Hiring for Florida Banks and Credit Unions: A Summary of Background Checks and Other Information Required to Comply With Various Regulatory Schemes
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Banks and credit unions should not only routinely require, but also closely scrutinize, criminal background checks during the hiring process in order to maintain compliance with applicable regulatory schemes. As lenders and depositories, banks and credit unions are subject to numerous regulatory schemes under both federal and Florida law. This article does not aim to analyze all potential regulatory schemes. Instead, the article highlights a few important regulatory schemes covering banks and credit unions in the state of Florida to identify regulations related to employing individuals with a criminal history. Though not all regulatory schemes prohibit the employment of individuals with a criminal history outright, so it is prudent for banks and credit unions to closely scrutinize criminal background checks when hiring to avoid running afoul of these regulations.
This article covers the following five (5) sources of regulations for banks and credit unions in the state of Florida:
- The Small Business Association (“SBA”)
- The Federal Deposit Insurance Corporation (“FDIC”)
- Chapter 658, Florida Statutes
- The National Credit Union Administration (“NCUA”)
- Chapter 657, Florida Statutes
Of the abovementioned sources of regulations, not all apply to banks and credit unions alike. The SBA regulations will apply to both banks and credit unions that process SBA loans. The FDIC and Chapter 658 regulations will only apply to banks. The NCUA and Chapter 657 regulations will only apply to credit unions. Nevertheless, all sources of regulations contain a similar theme: employing individuals with criminal backgrounds in certain positions within the financial institution can threaten the financial institution’s compliance with these regulatory bodies.
When reviewing the article below, consider the following factors:
- Who is being onboarded:
- What background information is considered:
- Crimes of dishonesty
- Civil lawsuits
- Acts of dishonesty
- Character and reputation
As you’ll read below, the regulatory bodies address different types of information for different types of individuals being onboarded. Understanding which regulatory schemes require which types of information is critical for determining your institution’s compliance.
SBA’s regulations related to hiring employees is the most restrictive of all aforementioned regulatory schemes. Under the SBA lender regulations, any SBA lenders (“Lenders”) must maintain “ethical compliance.” 13 CFR § 120.410. To be ethically compliant, no Lender may employ any “Associates” that are:
[I]ncarcerated, on parole, or on probation… [or] engage[ing] in conduct reflecting a lack of business integrity or honesty… [or are] a convicted felon, or have an adverse final civil judgment (in a case involving fraud, breach of trust, or other conduct) that would cause the public to question the [Lender’s] business integrity, taking into consideration such factors as the magnitude, repetition, harm caused, and remoteness in time of the activity or activities in question.
13 CFR § 120.140 (emphasis added). “Associates” are defined as “key employees…or an agent involved in the loan process.” 13 CFR § 120.100 (emphasis added).
To summarize, the SBA regulations address felony convictions, civil lawsuits, and any conduct that would affect the institution’s business integrity. This regulation is much broader than the regulations below, as many regulations address one (1) or two (2) of these types of information, but not all three (3).
Similar to the regulations imposed by the SBA, the FDIC prohibits banks from hiring employees with criminal backgrounds without prior written consent of the FDIC, lest the bank risk losing FDIC coverage:
Except with the prior written consent of the Corporation—
(A) any person who has been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense, may not—
(i) become, or continue as, an institution-affiliated party with respect to any insured depository institution; (ii) own or control, directly or indirectly, any insured depository institution; or (iii) otherwise participate, directly or indirectly, in the conduct of the affairs of any insured depository institution[.]
12 U.S.C. § 1829(a)(1) (emphasis added).
Chapter 658, Florida Statutes
Chapter 658, Florida Statutes, is less restrictive than its SBA and FDIC counterparts, only regulating a Florida bank’s selection of its proposed officers upon application to the State to organize a bank or trust company:
The office shall approve the application if it finds that:
(4) The proposed officers have sufficient financial institution experience, ability, standing, and reputation and the proposed directors have sufficient business experience, ability, standing, and reputation to indicate reasonable promise of successful operation, and none of the proposed officers or directors has been convicted of, or pled guilty or nolo contendere to, any violation of s. 655.50, relating to the control of money laundering and terrorist financing; chapter 896, relating to offenses related to financial institutions; or similar state or federal law.
- 658.21(4), Fla. Stat. (emphasis added). The statutes mentioned above only relate to specific financial crimes codified in Florida Statutes, which appears less broad than the general “crimes of dishonesty” referenced in SBA and FDIC regulations.
However, Chapter 658 also authorizes the State to investigate the general character and reputation of proposed officers and directors of a new bank or trust company seeking to organize under Florida law:
(1) Upon the filing of an application, the office shall make an investigation of:
(a) The character, reputation, financial standing, business experience, and business qualifications of the proposed officers and directors.
(2) The office is authorized to obtain criminal record information from the National Crime Information Center or from the Department of Law Enforcement as a part of its investigation pursuant to this section.
- 658.20, Fla. Stat. (emphasis added). Accordingly, the broad “character and reputation” investigation may take into consideration crimes or deeds beyond the limited financial crimes cited as disqualifying factors in Section 658.21(4) above.
NCUA regulations are similar to the FDIC regulations to the extent the FDIC regulations prohibit the employment of anyone convicted of a crime of dishonesty. Though, the NCUA regulations are much more direct:
No person shall serve as a director, officer, committee member, or employee of an insured credit union who has been convicted of any criminal offense involving dishonesty or breach of trust, except with the written consent of the Board.
12 CFR § 741.3.
Chapter 657, Florida Statutes
As expected, Chapter 657, Florida Statutes, imposes similar restrictions on the corporate officers of credit unions as Chapter 658 imposes on banks. However, Chapter 657 goes further than just prohibiting individuals serving as corporate officers who have been convicted of crimes of dishonesty. Instead, Chapter 657 expressly prohibits individuals from serving as corporate officers who have been convicted of a felony or merely performed acts of dishonesty, in certain circumstances:
[A] person may not serve as an officer, director, or committee member of a credit union if she or he: (a) Has been convicted of a felony or of an offense involving dishonesty, a breach of trust, a violation of this chapter, or fraud…(d) Has performed acts of fraud or dishonesty, or has failed to perform duties, resulting in a loss that was subject to a paid claim under a fidelity bond….”
- 657.028, Fla. Stat. (emphasis added).
This article is not designed to convince a financial institution to start using criminal background checks in its hiring process, as most financial institutions already do so. However, understanding the “why” behind requesting criminal background checks can help train human resource personnel to properly utilize criminal background checks when hiring for their bank or credit union. Furthermore, this article showcases how different regulatory schemes require different levels of “character and reputation” for different types of positions. Understanding which regulatory schemes apply to your financial institution, and whether your hiring practices are in compliance, is not an easy task. When in doubt, trained legal professionals with an understanding of the different regulatory schemes should be utilized to ensure compliance.