[Federal Register Volume 88, Number 214 (Tuesday, November 7, 2023)]
[Proposed Rules]
[Pages 76702-76717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23509]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 88 , No. 214 / Tuesday, November 7, 2023 / 
Proposed Rules

[[Page 76702]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701, 741,746, 748, and 752

[NCUA-2023-0023]
RIN: 3133-AF55


Fair Hiring in Banking

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The NCUA Board (Board) proposes to incorporate its ``Second 
Chance'' Interpretive Ruling and Policy Statement 19-1 (IRPS 19-1) and 
the Fair Hiring in Banking Act (FHBA) into its regulations. The Federal 
Credit Union Act prohibits, except with the Board's prior written 
consent, any person who has been convicted of certain criminal offenses 
involving dishonesty or breach of trust (a covered offense), or who has 
entered into a pretrial diversion or similar program in connection with 
a prosecution for such offense (program entry), from participating in 
the conduct of the affairs of an insured credit union.

DATES: Comments must be received by January 8, 2024.

ADDRESSES: You may submit written comments, identified by RIN 3133-
AF55, by any of the following methods (Please send comments by one 
method only):
    <bullet> Federal eRulemaking Portal: https://www.regulations.gov. 
The docket number for this proposed rule is NCUA-2023-0023. Follow the 
instructions for submitting comments. A plain language summary of the 
proposed rule is also available on the docket website.
    <bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of 
the Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.
    <bullet> Hand Delivery/Courier: Same as mailing address.
    Public inspection: You may view all public comments on the Federal 
eRulemaking Portal at https://www.regulations.gov, as submitted, except 
for those we cannot post for technical reasons. The NCUA will not edit 
or remove any identifying or contact information from the public 
comments submitted. If you are unable to access public comments on the 
internet, you may contact the NCUA for alternative access by calling 
(703) 518-6540 or emailing <a href="/cdn-cgi/l/email-protection#c28d85818fa3abae82aca1b7a3eca5adb4"><span class="__cf_email__" data-cfemail="b0fff7f3fdd1d9dcf0ded3c5d19ed7dfc6">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Rachel Ackmann, Senior Staff Attorney, 
Office of General Counsel, and Pamela Yu, Special Counsel to the 
General Counsel, Office of General Counsel, at the above address or 
telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

I. Background

Section 205(d) of the Federal Credit Union Act (Section 205(d))

    Prior to December 23, 2022, section 205(d)(1) of the Federal Credit 
Union Act (FCU Act) provided that, except with the prior written 
consent of the Board, a person who has been convicted of any criminal 
offense involving dishonesty or breach of trust, or has agreed to enter 
into a pretrial diversion or similar program in connection with a 
prosecution for such offense, may not:
    <bullet> Become, or continue as, an institution-affiliated party 
(IAP) with respect to any insured credit union; or
    <bullet> Otherwise participate, directly or indirectly, in the 
conduct of the affairs of any insured credit union.\1\
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    \1\ 12 U.S.C. 1785(d)(1).
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    Section 205(d)(1)(B) further provides that an insured credit union 
may not allow any person described above to participate in the conduct 
of the affairs of the credit union without Board consent. Section 
205(d)(2) restricts the Board from approving a consent application 
related to a person convicted of certain crimes enumerated in Title 18 
of the United States Code for 10 years, absent a motion by the Board 
and approval by the sentencing court. Finally, section 205(d)(3) states 
that ``whoever knowingly violates'' section (d)(1)(A) or (d)(1)(B) 
commits a felony, punishable by up to 5 years in prison or a fine of up 
to $1,000,000 a day, or both. Section 205(d) prohibitions have existed 
in some form since 1970, and since then federally insured credit unions 
have been required to make a diligent inquiry as to whether prospective 
employees or IAPs \2\ are subject to a section 205(d) prohibition.\3\
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    \2\ The NCUA has made its administrative orders against IAPs 
available in a searchable database on the agency's website. See 
https://ncua.gov/news/enforcement-actions/administrative-orders.
    \3\ 73 FR 48399, 48401 (Aug. 19, 2008).
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    In 2008, the Board adopted Interpretive Rule and Policy Statement 
08-1 (IRPS 08-1) to provide direction and guidance to federally insured 
credit unions and those persons who may be affected by section 
205(d).\4\ The Board specifically sought comments as to whether the 
format of the guidance as an IRPS was appropriate or whether a 
regulation would be more suitable.\5\ The Board received some comments 
supporting guidance in the form of an IRPS and others supporting a 
regulation, but ultimately chose to issue the guidance through an 
IRPS.\6\
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    \4\ Id.
    \5\ The Board had not previously adopted any policies or 
regulations on section 205(d), as the statute at that time imposed 
no guidance or limitations on the information that the Board may 
consider, and the Board received a limited number of applications 
under section 205(d). However, due to an increasing number of 
applications requesting the Board's consent under section 205(d), 
the Board believed it was appropriate to issue guidance on the 
topic.
    \6\ Two commenters believed that a regulation was the more 
appropriate format for the guidance. One of the commenters who 
favored a regulation thought a regulation provided greater 
protection to a credit union that might be challenged by a 
prospective employee. Another commenter believed a regulation was 
preferable because it would help reinforce a credit union's right to 
appeal an adverse decision and subject future changes to public 
notice and comment. The Board concluded that the source of the 
requirement stems from federal statute, namely section 205(d). 
Therefore, the Board believed that the need to comply with federal 
law, as augmented by guidance in the form of an IRPS, was sufficient 
to protect a credit union. The Board believed that credit union 
officials should be able to adequately understand and apply the 
guidance styled as an IRPS and that the right to request a hearing 
contained in the IRPS provided a credit union a sufficient right to 
appeal a denial of consent by the Board. Additionally, the Board 
noted that it would not amend its IRPS without providing the public 
notice and an opportunity to comment. For all these reasons, the 
Board believed it appropriate to issue the final guidance in the 
form of an IRPS.
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    IRPS 08-1 outlined the actions prohibited under the FCU Act and the 
procedures for applying the Board's consent on a case-by-case basis. 
Recognizing that certain offenses are so minor and dated that they 
would not presently pose a substantial risk to the insured credit 
union, IRPS 08-1 excluded certain de minimis offenses that met 
specified requirements and juvenile offenses from the need to

[[Page 76703]]

request consent from the Board. In effect, the IRPS gave automatic 
consent for these offenses without requiring a consent application or 
any notice.
    In 2019, the Board rescinded IRPS 08-1 and issued IRPS 19-1, a 
revised and updated IRPS to reduce regulatory burden (also known as the 
Second Chance IRPS).\7\ IRPS 19-1 amended IRPS 08-1 to expand the 
definition of de minimis offenses to reduce the scope and number of 
offenses that would require submission of a consent application to the 
Board. Specifically, the IRPS did not require a consent application for 
convictions involving insufficient funds checks of moderate aggregate 
value, small-dollar simple theft, false identification, simple drug 
possession, and isolated minor offenses committed by covered persons as 
young adults. The Board recognized that many Americans faced hiring 
barriers due to a criminal record, a great number of whom are not 
violent or career criminals, but rather people who made poor choices 
early in life who have since paid their debt to society. The Board 
found that offering second chances to those who are truly penitent was 
consistent with our nation's shared values of forgiveness and 
redemption. In keeping with this spirit of clemency, the Board expanded 
career opportunities for those who had demonstrated remorse and 
responsibility for past indiscretions and who wished to set forth on a 
path to productive living.
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    \7\ 84 FR 65907 (Dec. 2, 2019).
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    On December 23, 2022, Congress passed the National Defense 
Authorization Act for Fiscal Year 2023 (NDAA), which amended section 
205(d).\8\ The NDAA included the FHBA--which became immediately 
effective on December 23, 2022. The FHBA amends section 205(d) to 
expand employment opportunities for those with a previous minor or 
older criminal offense, among other provisions. Generally, the 
amendments codify a number of elements already contained in the NCUA's 
current policy regarding section 205(d) but also extend greater relief 
than what is currently available to certain individuals with prior 
convictions seeking employment with an insured credit union, 
particularly individuals with older convictions, expunged convictions, 
or prior convictions for a misdemeanor, any drug-related possession 
offense, or certain designated ``lesser offenses.'' The FHBA also 
clarifies several definitions and the procedures for processing a 
consent application. The specific provisions of the FHBA are discussed 
in detail later in this preamble.
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    \8\ Public Law 117-263 (Dec. 23, 2022).
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Section 19 of the Federal Deposit Insurance Act

