Ban-the-Box Measures Headed for the Financial Services Industry

In recent years, advocates and lawmakers have been pushing to expand the reach of “ban-the-box” measures designed to remove job barriers for individuals with criminal convictions.

“Ban-the-box” laws, also called “fair chance laws,” are designed to prevent employers from excluding applicants based on their criminal history alone, by prohibiting employers from immediately inquiring into an applicant’s criminal history before evaluating their qualifications.

Ban-the-box laws have been adopted federally (for federal agencies and federal contractors acting on their behalf) and in numerous states and local jurisdictions. These laws generally contain broad carve-outs for employers or positions where background checks are required, including within the financial services industry. Some changes are coming to narrow those exemptions. On December 23, 2022, President Biden signed into law the Fair Hiring in Banking Act (FHBA), which substantially revised Section 19 of the Federal Deposit Insurance Act (FDIA) to reduce hiring barriers within the financial services sector.

Among its significant provisions, the FHBA narrowed the categories of offenses included in Section 19’s statutory prohibitions on participation in banking. It excluded or exempted specific older offenses, offenses committed by individuals 21 or younger, and “certain lesser offenses,” from such prohibitions.

Banking associations including the Bank Policy Institute and Financial Services Forum wrote in support of the FHBA stating:

The statute’s goal of ensuring a trustworthy, reliable banking workforce is important, particularly for an industry built on trust. However, safeguarding that trustworthiness should not come at the expense of offering hardworking people the chance to achieve meaningful employment opportunities in our nation’s banks. The participation of rehabilitated individuals with prior offenses in the banking industry would drive socioeconomic mobility, and excluding those individuals would harm them while doing little to nothing to protect banks or their customers.

Recently, the Federal Deposit Insurance Corporation (FDIC) revised its regulations to conform with the FHBA. In its final rule, published in the Federal Register on August 7, 2024, the FDIC made revisions pertaining to: the types of offenses covered by Section 19; the effect of the completion of sentencing or pretrial-diversion program requirements in the context of Section 19; and the FDIC’s procedures for reviewing applications filed under Section 19. Notably, the FDIC stated that it “considers most of the revisions to its regulations to be required by the FHBA.”

Unlike the FDIC, the Financial Industry Regulatory Authority (FINRA) has not yet introduced revisions to its regulations designed to conform with the FHBA. However, in light of the FDIC’s amendments, it is a matter of time before advocates push for FINRA to make similar revisions to its regulations.

With the rise of “ban-the-box” and “fair chance” initiatives across the nation, now is the time to review your company’s hiring and background check policies. Especially if your company is a deposit-taking institution insured by the FDIC and/or subject to Section 19 of the FDIA, consult with counsel to ensure that your policies and practices comply with applicable law and regulations.