
So, as such, we're preparing guidance that will essentially preserve that information that was in the ERBs and did not transfer over to the new regulation. So, for example, the ERBs provided that when a credit union learns that a potential employee has a prior conviction, but they've determined that the offense was de minimis, the credit union should document in its files that a consent application is not required because the covered offense is considered de minimis and that it meets all the criteria for the exception. So, the ERBs also discussed extending conditional offers of employment that are contingent upon a satisfactory background check and other types of examples and clarifying information and details. We don't intend to change a position in any of those policies, even though they're not included in the final rule. So, the guidance that we'll be issuing will be available as sort of a supplement to the regulation. We hope to finalize that guidance soon, and then we will plan to have it available to the public on our website.
Todd Harper: And so soon can mean different things to different people. Soon do we mean within the next quarter or the next month.
Pamala Yu: I would expect soon in the next quarter, at least, yes, it's well on its way.
Todd Harper: I know that we've had from time to time applications that have come to the board here on this very topic and the sooner we act, the sooner individuals can get the relief and gain employment in the credit union industry if they are interested. Thank you for those insights. In closing, this rule goes a long way in advancing financial inclusion and equity within the credit union system, and I wholeheartedly support it. I also do want to recognize the work of our former colleague board member and former chairman hood, who certainly put this issue front and center when he was chairman. That concludes my comments. I now recognize vice chairman Hoffman.
Kyle Hauptman: Also I'd like to commend Rodney Hood for that. I know hopefully after work on someday people will complement things we did. Rodney if you're out there well Rodney's probably at an airport waiting right now waiting for his flight to the park but nice work there. Thank you to you too. Good seeing you. I guess you have matching socks. That level of commitment to fashion. We were talking about simplification. Both of these things are and I very much am so into it. Years ago I took all of my dress socks, threw them out, all of them, replaced by like 40 pairs of the same black gold toe. I no longer have pairs of socks. Laundry is easier. I grab any too. You can get a hold. The dog grabs one of them. Doesn't matter. They're all the same. Grab any too. It's one part of my life that is simplified. That is how I respect you guys who put that kind of attention on it. I appreciate the work you did coordinating.
I know this is with other agencies, FDIC, OCC, and the Fed. This is the kind of regulatory consistency that benefits credit unions and the general public. So this comment period opened last November, closed on January 8 of this year. We got 10 comments. Thank you for putting those in. They are read. They are considered. All 10 expressed their report for what we're doing, their support for what we're doing today. One commenter suggested clarifying language around the requirement for fidelity bond coverage. The commenter felt the language was not clear, that eligibility for credit union service did not make the candidate automatically eligible for fidelity bond coverage. The board agreed, and that language was clarified around that issue.
There are a couple more reasons I'm pleased to see this rule move forward. First of all, it is in sync with the culture of the credit union movement. Now, NCA is not part of the credit union movement, but it is easier to implement rules that align with an industry's culture. Credit unions were one of the original answers to the challenges of financial inclusion. We have to consider any decision to exclude individuals and groups from employment or service on the board of directors. Another reason I like this is it gives more people the opportunity to work in a industry where inclusion is at the core of it. This is good for individuals and credit unions. With today's labor market, few employers are immune to the challenges of finding good people.
There's a massive array of potential workers out there who have paid their debt to society or whose offenses are relatively minor. This final rule cuts out lesser offenses and expands the exemptions. It gives greater flexibility for a credit union to hire an individual with certain covered records or allow them to serve on their board. The rule also delivers reg relief by reducing the instances where a credit union has to apply to us at NCA to hire someone. At the same time, it reduces the resources required to investigate those applications that still need to come when they still have to come to NCA for approval. It is still incumbent upon credit union management. They are responsible for who they hire and no one else is. But we put significant effort went in by your team to the public facing side of this rule. Once approved, our website will be updated with forms instructions related to the consent applications. This is intended to make it easier to find potential candidates to see if they qualify for employment under our updated rules and relieves the credit union again from having to apply to us in a number of cases. I just have one question. Just run down on where we are with all this simplicity. How does somebody out there who now has a new set of rules and procedures for who they can hire and not hire? Where are we on that?
John Barry: Good morning. Thank you for the question. Appreciate the wardrobe compliments. I don't even know if they match, by the way. Over the last few months, we worked across the NCOA to ensure that the rollout of the final rule, if approved by the board, is effective, efficient, and transparent. In addition to the Office of Examination Insurance and the Office of General Counsel, we've collaborated with the Office of the Chief Information Officer, the Office of Continuity and Security Management, the Office of External Affairs and Communications, the regions and ones. To prepare NCOA staff for the upcoming changes, under the new rule, we've developed a consent application review chapter for our National Supervision Policy Manual. This content establishes a standard process for receiving, processing, responding to applications, and assigns roles and responsibilities across offices and job functions within our agency. In addition to drafting detailed guidance on completing each step of the application review process, we've created a regional summary template to guide regions and ones through the consent application review and develop template letters to ensure consistent communication with each applicant. The guidance and templates will aid in making our reviews efficient and consistent as we briefed regional management on key changes to the consent application review process in this finalized rule. I will now turn it over to Pam to discuss the updates to the application form and the development of our Fair Hiring and Banking Act landing page on the website.