    Section 19 of the Federal Deposit Insurance Act (FDI Act) (section 
19) contains a prohibition provision similar to section 205(d) of the 
FCU Act.\9\ Before 2020, the Federal Deposit Insurance Corporation 
(FDIC) provided the public with guidance relating to section 19 and the 
FDIC's application thereof through a Statement of Policy similar to the 
NCUA's IRPS 19-1.\10\ Similar to the NCUA's IRPS, the FDIC's Statement 
of Policy, among other things, instituted a set of criteria to provide 
for blanket approval of certain low-risk crimes and for persons 
convicted of such de minimis crimes to forgo filing a section 19 
consent application.
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    \9\ 12 U.S.C. 1829(a).
    \10\ See 84 FR 68353 (Dec. 16, 2019).
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    In 2020, the FDIC revised and incorporated its then existing 
Statement of Policy into its regulations to, among other purposes, 
provide for greater transparency as to its section 19 application, 
provide greater certainty as to the FDIC's application process, and to 
assist both insured depository institutions and individuals who may be 
affected by section 19 with understanding its impact and potentially 
seek relief from its provisions.\11\
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    \11\ Id.; 85 FR 51312 (Aug. 20, 2020) (FDIC 2020 final rule).
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    In December 2022, the FHBA made amendments to section 19 that are 
comparable to the amendments made in section 205(d). The FDIC proposed 
to implement these changes through a notice-and-comment rulemaking in 
October 2023.

Coordination With the FDIC

    In the past, the NCUA has drawn extensively on the FDIC's guidance 
related to section 19 due to the FDIC's greater experience processing 
section 19 consent applications. Further, in the Board's view it is 
beneficial to both insured financial institutions and covered 
individuals for the NCUA's section 205(d) related requirements to be 
consistent, to the extent possible, with the FDIC's section 19 
requirements. Consistent guidelines between the two agencies with 
respect to these parallel statutory provisions help streamline the 
consent application process, particularly for those individuals seeking 
consent from both the NCUA and the FDIC to allow for potential 
employment at federally insured financial institutions. The FHBA 
formalizes the expectation that the agencies implement these comparable 
statutory provisions similarly and requires the NCUA and the FDIC to 
consult and coordinate to promote consistent procedures, where 
appropriate.\12\ The Board finds that adopting similar definitions, 
terminology, and procedures in all aspects of this proposed rule will 
promote consistent implementation of consent applications because even 
those provisions that fall outside the scope of consent applications 
are likely to affect how the agency administers those applications. 
Staffs of the NCUA and the FDIC have consulted and coordinated on this 
proposed rulemaking as directed by the FHBA.
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    \12\ 12 U.S.C. 1785(d)(5)(I), and 12 U.S.C. 1829(f)(9).
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    Additionally, in developing this proposed rule, NCUA staff has 
consulted with staffs at the Board of Governors of the Federal Reserve 
Board and the Office of the Comptroller of the Currency.

II. The Proposed Rule

Section-by-Section Analysis

    The Board is now issuing a proposed rule to codify IRPS 19-1, along 
with significant changes that are consistent with the FHBA amendments 
to section 205(d) and the FDIC's comparable implementing 
regulations.\13\ The proposed rule would address, among other topics, 
the individuals and types of offenses covered by section 205(d), as 
well as the NCUA's procedures for reviewing a consent application. The 
proposed rule would add new part 752 to Chapter VII of Title 12 of the 
U.S. Code of Federal Regulations. A section-by-section analysis of the 
proposed rule follows.
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    \13\ The NCUA is issuing a proposed rule to codify its policy 
regarding section 205(d) consent applications due to the FDIC's 
recent codification of its similar section 19 Statement of Policy. 
The NCUA believes codifying IRPS 19-1 will provide for greater 
transparency as to its application, provide greater certainty as to 
the NCUA's application process, and help both credit unions and 
individuals who may be affected by section 205(d) to understand its 
impact and potentially seek relief from its provisions.
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1. Section 752.1--What is section 205(d) of the FCU Act?
    This section sets out the scope of proposed new part 752. Paragraph 
(a) would generally describe the requirements of section 205(d).
    Paragraph (b) would set out insured credit unions' obligations 
under section 205(d), including that insured credit unions would be 
required to make a reasonable inquiry regarding an applicant's history 
to ensure that a

[[Page 76704]]

