Orlando Harmon
Section 19 of the Federal Deposit Insurance Act (FDIA) prohibits individuals with certain criminal convictions from working in banking or insurance without prior written consent from the Federal Deposit Insurance Corporation (FDIC). The act covers individuals who have been convicted of crimes involving dishonesty, breach of trust, or money laundering, and applies to directors and officers of affiliates, subsidiaries, or joint ventures of an
| Characteristics | Values |
|---|---|
| Name | Section 19 of the Federal Deposit Insurance Act |
| Other names | Consent To Service of Persons Convicted of, or Who Have Program Entries for, Certain Criminal Offenses |
| Date established | September 21, 1950 |
| Effective date | October 13, 2006 |
| Applicability | Directors and officers of affiliates, subsidiaries, or joint ventures of an IDI |
| Applicability conditions | If they participate in the affairs of the IDI or are in a position to influence or control the management or affairs of the IDI |
| Definition of 'person' | An individual, not a corporation, firm, or other business entity |
| Convictions | Criminal offenses involving dishonesty, breach of trust, or money laundering |
| Convictions also include | Pretrial diversion or similar program in connection with a prosecution for such an offense |
| Convictions exclude | Misdemeanor criminal offenses committed more than a year before the date of filing a consent application |
| Convictions exclude | Offenses involving the possession of controlled substances |
| Convictions exclude | Youthful offender adjudications |
| Convictions that can never qualify as de minimis | Violation of 12 U.S.C. 1829(a)(2) (relating to certain federal offenses) |
| Penalty for non-compliance | $1,000,000 per day |
| Effective date of 2024 Final Rule | October 1, 2024 |
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What You'll Learn
Consent applications
Section 19 of the Federal Deposit Insurance Act, also known as the Consent To Service of Persons Convicted of, or Who Have Program Entries for, Certain Criminal Offenses, outlines the requirements for consent applications. This section of the Act prohibits individuals with certain criminal convictions from participating in the affairs of insured depository institutions (IDIs) without prior written consent from the Federal Deposit Insurance Corporation (FDIC).
The FDIC conducts an individualized assessment of each consent application, considering the nature of the criminal offense, the applicant's fitness to participate in the conduct of the IDI, and the potential impact on the institution's safety, soundness, and public confidence. The FDIC may require additional information, such as certified copies of criminal history records, if deemed necessary.
The 2024 Final Rule updated Section 19 regulations to align with the Fair Hiring in Banking Act, reducing hiring barriers and narrowing the category of crimes for which financial institutions can reject applicants or terminate employees. This rule, effective October 1, 2024, requires insured depository institutions to make a "reasonable, documented inquiry" to verify an applicant's criminal history and ensure compliance with Section 19.
Penalties for non-compliance with Section 19 can be significant, including fines of $1,000,000 per day, emphasizing the importance of IDIs conducting thorough applicant screening and ensuring adherence to the provisions outlined in Section 19 of the Federal Deposit Insurance Act.
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Criminal offenses involving dishonesty
Section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829) prohibits any person convicted of criminal offenses involving dishonesty, breach of trust, or money laundering from owning, controlling, or participating in the affairs of an FDIC-insured depository institution without prior written consent from the FDIC. The FDIC interprets "criminal offense involving dishonesty" to mean cheating, defrauding, or wrongfully taking property in violation of criminal statutes. It includes acts showing a lack of integrity or probity, as well as crimes defined as dishonest by federal, state, or local laws.
The FDIC's proposed amendments to Section 19 aim to align with the Fair Hiring in Banking Act (FHBA), which clarifies undefined terms like "criminal offense involving dishonesty." The FHBA also provides conditions for de minimis offenses, excluding misdemeanor offenses committed over a year ago and offenses involving possession of controlled substances. The FDIC interprets "misdemeanor criminal offense" as the last date of underlying misconduct and takes a strict view of "controlled substance" exclusions.
Section 19 imposes a criminal penalty for violations, with fines of up to $1,000,000 per day or imprisonment. The FDIC's final rule aims to balance barring individuals convicted of dishonest crimes from working in banking while also providing a path for those with minor offenses to gain employment in financial institutions. This rule expands the de minimis exception to include insufficient funds checks, small-dollar thefts, and minor offenses by young adults.
To ensure compliance, IDIs must conduct a reasonable inquiry into applicants' histories to avoid hiring individuals with covered offenses under Section 19. The FDIC will assess applications individually, focusing on the applicant's fitness and potential threats to the institution or the interests of its depositors. Section 19 also covers directors and officers of affiliates who participate in or influence the management of an IDI.
