New Approach to Background Checks in Banking

Thanks to recent changes in federal law, the banking sector is shifting its hiring practices. The Fair Hiring in Banking Act, which amends Section 19 of the Federal Deposit Insurance Act, is set to reshape how banks approach background checks and employee selection.

Understanding Section 19 and Its Purpose

Section 19 of the Federal Deposit Insurance Act has long been a cornerstone of integrity in the banking industry. Its primary aim? To keep individuals with criminal histories out of positions where they might pose a risk to the financial system. This law required banks to conduct thorough background checks on potential employees, looking for specific types of criminal offenses that could disqualify candidates from employment.

Why Change Was Needed

While the intent behind Section 19 was sound, its application became increasingly problematic. Many argued that the strict interpretation of the law was too harsh, often excluding qualified candidates for minor offenses or mistakes made long ago. This approach limited employment opportunities, potentially depriving the banking sector of reformed, talented individuals.

Enter the Fair Hiring in Banking Act. This new legislation aims to balance maintaining the integrity of the financial system and providing second chances to those who have paid their debt to society.

Key Takeaways From the Fair Hiring in Banking Act 

1. Exemptions for Older Offenses

One of the most significant changes is the exemption of some older offenses from consideration. The act recognizes that people can and do change over time. Now, offenses that occurred well in the past—and haven’t been repeated—won’t automatically disqualify a candidate. This shift allows for a more nuanced evaluation of an individual’s character and qualifications.

2. Treatment of Expunged Records

The new law also addresses how expunged records are handled in the hiring process. Expungement is a legal process that essentially erases a criminal record in the eyes of the law. Under the Fair Hiring in Banking Act, expunged records are given more weight in favor of the applicant. This change acknowledges individuals’ efforts to clear their records and move forward with their lives.

3. Leniency for Minor Offenses

Another critical aspect of the act is its treatment of minor offenses. Previously, even small infractions could potentially bar someone from a banking career. The new guidelines provide more flexibility in assessing these minor offenses, recognizing that they may not indicate a person’s overall character or ability to perform in a banking role.

4. Redefining Crimes Involving Dishonesty

Perhaps one of the most impactful changes is the new definition of crimes involving dishonesty. This category of offenses has always been particularly scrutinized in the banking industry. The Fair Hiring in Banking Act provides a more precise and nuanced definition, helping to distinguish between serious financial crimes and less severe offenses that may have been unfairly categorized in the past. 

Impact on Background Check Process

These changes are set to impact how banks conduct background checks. Here’s what it means for the screening process:

• More Comprehensive Evaluation: Instead of a simple yes or no based on the presence of a criminal record, banks will need to take a more holistic approach. They’ll need to consider factors like the age of the offense, its relevance to the position, and evidence of rehabilitation.
• Increased Focus on Recent History: With older offenses potentially exempt, there will likely be a greater emphasis on a candidate’s recent history and character.
• Need for Nuanced Interpretation: Given these new guidelines, HR professionals and hiring managers must better interpret criminal records. This may require additional training or the development of new screening protocols.
• Potential for Expanded Applicant Pools: As more individuals become eligible for banking positions, banks may see an increase in the diversity and size of their applicant pools.

Balancing Act for Banks 

While these changes open new opportunities, they can present challenges for banks. Institutions must carefully balance their obligation to maintain the integrity and security of the financial system with the spirit of the new law, which encourages second chances and broader employment opportunities.

Banks may need to:

• Update their hiring policies and procedures
• Retrain HR staff and hiring managers
• Revise their background check processes
• Potentially reconsider previously disqualified candidates 

Looking Ahead 

The Fair Hiring in Banking Act represents a significant shift in how the banking industry approaches hiring and background checks. The act aims to create a more inclusive and diverse workforce in the financial sector by providing more opportunities for individuals with past minor offenses or older criminal records.

However, it’s important to note that this doesn’t mean a complete relaxation of standards. The banking industry will still maintain rigorous vetting processes to ensure the safety and integrity of financial institutions. The critical difference is that these processes will now be more nuanced, considering a broader range of factors when evaluating candidates.

As the industry adapts to these changes, we can expect to see evolving best practices in hiring and background screening. Banks that successfully navigate this new landscape will likely have access to a broader talent pool, potentially leading to a more dynamic and diverse workforce in the coming years.

The Fair Hiring in Banking Act marks a significant step towards balancing security concerns with opportunities for rehabilitation and second chances in the banking sector. As with any significant regulatory change, its impact will become more evident as it’s implemented across the industry. What’s certain is that it opens the door for a more inclusive approach to hiring in one of the economy’s most crucial sectors.