person who is subject to the prohibition provision of section 205(d) is 
not hired or permitted to participate in the conduct of credit unions' 
affairs without the written consent of the NCUA. Paragraph (b) also 
would set out that insured credit unions would be permitted to make 
conditional offers of employment to prospective applicants.
    Paragraph (c) would address the need for a consent application and 
establishes the standard for an application's approval. The NCUA would 
evaluate a consent application to determine if a person is fit to 
participate in the conduct of the affairs of an insured credit union 
without posing a risk to its safety and soundness or impairing public 
confidence in that credit union. The burden is upon the applicant to 
establish that the application warrants approval. Section 752.1 
includes no substantive changes as compared to IRPS 19-1.
2. Section 752.2--Who is covered by section 205(d)?
    This section identifies who is covered by section 205(d). Paragraph 
(a) would state that IAPs, as defined by 12 U.S.C. 1786(r), would be 
covered. Similar to IRPS 19-1, volunteer and de facto employees would 
be deemed covered under section 205(d) as well.
    Whether other persons who are not IAPs, such as certain independent 
contractors, are covered depends upon their degree of influence or 
control over the management or affairs of an insured credit union. 
Those who exercise major policymaking functions of an insured credit 
union are deemed to be covered by section 205(d). The proposed rule 
includes less detail than IRPS 19-1 regarding how the NCUA would 
determine whether a person participates in the conduct of the affairs 
of an insured credit union. For example, the proposed rule would not 
state that the NCUA would analyze each individual's conduct on a case-
by-case basis and make a determination or that agency and court 
decisions will provide the guide as to what standards will be applied. 
The Board does not intend any substantive changes by these omissions. 
Instead, the proposed rule includes more streamlined language regarding 
persons who participate in the conduct of the affairs of an insured 
credit union, consistent with the FDIC's comparable part 303. The NCUA 
intends to publish guidance that further clarifies its intent about 
other persons who are not IAPs. The guidance would include language 
similar to IRPS 19-1.
    The proposed rule would also state directors and officers of 
affiliates, or joint ventures of an insured credit union, would be 
covered if they participate in the conduct of affairs of the insured 
credit union or are in a position to influence or control the 
management or affairs of the insured credit union. IRPS 19-1 does not 
specifically state these persons would be covered if they participate 
in the conduct of affairs of the insured credit union; however, this is 
not a policy change because these persons would have been covered under 
the IRPS if they participated in the conduct of affairs of the credit 
union.
    Paragraph (b) would define the term ``person'' for the purposes of 
section 205(d) as an individual only and not a legal entity.
3. Section 752.3--Which offenses qualify as ``Covered Offenses'' under 
section 205(d)?
    This section addresses what constitutes a covered offense under 
section 205(d).\14\ Paragraph (a) would state that a conviction or 
program entry must have been for a criminal offense involving 
dishonesty or breach of trust. The paragraph would define criminal 
offenses involving dishonesty and breach of trust. The FHBA defines 
``criminal offense involving dishonesty'' as ``an offense under which 
an individual, directly or indirectly, cheats or defrauds or wrongfully 
takes property belonging to another in violation of a criminal 
statute.'' The FHBA further provides that the term includes an offense 
that federal, state, or local law defines as dishonest or for which 
dishonesty is an element of the offense. However, the term does not 
include a misdemeanor criminal offense committed more than 1 year 
before the date on which an individual files a consent application, 
excluding any period of incarceration, or an offense involving the 
possession of controlled substances.
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    \14\ The Board notes that the approach to criminal offenses 
mandated by the statute and rulemaking would not have an impact on 
other processes related to criminal convictions. For example, the 
NCUA may consider a more expansive scope of convictions related to 
controlled substances under section 212 of the Federal Credit Union 
Act in disapproving directors, committee members, and senior 
executive officers of troubled or newly chartered insured credit 
unions. See 12 CFR 701.14 for the NCUA's implementation of this 
provision, also addressed elsewhere in this proposed rule.
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    The FHBA does not define breach of trust. Under the proposed rule, 
breach of trust would mean a wrongful act, use, misappropriation, or 
omission with respect to any property or fund that has been committed 
to a person in a fiduciary or official capacity, or the misuse of one's 
official or fiduciary position to engage in a wrongful act, use, 
misappropriation, or omission. This definition is identical to the 
definition in IRPS 19-1.
    As discussed previously, the FHBA excludes from the scope of such 
offenses ``an offense involving the possession of controlled 
substances.'' The Board interprets this phrase concerning controlled 
substances to exclude from the scope of the prohibition, at a minimum, 
criminal offenses involving the simple possession of controlled 
substances and possession with intent to distribute a controlled 
substance. This exclusion may also apply to other drug-related offenses 
depending on the statutory elements of the offenses or court 
determinations that the statutory provisions of the offenses involve 
dishonesty or breach of trust, as noted in paragraph (b) of proposed 
Sec.  752.3. The Board notes that in processing other applications, 
such as change in official or senior executive officer in credit unions 
that are newly chartered or are in troubled condition, the NCUA may 
still consider excluded offenses as appropriate. For example, an 
offense that is not covered under section 205(d) may bear on an 
individual's competence, experience, character, or integrity under 12 
U.S.C. 1790a and 12 CFR 701.14.
    Potential applicants may contact their appropriate NCUA Regional 
Office or the Office of National Examinations and Supervision (ONES) if 
they have questions about whether their offenses are covered under 
section 205(d).
    This language marks a shift from IRPS 19-1, which requires consent 
applications for certain simple misdemeanor drug possession offenses. 
Under IRPS 19-1, a consent application for a simple misdemeanor drug 
possession offense is required except if the conviction or program 
entry was classified as a misdemeanor at the time of conviction or 
program entry, the person had no other conviction or program entry 
described in section 205(d), and it had been 5 years since the 
conviction or program entry (or 30 months in the case of a person 21 
years or younger at the time of the conviction or program entry), and 
the conviction did not involve the illegal distribution (including an 
intent to distribute), sale, trafficking, or manufacture of a 
controlled substance or other related offense. The Board believes that 
the proposed revision is consistent with the text and purposes of the 
FHBA, would align the Board's interpretation of section 205(d) as to 
offenses involving controlled substances more closely with other 
federal banking regulators, and would continue to recognize that a 
drug-

[[Page 76705]]

related offense could potentially involve dishonesty or breach of 
trust.\15\ The Board also notes that this proposed provision would not 
affect its ability to consider drug-related offenses as they pertain to 
the suitability of an individual under other statutory provisions, 
including section 212 of the FCU Act.\16\
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    \15\ See House Rpt. No. 117-314 (May 10, 2022), available at 
https://www.congress.gov/congressional-report/117th-congress/house-report/314/1.
    \16\ 12 U.S.C. 1790a.
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    Paragraph (b) would require that, to determine if the criminal 
offense is one of dishonesty or breach of trust, the NCUA would look to 
the statutory elements of the criminal offense or to court decisions in 
the relevant jurisdiction that have interpreted these statutory 
elements. This policy is similar to IRPS 19-1.
    Paragraph (c) would include new language reflecting the FHBA's 
exclusion of certain older offenses from the scope of section 
205(d).\17\ The FHBA provides that individuals are not subject to a 
prohibition under section 205(d) if they committed a covered offense 
and it has been 7 years or more since the offense occurred; or if the 
individual was incarcerated with respect to the offense, it has been 5 
years or more since the individual was released from incarceration; or 
the individual committed the offense when they were 21 years of age or 
younger, and it has been more than 30 months since the sentencing 
occurred.\18\
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    \17\ See 12 U.S.C. 1785(d)(4)(A).
    \18\ Note that these exceptions do not apply to the offenses 
described under 12 U.S.C. 1785(d)(2).
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    The Board considers the phrases ``offense committed''--noted 
previously--and ``offense occurred'' to be substantially similar. 
Accordingly, the Board interprets the term ``offense occurred'' to mean 
the ``last date of the underlying misconduct.'' In instances with 
multiple offenses, ``offense occurred'' means the last date of any of 
the underlying offenses.
    Paragraph (c) would track the FHBA's language concerning offenses 
committed by individuals 21 years of age or younger. The FHBA states 
that, for individuals who committed an offense when the individual was 
21 years of age or younger, section 205(d) shall not apply to the 
offense if it has been more than 30 months since the sentencing 
occurred.\19\ The Board interprets ``sentencing occurred'' to mean the 
date on which a court imposed the sentence, not the date on which all 
conditions of sentencing were completed. Moreover, paragraph (c) notes 
that its exclusions--which are derived from the FHBA--do not apply to 
the enumerated offenses described under 12 U.S.C. 1785(d)(2).
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    \19\ 12 U.S.C. 1785(d)(4)(A)(ii).
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    The FHBA also excludes designated lesser offenses, including the 
use of fake identification, shoplifting, trespass, fare evasion, 
driving with an expired license or tag (and such other low-risk 
offenses as the NCUA may designate), if 1 year or more has passed since 
the applicable conviction or program entry. Paragraph (d) would exclude 
these ``designated lesser offenses'' to reflect the revised statutory 
language.
    Paragraph (e) would add language that reflects the FDIC's long-held 
position that individuals who are convicted of or enter into a pretrial 
diversion program for a criminal offense involving dishonesty or breach 
of trust in foreign jurisdictions are subject to section 19, unless the 
offense is otherwise excluded by 12 CFR 303, subpart L, as stated in 
the FDIC's parallel proposed rule. The Board has not previously had a 
position on foreign offenses; however, given the congressional mandate 
to consult and coordinate to promote consistent implementation on 
consent application procedures where appropriate, the Board is 
proposing to adopt the FDIC's interpretation. Under the proposed rule, 
for example, if an insured credit union has operations outside the 
United States, the credit union could conduct a reasonable, documented 
inquiry to verify an applicant's history by inquiring about potential 
covered offenses that may have occurred in that foreign country (or 
countries) in which the credit union conducts operations, as well as 
the United States. As another example of such an inquiry, if an insured 
credit union plans to hire someone in the United States who is from a 
foreign country, the credit union could inquire about potential covered 
offenses that may have occurred in the United States and in that 
foreign country.
4. Section 752.4--What constitutes a conviction under section 205(d)?
    Paragraph (a) would state that there must have been a conviction of 
record for section 205(d) to apply, and that section 205(d) would not 
apply to arrests, pending cases not brought to trial (unless the person 
has a program entry as set out in Sec.  752.5), or any conviction 
reversed on appeal unless the reversal was for the purpose of re-
sentencing. The Board notes, however, that covered offenses that have 
been pardoned--and which are not otherwise excluded by Sec.  752.8--
would still require a consent application. Paragraph (a) is 
substantively similar to IRPS 19-1.
    Paragraph (b) would clarify that, absent a program entry, when an 
individual is charged with a covered offense but is subsequently 
convicted of an offense that is not a covered offense, that conviction 
is not subject to section 205(d). IRPS 19-1 does not have this 
clarification; however, it is included in the FDIC's current part 303. 
The NCUA's provision would merely clarify that the conviction, not the 
originally charged offense, is relevant under section 205(d).
    Paragraph (c) would exclude covered offenses that have been 
expunged or sealed by a court of competent jurisdiction or by operation 
of law. Under IRPS 19-1, a conviction that has been completely expunged 
is not considered a conviction of record and does not require a consent 
application. However, IRPS 19-1 further noted that where an order of 
expungement has been issued and is intended to be a complete 
expungement, the jurisdiction cannot allow the conviction or program 
entry to be used for any subsequent purpose including, but not limited 
to, an evaluation of a person's fitness or character. Also, the failure 
to destroy or seal the records will not prevent the expungement from 
being considered complete for the purposes of section 205(d). This 
caveat to the general premise that an expunged conviction is not 
considered a conviction of record is not included in the FDIC's current 
part 303.
    The FHBA provides a two-pronged test to determine whether a covered 
offense should be considered expunged, dismissed, or sealed and 
therefore excluded from the scope of section 205(d). First, there must 
be an ``order of expungement, sealing, or dismissal that has been 
issued in regard to the conviction in connection with such offense''; 
second, it must be ``intended by the language in the order itself, or 
in the legislative provisions under which the order was issued, that 
the conviction shall be destroyed or sealed from the individual's 
state, tribal, or federal record, even if exceptions allow the 
conviction to be considered for certain character and fitness 
evaluation purposes.'' \20\
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    \20\ 12 U.S.C. 1785(d)(4)(B)(ii).
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    The FHBA does not address expungements, sealings, or dismissals by 
operation of law, and the Board has sought to provide a more 
comprehensive framework as to such records. The Board has added 
language to the second (intent) proposed prong of the expungement 
framework to encompass the language in the expungement order itself, 
the legislative