Pamala Yu: Sure. Thanks John. I can give more details on, you know, the website aspect. So the Fair Hiring Act does require the NCA to make all four instructions related to consent applications available to the public including on its website. So again, as John mentioned, in order to meet this mandate we've been working diligently with internal staff development teams to create a dedicated landing page regarding Section 205D and fair hiring to ensure that the public has easy access to a variety of helpful resources regarding the prohibition and the consent application process. The website will provide links to the final rule, additional guidance, sample cover letters for both types of consent applications, and information about the process for the FBI criminal history record. And then because these consent applications do contain private and sensitive information about individuals, we are also working to develop and make sure that there's privacy protections in place and the website will also provide links for more information for the individual on their privacy rights. We're also working on developing an online application form that will allow credit unions and individuals to submit their consent applications and supporting documents through a secure portal on the website. Again, because of those privacy considerations, we've been working with our technical teams to make sure that any sensitive information that is provided to us, you know, through the website is properly protected and that it's properly handled throughout the whole application process. So we do expect the Fair Hiring landing page to be available soon on nca.gov and we'll be working on getting that done as soon as possible.
Kyle Hauptman: Thank you, Pam. And just to review, we use the phrase consent application. Just review who is asking who for consent to what.
Pamala Yu: So the individual who has the covered offense can either submit an individual application on their own behalf or a credit union that has an employee or someone that they would like to hire or volunteer. They can sponsor an application and submit it on behalf of them. So it's consent from the NCAA board to allow the person with the covered offenses to work for the credit union.
Kyle Hauptman: And if you're an individual out there you are not on the payroll of any credit union. Let's say you wanted to work at Roswell Community Credit Union. I want to work there. Let's say I have a record Is this the sort of thing kind of like having work fees on another country where you go to them and say, hey, I'm already cleared to work for you in case you're worried about that. So this is something you do. Maybe when you want to apply or you're in the process of it.
Pamala Yu: Exactly. So just based on sort of the historical, you know, applications that we've received, they do usually come from people who either want to sort of improve their prospects by already having it in hand because they know they have this background and they know that it may come up so they would have it in advance. We've also received them applications from individuals who are simply interested in working at a credit union, a federally insured credit union. They would like to join the industry. And so again, if they know that they have this background, again, they want to be prepared for that and go ahead and get consent so that they can apply.
Kyle Hauptman: with a hiring manager it says ooh this thing came up I don't know if we're allowed to do that by NC UA now that may be a cover for them not wanting to hire you anyway that happens but you can at least say no no we've already got that stamp of approval on that I am hireable if you wish there is no regulations from NC UA that's going to stop this right
Pamala Yu: Yes, that's correct. No, it does.
Kyle Hauptman: remind me a lot of applying for jobs abroad where you'd say hey I know you're a small employer but I already have my papers I have a work visa you can hire me tomorrow and it dramatically changed whether or not they'd be willing to talk to you that will do it for my comments thank you Pamela and John back to you sir
Todd Harper: One thing I could just ask that you alluded to it, and I think it's important, Pamela, I know when we brought the proposed rule up, I asked about fidelity bond coverage. Do we expect any real changes to the cost for fidelity bond coverage with the implementation of this rule?
Pamala Yu: Yeah, thanks for asking that we did receive comments again this this time from Fidelity bond insurers and indicated that the rules should not have an impact on that Of course, it does take you know, some time to kind of see an impact of a rule Of course, but the comment was that they did not anticipate any changes The insurers did raise that issue with the the clarity of the of the wording in the regulation that the vice chairman raised There was some concern on their part that it could be misread to imply that there might be some mandate on the insurer to provide Fidelity bond coverage, you know simply by virtue of you know, somebody having done the consent application process When that is not the case, you know that it's a separate process the rule was intended to just Make clear that the Fidelity bond requirements that are already in place for all Employees under part 713 also apply here And so it was meant to be sort of a reminder of that and it could have been misread. So that has been Fixed in the final rule
Todd Harper: Great. Thank you. Before I turn to a motion, board member Otsuka wanted to express her support for and weigh in on the fair hiring and banking final rule. I'm going to quote her thoughts as follows. Quote, the Fair Hiring and Banking Act expanded job opportunities in banking and financial institutions to certain justice-involved individuals. This law and subsequent rule highlight the positive impact that we can have when we make government work better for everyday people. This rule is a step towards leveling the playing field for working Americans trying to find a job as a credit union teller or as an administrative assistant, the essential but less glamorous jobs that keep our financial system running. Unfortunately, many otherwise qualified people who were previously convicted of minor offenses like misdemeanors or petty crimes were forever barred from working in any job at a bank or a credit union. The Fair Hiring and Banking Act and our implementing regulations removed some of the barriers for justice-impacted individuals to gain access to decent jobs and help financial institutions fill hiring gaps. I am proud to support it. Thank you. With that, Vice Chairman Hauptman is there a motion?
Kyle Hauptman: Yes, sir. I move that the board approved Final Rule Part 701, 741, 746, 748 and 752 of N.C.A.'s rules and regulations rescind IRPS 19-1 and amend delegation of authority SUP 49 as attached to the board action memorandum.
Todd Harper: Second the motion all those in favor say aye aye aye all those opposed say nay The ayes have it and let the record show that the motion passes 2 to 0 With that I have no closing comments. I don't believe you have any closing comments I want to thank everybody for their very good work today, and that is the end of our agenda There being no further business. We are hereby adjourned
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