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Prohibited conduct
Section 19 of the Federal Deposit Insurance Act (FDI Act) prohibits any person convicted of criminal offenses involving dishonesty, breach of trust, or money laundering from becoming or continuing as an institution-affiliated party (IAP) of an insured depository institution (IDI) without the prior written consent of the Federal Deposit Insurance Corporation (FDIC). This section also forbids individuals from owning or controlling an IDI directly or indirectly and from participating in the conduct of the IDI's affairs.
The law further prohibits an IDI from allowing such individuals to engage in any prohibited conduct or continue any prohibited relationships. This includes making conditional offers of employment before conducting background checks for prior arrests, convictions, or program entries.
The FDIC assesses applications based on whether the person has demonstrated their fitness to participate in the conduct of the IDI's affairs and whether their affiliation, ownership, control, or participation may threaten the safety and soundness of the institution, the interests of its depositors, or public confidence in the institution.
The criteria for assessing applications include:
- The nature and circumstances of the offense, including whether it is a criminal offense under Section 19.
- The level of risk posed by the applicant's participation in the conduct of the IDI's affairs.
- The ability of the IDI's management to supervise and control the applicant's activities.
- The level of ownership or control the applicant will have over the IDI.
- Evidence of rehabilitation, including age at the time of conviction, time elapsed, and the relationship between the offense and the position's responsibilities.
- The applicant's employment history, letters of recommendation, and participation in relevant programs.
It is important to note that the prohibitions of Section 19 do not apply to convictions or program entries based on the simple theft of goods, services, or currency valued at $1,000 or less, provided certain conditions are met, including that the theft was not committed against an IDI or insured credit union.
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Reasonable documented inquiry
Section 19 of the Federal Deposit Insurance Act refers to consent to service of persons convicted of, or who have program entries for, certain criminal offenses. It applies to directors and officers of affiliates, subsidiaries, or joint ventures of an insured depository institution (IDI) if they participate in the affairs of the IDI or are in a position to influence or control the management or affairs of the IDI.
Under Section 19, any person who has been convicted of a criminal offense involving dishonesty, breach of trust, or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with such an offense, may not become or continue as an institution-affiliated party (IAP) of an IDI without the prior written consent of the Federal Deposit Insurance Corporation (FDIC).
To comply with Section 19, IDs must make a reasonable, documented inquiry to verify an applicant's history and ensure that individuals with covered offenses are not hired or permitted to engage in any prohibited conduct. This includes obtaining criminal history records, although the FDIC will not require certified copies unless there is a clear and compelling justification to verify the accuracy of the information provided by the Federal Bureau of Investigation.
The reasonable documented inquiry should also consider the following factors:
- The individual's employment history, letters of recommendation, certificates documenting participation in relevant programs, and other relevant evidence.
- The ability of IDI management to supervise and control the person's activities.
- The level of ownership or control the person will have over the IDI.
- The applicability of the IDI's fidelity bond coverage to the person.
- Any additional factors specific to the application or individual, such as the opinion of the primary Federal or State regulator.
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Penalties for non-compliance
Section 19 of the Federal Deposit Insurance Act prohibits any person who has been convicted of a criminal offense involving dishonesty, breach of trust, or money laundering from becoming or continuing as an institution-affiliated party (IAP) of an insured depository institution (IDI), owning or controlling an IDI, or participating in the conduct of the affairs of any IDI without the prior written consent of the Federal Deposit Insurance Corporation (FDIC).
The FDIC refers to such applications for consent as "consent applications." The FDIC will conduct an individualized assessment when evaluating consent applications, taking into account evidence of rehabilitation, the applicant's age at the time of the conviction, the time elapsed since the conviction, and the relationship of the individual's offense to the responsibilities of the position.
The law also prohibits an IDI from permitting a person with a covered offense to engage in any conduct or continue any relationship prohibited by Section 19. IDIs must make a reasonable, documented inquiry to verify an applicant's history to ensure that a person with a covered offense is not hired or permitted to continue in a prohibited role.
The penalties for non-compliance with Section 19 are substantial. A criminal penalty is provided for the knowing violation of its provisions, with a fine of up to $1,000,000 for each day of the violation. Given these significant penalties, FDIC-insured institutions should carefully review their policies and practices to ensure they are considering Section 19 when assessing candidates' conviction and program entry history.
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