[[Page 76706]]

provisions under which the order was issued, and other legislative 
provisions. The Board believes that the additional language is 
consistent with the purposes of the statute and congressional intent to 
provide relief to individuals with older or minor offenses.
    Paragraph (d) would exclude ``youthful offender'' judgments for 
minors from the scope of section 205(d). The proposed rule would 
clarify that it encompasses the term ``youthful offender'' and similar 
terms, because paragraph (d) may apply even if a court does not 
specifically use the term ``youthful offender'' in an adjudication.
5. Section 752.5--What constitutes a pretrial diversion or similar 
program under section 205(d)?
    Paragraph (a) would define what constitutes a pretrial diversion or 
similar program (a program entry). A pretrial diversion or similar 
program means a program characterized by a suspension or eventual 
dismissal or reversal of charges or criminal prosecution upon agreement 
by the accused to restitution, drug or alcohol rehabilitation, anger 
management, or community service. The FHBA establishes this definition.
    Paragraph (b) would clarify that when a covered offense either is 
reduced by a program entry to an offense that would otherwise not be 
covered by section 205(d) or is dismissed upon successful completion of 
a program entry, the offense remains a covered offense for purposes of 
section 205(d). The covered offense will require a consent application 
unless it is de minimis as provided by Sec.  752.8. This language is 
new as compared to IRPS 19-1 and comes from the FDIC's part 303.
    Paragraph (c) would state that expungements or sealings of program 
entry records will be treated the same as expungements or sealings of 
convictions. This language is new as compared to IRPS 19-1 and comes 
from the FDIC's part 303.
6. Section 752.6--What are the types of consent applications that can 
be filed?
    The FHBA codifies procedures for consent applications filed with 
the NCUA. Specifically, the proposed rule would provide that the NCUA 
will accept applications from an individual or an insured credit union 
applying on behalf of an individual. The Board notes the FHBA uses the 
terms ``national office'' and ``regional office,'' which are 
inconsistent with the NCUA's organization.\21\ The Board is 
contemplating addressing those technical inconsistencies in the final 
rule.
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    \21\ See 12 CFR 790.2. The NCUA is composed of the Board with a 
Central Office; Field Offices, consisting of 3 Regional Offices and 
ONES; the Asset Management and Assistance Center; the Community 
Development Revolving Loan Program; and the NCUA Central Liquidity 
Facility.
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    Paragraph (b) would provide that an individual consent application 
or a credit union-sponsored consent application may be filed separately 
or contemporaneously with the appropriate NCUA Regional Office or ONES.
7. Section 752.7--When must a consent application be filed?
    This section states that a consent application is not required for 
covered offenses that are considered de minimis under this part or 
where another exception under the part applies. A consent application 
would not be considered by the NCUA until all sentencing requirements 
associated with a conviction have been met or all requirements of the 
program entry have been completed. The Board proposes to include this 
revised language to accord with several of the FHBA's exclusions from 
section 205(d) that are not tied to the completion of sentencing 
requirements.
    Furthermore, the FHBA requires the NCUA to ``make all forms and 
instructions related to consent applications available to the public, 
including on [its] website.'' \22\ These forms and instructions ``shall 
provide a sample cover letter and a comprehensive list of items that 
may accompany the consent application, including clear guidance on 
evidence that may support a finding of rehabilitation.'' \23\ While the 
proposed rule would not codify these requirements, the agency will 
comply with the statutory mandate to make appropriate forms and 
instructions available to the public. The proposed rule would provide 
generally that the NCUA's consent application forms as well as 
additional information concerning section 205(d) can be accessed at the 
NCUA's Regional Offices or on the NCUA's website.
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    \22\ 12 U.S.C. 1785(d)(5)(E)(i).
    \23\ 12 U.S.C. 1785(d)(5)(E)(ii).
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8. Section 752.8--De Minimis Offenses
    IRPS 19-1 includes several offenses that would be otherwise covered 
under section 205(d), but do not require a consent application because 
they are considered de minimis. For these de minimis offenses, a person 
is deemed automatically approved to serve in an insured credit union, 
and no consent application is required.
    IRPS 19-1 updated the general criteria for the de minimis offenses 
to better align with developments in criminal reform and sentencing 
guidelines. The FHBA largely codified the conditions included in IRPS 
19-1; however, in several cases the FHBA expanded upon the relief 
included in IRPS 19-1. The proposed rule generally would retain the de 
minimis factors included in IRPS 19-1 but would amend the factors to 
reflect the FHBA.
    Paragraph (a)(1) would state an individual who has been convicted 
of 2 or fewer covered offenses need not file if the individual could 
have been sentenced to a term of confinement in a correctional facility 
of 3 years or less and/or a fine of $2,500 or less, and the individual 
actually served 3 days or less of jail time for each, provided that all 
of the sentencing requirements associated with the conviction have been 
completed, each conviction or program entry was entered at least 3 
years prior to the date of a consent application (assuming there are 2 
convictions or program entries for a covered offense), and each covered 
offense was not committed against an insured depository institution or 
insured credit union. Jail time would be calculated based on the time 
an individual spent incarcerated as a punishment or a sanction--not as 
pretrial detention--and would not include probation or parole where an 
individual was restricted to a particular jurisdiction or was required 
to report occasionally to an individual or a specific location. Jail 
time would include confinement to a psychiatric treatment center in 
lieu of a jail, prison, or house of correction on mental competency 
grounds. The definition is not intended to include any of the 
following: persons who are restricted to a substance-abuse treatment 
program facility for part or all of the day; and persons who are 
ordered to attend outpatient psychiatric treatment.
    A consent application would also not be required if there are 2 
convictions or program entries for a covered offense, and the actions 
that resulted in both convictions or program entries all occurred when 
the individual was 21 years of age or younger and the convictions or 
program entries were entered at least 18 months prior to the date of a 
consent application.
    A consent application would also not be required under the proposed 
rule if an individual has convictions or program entries of record 
based on the writing of ``bad'' or insufficient funds checks and the 
following conditions apply: (i) the aggregate total face value of all 
``bad'' or insufficient funds checks cited across all the convictions 
or

[[Page 76707]]

program entries for ``bad'' or insufficient funds checks is $2,000 or 
less; (ii) no insured depository institution or insured credit union 
was a payee on any of the ``bad'' or insufficient funds checks that 
were the basis of the convictions or program entries; and (iii) the 
individual has no more than 1 other de minimis offense.
    The FHBA and the proposed rule would also not require a consent 
application for convictions or program entries for small-dollar, simple 
theft. Under the proposed rule, convictions or program entries based on 
the simple theft of goods, services, or currency (or other monetary 
instrument) would be considered de minimis offenses if the following 
conditions apply: (i) the value of the currency, goods, or services 
taken is $1,000 or less; (ii) the theft was not committed against an 
insured depository institution or insured credit union; (iii) the 
individual has no more than 1 other de minimis offense under this 
section; and (iv) if there are 2 de minimis offenses under this 
section, each conviction or program entry was entered at least 3 years 
prior to the date a consent application would otherwise be required, or 
at least 18 months prior to the date a consent application would 
otherwise be required if the actions that resulted in the conviction or 
program entry all occurred when the individual was 21 years of age or 
younger. This exception excludes burglary, forgery, robbery, identity 
theft, and fraud.
    Paragraph (c) would provide that individuals must be covered by a 
fidelity bond to the same extent as others in similar positions. This 
policy is consistent with IRPS 19-1.\24\
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    \24\ See 12 CFR 713 (Fidelity bond and insurance coverage for 
federally insured credit unions).
---------------------------------------------------------------------------

    Paragraph (d) would state that any conviction or program entry for 
specific criminal offenses under Title 18 set out in 12 U.S.C. 
1785(d)(2) cannot qualify for a de minimis exemption.
    Finally, the Board notes that the FHBA includes ``designated lesser 
offenses'' in addition to de minimis offenses. Designated lesser 
offenses, including use of fake identification, shoplifting, trespass, 
fare evasion, or driving with an expired license or tag, are low-risk 
offenses statutorily excluded from the scope of section 205(d).
9. Sec.  752.9--How To File a Consent Application
    This section would provide that consent applications filed by a 
credit union should be filed with the NCUA's Regional Office where the 
credit union's home office is located (or with ONES for credit unions 
that office supervises), and consent applications filed by an 
individual should be filed with the NCUA's Regional Office where the 
person lives. States covered by each NCUA Regional Office are listed in 
12 CFR 790.2.
    When the proposed rule is finalized, the Board will revise 
delegations of authority related to consent applications. Under the 
revised delegations, Regional Directors and the ONES Director will have 
authority to act on both individual and credit union-sponsored 
applications. Currently, the Regional Directors and the ONES Director 
only have delegated authority to act on credit union-sponsored 
applications, and the Board has retained the authority to approve/
disapprove individual applications.
10. Section 752.10--How a Consent Application Is Evaluated
    Paragraph (a) would set out the factors the NCUA would assess to 
determine the level of risk the applicant poses to an insured credit 
union and whether the NCUA would consent to the person's participation 
in a credit union's affairs. The paragraph reflects new statutory 
requirements related to the NCUA's review process, including the 
requirement that the NCUA primarily rely on the criminal history record 
of the Federal Bureau of Investigation in its review and provide such 
record to the applicant to review for accuracy.\25\ The Board 
interprets the term ``criminal history record'' to mean ``identity 
history summary checks,'' which are commonly known as ``rap sheets.'' 
Under paragraph (a)--and in accordance with the FHBA--the NCUA, in 
reviewing a consent application, would provide ``such record'' to the 
individual to review for accuracy.\26\ The NCUA would not provide it to 
the credit union, but only to the individual. In evaluating the risk 
posed by the person's participation, the Board has proposed 8 
considerations that it would evaluate. These considerations are 
substantively similar to factors under IRPS 19-1.
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    \25\ See 12 U.S.C. 1785(d)(5)(F).
    \26\ Id.
---------------------------------------------------------------------------

    Paragraph (b) would state that the NCUA would not require an 
applicant to provide certified copies of criminal history records 
unless the NCUA determines that there is a clear and compelling 
justification to require additional information to verify the accuracy 
of the criminal history record of the Federal Bureau of Investigation.
    Paragraph (c) would state that the determining factors in assessing 
a consent application would be whether the person has demonstrated 
their fitness to participate in the conduct of the affairs of an 
insured credit union, and whether the affiliation, or participation by 
the person in the conduct of the affairs of the credit union, may 
constitute a threat to the safety and soundness of the credit union or 
the interests of its members or threaten to impair public confidence in 
the credit union.
    Paragraph (d) would set forth the considerations the NCUA would 
evaluate in conducting an individualized assessment. The proposed rule 
also clarifies how the NCUA will evaluate evidence of rehabilitation 
and other evidence, as required by the FHBA.\27\
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    \27\ While the statute uses the terms ``rehabilitation'' and 
``mitigating'' as separate categories of evidence, the terms appear 
to be substantially similar in the context of section 205 consent 
applications, and the use of both terms in these regulations may 
create confusion. Therefore, the proposed rule uses the term 
rehabilitation, not mitigating.
---------------------------------------------------------------------------

    Paragraph (e) would provide that the question of whether a person, 
who was convicted of a crime or who agreed to a program entry, was 
guilty of that crime shall not be at issue in a proceeding under this 
subpart or under 12 CFR part 746, subpart B.
    Paragraph (f) would provide that the NCUA will also apply the 
considerations in paragraph (d) to determine whether the interests of 
justice are served in seeking an exception in the appropriate court 
when a consent application is made prior to 10 years after the final 
conviction or agreement to program entry for certain federal 
offenses.\28\
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    \28\ See 12 U.S.C. 1785(d)(2)(A).
---------------------------------------------------------------------------

    Paragraph (g) would provide that all approvals and orders will be 
subject to the condition that the person be covered by a fidelity bond 
to the same extent as others in similar positions.
    Paragraph (h) would provide that when deemed appropriate by the 
NCUA, credit union-sponsored consent applications are intended to allow 
the individual to work for the same employer and across positions. NCUA 
consent would be required for any proposed significant changes in the 
individual's security-related duties or responsibilities, such as 
promotion to an officer or other positions that the employer determines 
will require higher security-screening credentials.
    Paragraph (i) would provide that when a person who has received 
approval under section 205(d) subsequently seeks to participate in the 
conduct of the affairs of another insured credit union, another consent 
application must be submitted.

[[Page 76708]]

11. Section 752.11--What will the NCUA do if the consent application is 
denied?
    Paragraph (a) would provide that the NCUA would provide a written 
denial that would summarize or cite the relevant factors from the 
proposed Sec.  752.10. Paragraph (b) would provide that the applicant 
can file a written request for reconsideration or appeal under the 
process contained in 12 CFR part 746, subpart B. That subpart includes 
uniform procedures by which petitioners may appeal initial agency 
determinations to the Board.
    Under part 746, subpart B, prior to submitting an appeal to the 
Board, the petitioner may make a written request to the appropriate 
Regional Office or, if appropriate, ONES, to reconsider an initial 
agency determination within 30 calendar days of the date of that 
determination. Within 60 calendar days of the date of an initial agency 
determination or, as applicable, a determination by the Regional Office 
or, if appropriate, ONES, on any request for reconsideration, a 
petitioner may file an appeal seeking review of the determination by 
the Board. Under part 746, subpart B, a petitioner may also request an 
oral hearing before the Board. These procedures meet the statutory 
requirement for ``national office review'' of any consent application 
that is denied by a Regional Office, if the individual requests a 
review by the Board.\29\ This option is also substantially similar to 
the FDIC's current parts 303 and 308, except that under those 
regulations, an oral hearing is conducted unless the applicant or the 
insured depository institution waives it in writing and instead makes a 
written submission.\30\
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    \29\ 12 U.S.C. 1785(d)(5)(D).
    \30\ 12 CFR 308.158(d).
---------------------------------------------------------------------------

NCUA Practice on Section 205(d)

    In general, the proposed rule would mirror the FDIC's part 303 with 
minimal, non-substantive changes. Additionally, while there were a few 
differences between the FDIC's part 303 and IRPS 19-1 before the FHBA, 
such as some details on de minimis offenses, expungements, and 
treatment of drug-related offenses, the enactment of the FBHA resolved 
most discrepancies between the two agencies' rules and created a more 
uniform standard. However, there are a few areas in which IRPS 19-1 
provided additional context and discussion on its policy and procedures 
related to section 205(d) compared to part 303. In general, the 
additional information does not provide any substantive difference from 
part 303 and instead provides additional clarifying information.
    The Board has chosen to omit much of the clarifying information in 
the proposed rule to ensure its uniformity with part 303; however, the 
Board also believes credit unions generally have less experience with 
section 205(d) than insured depository institutions and are typically 
smaller in size with fewer resources, so additional guidance would help 
insured credit unions to discharge their responsibilities under section 
205(d). Therefore, in finalizing and implementing this rule, the NCUA 
will prepare guidance that provides insured credit unions additional 
information about section 205(d). The guidance will include portions of 
IRPS 19-1 that were not incorporated into the proposed rule.
    For example, IRPS 19-1 provides that when the credit union learns 
that a prospective employee has a prior conviction or entered into a 
pretrial diversion program for a covered offense, the credit union 
should document in its files that a consent application is not required 
because the covered offense is considered de minimis and meets all of 
the criteria for the exception, or--if the credit union is willing to 
sponsor the prospective employee's consent application--submit an 
application requesting the Board's consent. The credit union could also 
extend a conditional offer of employment and notify the prospective 
employee that it is contingent upon a satisfactory background check to 
determine whether the individual is prohibited under section 205(d). 
The Board intends no change of position regarding these policies even 
though they are not included in the proposed rule.
    IRPS 19-1 also states that persons who will occupy clerical, 
maintenance, service, or purely administrative positions generally can 
be approved without an extensive review. A more detailed analysis, 
however, would be performed in the case of persons who will be in a 
position to influence or control the management or affairs of the 
insured credit union. The proposed rule would not include a similar 
delineation between how the NCUA intends to approve consent 
applications for different types of positions. The Board continues to 
believe that applications for clerical, maintenance, service, or purely 
administrative positions do not require the same review as applications 
for other positions that have access to more of the day-to-day 
financial operations of a credit union. The NCUA will address this 
issue in future guidance.

Waiting Time for a Subsequent Consent Application if a Consent 
Application Is Denied

    The FDIC's current part 303 states that an applicant will need to 
wait one year from the date of the denial or decision of the FDIC 
Board, or its designee, before resubmitting a consent application. The 
Board is not proposing to include similar language for several reasons. 
First, the NCUA does not receive a significant volume of section 205(d) 
consent applications and does not believe allowing credit unions or 
individuals to resubmit consent applications at any time would present 
a burden on the agency and its resources. Second, the NCUA would not 
want to unfairly delay an individual from seeking employment if the 
consent application was denied for a reason that could be immediately 
addressed by the applicant. For example, if the consent application was 
denied due to insufficient support showing rehabilitation, the 
individual could immediately refile with additional evidence, such as 
employment history, letters of recommendation, documentation of 
participation in substance-abuse programs or job preparation and 
educational programs, or other relevant evidence.

Other Conforming Amendments

    Both the standard FCU Bylaws in appendix A of part 701 and the 
criteria for determining the insurability of a credit union in 12 CFR 
741.3(c) reference section 205(d). In general, both sections prohibit a 
person who has been convicted of any criminal offense involving 
dishonesty or breach of trust from serving at an insured credit union, 
except with the written consent of the Board. The Board believes these 
references are incomplete because not all convictions of criminal 
offenses involving dishonesty or breach of trust now serve as the valid 
basis for a section 205(d) prohibition. Therefore, the proposed rule 
would replace the current reference to ``any crime involving dishonesty 
or a breach of trust'' to refer to the specific crimes covered under 
section 205(d). Referring directly to the FCU Act would also 
automatically incorporate future statutory changes to section 205(d). 
The Board may make other similar conforming amendments in finalizing 
this proposed rule if it identifies other provisions that should be 
clarified simply to reflect the changes that the FHBA made to the 
statutory prohibitions.
    Additionally, as required by the Gramm-Leach-Bliley Act, appendix B 
to part 748 (Appendix B) contains

[[Page 76709]]

guidance on creating an effective incident response plan in the event 
of unauthorized access to member information and the requirements of 
the notices distributed to the affected members.\31\ Appendix B states 
that credit unions should also conduct background checks of employees 
to ensure that the credit union does not violate 12 U.S.C. 1785(d). The 
proposed rule would require a background check in Sec.  752.1(b), which 
is consistent with current expectations, as discussed in the 
introductory portion of this preamble.\32\ Therefore, the proposed rule 
would amend this footnote to state that insured credit unions must also 
conduct background checks of employees.
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    \31\ 12 CFR 748, App. B.
    \32\ The Board notes that insured credit unions may extend a 
conditional offer of employment contingent on the completion of a 
background check satisfactory to the credit union to determine if 
the applicant is barred under section 205(d).
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Proposed Amendments to Sec.  701.14 on Change in Official or Senior 
Executive Officer in Credit Unions That Are Newly Chartered or Are in 
Troubled Condition

    In addition to the prohibition on certain individuals participating 
in the conduct of the affairs of a credit union included in section 
205(d), the FCU Act also sets forth conditions under which certain 
insured credit unions must notify the NCUA in writing of any proposed 
changes in its board of directors, committee members, or senior 
executive staff (section 212).\33\ The Board implements section 212 
through Sec.  701.14 of its rules.\34\ Section 701.14 requires 
generally that insured credit unions that are newly chartered or 
troubled file notice with the NCUA before adding, replacing, or 
changing the duties of a board or committee member or a senior 
executive officer. The Board has not substantively amended Sec.  701.14 
since 2012 when the Board revised the definition of troubled 
condition.\35\ The proposed rule would make minor amendments to Sec.  
701.14 and would clarify when a notice is required, how the NCUA would 
process the notice, and what information must be included in the NCUA's 
notice of disapproval to the applicant.
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    \33\ 12 U.S.C. 1790a.
    \34\ 12 CFR 701.14.
    \35\ 77 FR 45285 (July 31, 2012).
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    First, the proposed rule would clarify when notice is required. 
Currently, Sec.  701.14 specifies that notice is required whenever 
there is ``any addition or replacement of a member of the board of 
directors or committee member or the employment or change in 
responsibilities of an individual to a position of senior executive 
officer.'' NCUA staff has received questions on whether notice is 
required when a member of the board or a committee moves to another 
position, such as when an existing board member switches to the board 
chair position. For clarity, the proposed rule would specify that a 
credit union must provide notice when adding or replacing any member of 
its board of directors or committees, employing any person as a senior 
executive officer of the credit union, or changing the responsibilities 
of a board member, committee member, or a senior executive officer so 
that the person would assume a different position. The Board solicits 
comment on whether this proposed change provides clarity or increases 
burden on credit unions.
    Second, the proposed rule would increase the amount of time the 
NCUA has to initially review a notice. Currently, in Sec.  
701.14(c)(3)(iii), the NCUA has 10 calendar days after receiving the 
notice to inform the credit union that the notice is complete or that 
additional information is needed. The 10-day notification requirement 
is not specified in the statute, and NCUA staff has found the 10-day 
timeframe difficult to meet, as additional information to analyze the 
request may be required. The Board does not believe that the additional 
5 calendar days would unduly delay the start or change in position of 
board members, committee members, or senior executive officers. 
However, the Board solicits comments on whether insured credit unions 
believe this change would pose any significant operational burden, in 
addition to the general solicitation for comments included in this 
proposed rule.
    The proposed rule would also specify that Regional Director and 
ONES Director communications under Sec.  701.14 may be done through 
email. This is not a substantive change but rather a clarification of 
existing practices and common use of electronic communications in time-
sensitive matters.
    Finally, the proposed rule would explicitly state that the notice 
of disapproval will identify the reason(s) for the denial. On occasion, 
when appealing such a denial, the NCUA has received complaints that 
applicants were not provided sufficient information in the notice of 
disapproval about the reason for the decision. Appellants have 
expressed frustrations that they could not adequately support their 
appeal without sufficient information on the rationale for the NCUA's 
decision. The Board believes any notice of disapproval should 
explicitly state the reason(s) for denial and has included clarifying 
language in the proposed rule.

Other Relevant Authorities on Prohibitions

    Under section 206(i) of the FCU Act (section 206(i)), the Board is 
authorized to suspend or prohibit an IAP from further participation in 
the conduct of the affairs of any credit union if: (1) an IAP is 
charged in any information, indictment, or complaint with a crime 
involving dishonesty or breach of trust which is punishable by 
imprisonment for a term exceeding 1 year under state or federal law or 
certain specific violations of federal criminal law relating to anti-
money laundering provisions; and (2) continued service or participation 
by the IAP may pose a threat to the interests of the credit union's 
members or may threaten to impair public confidence in the credit 
union.\36\ Despite the similar language between section 206(i) and 
section 205(d), the FHBA did not make similar amendments to section 
206(i) as were made to section 205(d). Section 206(i) is narrower in 
scope than section 205(d), as it applies to current IAPs and requires 
an additional showing by the agency to suspend or prohibit an IAP. 
Because the FHBA did not amend section 206(i), the Board retains 
statutory authority to suspend or prohibit an IAP for all crimes 
involving dishonesty or breach of trust, provided that the IAP's 
continued service or participation may pose a threat to the interests 
of the credit union's members or may threaten to impair public 
confidence in the credit union.
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    \36\ 12 U.S.C. 1786(i)(1)(A).
---------------------------------------------------------------------------

    The Board also notes that the Secure and Fair Enforcement for 
Mortgage Licensing Act of 2008 (commonly known as the S.A.F.E. Act) 
mandates a nationwide licensing and registration system for residential 
mortgage loan originators.\37\ The S.A.F.E. Act includes certain 
requirements related to minimum standards for state-licensed loan 
originators--including those working at credit union service 
organizations--and related to felonies involving dishonesty and breach 
of trust.\38\ Additionally, regulations implementing the S.A.F.E. Act 
impose an obligation on depository institutions to adopt certain 
policies, including a requirement that the depository institution 
review employee criminal background reports, including the criminal 
background standards for employees in section 206(i) of the FCU Act, 12 
U.S.C. 1786(i). The Board notes

[[Page 76710]]

these requirements are not included in the FHBA and remain applicable 
to credit unions and credit union service organizations.
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 5101 et seq.
    \38\ 12 U.S.C. 5104.
---------------------------------------------------------------------------

    Similarly, under the Anti-Money Laundering Act of 2020, individuals 
who are found to have committed an ``egregious violation'' of the Bank 
Secrecy Act or its rules are barred from serving on a U.S. financial 
institution's board of directors for 10 years from the date of 
conviction or judgment.\39\ The FHBA does not affect this separate 
statutory prohibition, and it remains applicable to credit unions.
---------------------------------------------------------------------------

    \39\ Public Law 116-283, codified at 31 U.S.C. 5321(g).
---------------------------------------------------------------------------

III. Request for Comments

    The Board seeks comments on all aspects of this proposed rule and 
its approach to section 205(d) and more specifically on the questions 
that follow.
    1. Scope. Should the final rule include additional information on 
who may fall within the scope of section 205(d), including persons who 
participate in the conduct of the affairs of an insured credit union?
    2. Offense date. Section 205(d)(4)(A)(i) provides for an exception 
for an offense if ``it has been 7 years or more since the offense 
occurred.'' \40\ There is a similar provision that removes from the 
definition of ``criminal offense involving dishonesty'' ``a misdemeanor 
criminal offense committed more than 1 year before the date on which an 
individual files a consent application, excluding any period of 
incarceration[.]'' \41\ Historically, the NCUA's position has been that 
actions do not amount to a covered ``offense,'' for section 205(d) 
purposes, until there has been either a conviction via a guilty plea, 
finding of guilt, or an entry into a pretrial-diversion program. This 
is because culpability and responsibility for the actions do not attach 
until one of those events occurs.\42\ However, for purposes of 
evaluating whether the 7-year or 1-year exception applies, the Board 
must evaluate if it has been 7 years or more since the ``offense 
occurred'' or if an ``offense [was] committed more than one year before 
the date on which an individual files a consent application, excluding 
any period of incarceration.'' The Board proposes to interpret the 
phrases ``offense occurred'' and ``offenses committed'' as the ``last 
date of the underlying misconduct'' given the text of the statute. In 
instances with multiple offenses, ``offense occurred'' or ``offense 
committed'' would mean the last date of any of the underlying offenses. 
However, the Board acknowledges that there may be other, supportable 
interpretations of this phrase. For example, the Board is aware of 
legislative history indicating that the timeframes established by the 
FHBA were chosen because of their relation to an individual's 
likelihood of rehabilitation and that an individual's rehabilitation 
likely begins only with conviction or program entry, rather than the 
date of their misconduct. As such, the Board seeks public comment on 
the following topic: Is the Board's interpretation of the phrases 
``offense occurred'' and ``offense committed'' as the ``last date of 
underlying misconduct'' appropriate, or are there other interpretations 
the Board should consider? What support do commenters have for other 
interpretations given the language of the statute?
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    \40\ 12 U.S.C. 1785(d)(4)(A).
    \41\ 12 U.S.C. 1785(d)(6)(B)(iii).
    \42\ See 84 FR 65907, 65917 (Dec. 2, 2019) (``There must be a 
conviction of record. Section 205(d) does not apply to arrests, 
pending cases not brought to trial, acquittals, or any conviction 
which has been reversed on appeal.'')
---------------------------------------------------------------------------

    3. ``Sentencing occurred.'' The FHBA exempts offenses committed by 
individuals 21 years of age or younger if it has been more than 30 
months since the sentencing occurred.\43\ However, the statute does not 
define the phrase ``sentencing occurred.'' The Board proposes to 
interpret ``sentencing occurred'' to mean the date on which a court 
imposed the sentence, not the date on which all conditions of 
sentencing were completed. The Board seeks public comment on the 
following topic: Is the Board's proposed interpretation of the phrase 
``sentencing occurred'' appropriate?
---------------------------------------------------------------------------

    \43\ 12 U.S.C. 1785(d)(4)(A)(ii).
---------------------------------------------------------------------------

    4. Foreign convictions. Section 205(d) applies to any person who 
has been convicted of any criminal offense involving dishonesty or a 
breach of trust, or has agreed to enter into a pretrial diversion or 
similar program in connection with a prosecution for such offense.\44\ 
The phrase ``criminal offense involving dishonesty'' is defined in the 
statute but is silent as to whether it includes convictions and 
pretrial diversions for criminal offenses prosecuted by foreign 
authorities (foreign convictions).\45\ The statute does not define 
``offense involving . . . breach of trust.'' The FDIC's position has 
been that foreign convictions and pretrial diversions are included 
within the scope of section 19. The Board believes it is reasonable to 
follow and adopt the FDIC's long-held position given the statutory 
mandate for consistency and the FDIC's greater experience with section 
19 consent applications. In addition, there are strong public policy 
rationales for prohibiting a person who has been convicted of certain 
foreign criminal offenses (or entered into a pretrial diversion program 
in connection with such an offense) from becoming or continuing as an 
IAP or participating in the affairs of an insured credit union. 
However, the Board acknowledges that there may be case law, statutory 
construction, and other arguments that support a reading of section 
205(d) that would exclude foreign convictions and pretrial diversions 
from the scope of section 205(d). Therefore, the Board seeks public 
comment on the following topic: Does section 205(d) encompass foreign 
convictions and pretrial diversions? What support do commenters have 
for their position?
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    \44\ 12 U.S.C. 1785(d)(1).
    \45\ See 12 U.S.C. 1785(d)(6).
---------------------------------------------------------------------------

    5. Expungements, sealings, and dismissals. The FHBA establishes a 
new statutory exemption for expunged, sealed, and dismissed convictions 
(collectively, ``expungements'').\46\ The statutory language does not 
mention expungements ``by operation of law''--as opposed to through a 
court order. The proposed rule incorporates the new statutory language 
but also includes a broad interpretation of ``expungement'' to 
encompass covered offenses that have been expunged by operation of law. 
The Board seeks public comment on the following topic: Given the new 
statutory exemption for expunged offenses, is the Board's more 
expansive proposed interpretation of expungement--which term includes 
records that have been expunged by application of law--appropriate?
---------------------------------------------------------------------------

    \46\ 12 U.S.C. 1785(d)(4)(B).
---------------------------------------------------------------------------

    6. Offenses involving controlled substances. The FHBA states that 
an ``offense involving the possession of controlled substances'' is not 
included within the definition of ``criminal offense involving 
dishonesty'' and, therefore, are not subject to the section 205(d) 
prohibition.\47\ The proposed rule includes this definitional exclusion 
and notes that the Board interprets the phrase ``offenses involving the 
possession of controlled substances'' to include, at a minimum, the 
offenses of simple possession of controlled substances and possession 
with intent to distribute controlled substances. This interpretation 
would mark an expansion from IRPS 19-1. At the same time, this 
interpretation would track the statutory language of ``offenses 
involving the possession of controlled substances'' by encompassing the 
offense of possession

[[Page 76711]]

with intent to distribute controlled substances. The Board seeks public 
comment on the following topic: Is the Board's interpretation of 
``offense[s] involving the possession of controlled substances'' as 
applying, at a minimum, to simple possession and possession with intent 
to distribute appropriate?
---------------------------------------------------------------------------

    \47\ 12 U.S.C. 1785(d)(6)(B)(iii)(II).
---------------------------------------------------------------------------

    7. De minimis offenses. The FHBA states that the NCUA may exempt by 
rule certain de minimis offenses from the section 205(d) prohibition. 
The NCUA considers de minimis offenses to be covered offenses for which 
a consent application is not required because the NCUA deems the 
application automatically granted. The NCUA has previously promulgated 
IRPS 19-1, which specified de minimis offenses under section 205(d). 
However, given this new statutory language, the Board is reevaluating 
its current approach to de minimis offenses. Accordingly, the Board 
seeks public comment on the following topic: Is the Board's current 
approach to de minimis offenses appropriate? Are there additional 
offenses that the Board should consider de minimis under section 19? 
Commenters should provide support for such a designation.
    8. Conforming changes. The Board also requests comments on other 
conforming changes or updates that it should make to its regulations or 
guidance to implement the new statutory provisions. As noted, in the 
final rule, the Board may adopt additional conforming amendments to its 
regulations if it finds that other provisions should be changed solely 
to indicate the new, more limited scope of the section 205(d) 
prohibitions. The Board would not anticipate making substantive changes 
to these provisions that would create new standards beyond those in the 
statutory amendments.

IV. Regulatory Procedures

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency creates a new or amends existing information collection 
requirements.\48\ For purposes of the PRA, an information collection 
requirement may take the form of a reporting, recordkeeping, or a 
third-party disclosure requirement. The NCUA may not conduct or sponsor 
and the respondent is not required to respond to an information 
collection, unless it displays a valid Office of Management and Budget 
(OMB) control number.
---------------------------------------------------------------------------

    \48\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

    The proposed rule would extend greater relief than what is 
currently available to certain individuals with prior convictions 
seeking employment with an insured credit union, thereby eliminating 
the need to submit consent applications for certain offenses, 
particularly older or expunged convictions, prior misdemeanors, drug 
possession offenses, and other lesser offenses. The proposed rule 
should reduce the number of respondents applying for consent, but it 
may also increase the number of applications because of a renewed 
awareness of the statutory prohibition. Thus, the estimated number of 
respondents applying for consent would remain at one. The proposed rule 
continues to require credit unions to document when an application is 
not required. This recordkeeping requirement is minimal and only 
impacts those credit unions or individuals who would otherwise have 
submitted an application for consent.
    These program changes would revise the information collection 
requirement currently approved OMB control number 3133-0203, as 
follows:
    Title of Information Collection: IRPS 19-1, Guidance Regarding 
Prohibitions Imposed by Section 205(d) of the Federal Credit Union Act.
    Estimated Number of Respondents: 4.
    Estimated Number of Responses per Respondent: 1.
    Estimated Annual Frequency of Response: 1.
    Estimated Hours per Response: 0.75.
    Estimated Total Annual Burden Hours: 3.
    Affected Public: Private Sector: Not-for-profit institutions; 
Individual or Household.
    The NCUA invites comments on: (a) whether the collections of 
information are necessary for the proper performance of the agencies' 
functions, including whether the information has practical utility; (b) 
the accuracy of the estimates of the burden of the information 
collections, including the validity of the methodology and assumptions 
used; (c) ways to enhance the quality, utility, and clarity of the 
information to be collected; (d) ways to minimize the burden of the 
information collections on respondents, including through the use of 
automated collection techniques or other forms of information 
technology; and (e) estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    All comments are a matter of public record. Comments regarding the 
information collection requirements should be sent to (1) Jennifer 
Harrison, NCUA PRA Clearance Officer, National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314, or email 
at <a href="/cdn-cgi/l/email-protection#6f3f3d2e0c0002020a011b1c2f010c1a0e41080019"><span class="__cf_email__" data-cfemail="34646675575b5959515a4047745a5741551a535b42">[email protected]</span></a> and the (2) Office of Information and 
Regulatory Affairs, Office of Management and Budget, Attention: Desk 
Officer for NCUA, New Executive Office Building, Room 10235, 
Washington, DC 20503, or email at <a href="/cdn-cgi/l/email-protection#0f40465d4e505c7a6d62667c7c6660614f40424d214a405f21686079"><span class="__cf_email__" data-cfemail="430c0a11021c1036212e2a30302a2c2d030c0e016d060c136d242c35">[email protected]</span></a>.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule or a final rule pursuant to the 
Administrative Procedure Act or another law, the agency must prepare a 
regulatory flexibility analysis that meets the requirements of the RFA 
and publish such analysis in the Federal Register. Specifically, the 
RFA normally requires agencies to describe the impact of a rulemaking 
on small entities by providing a regulatory impact analysis. For 
purposes of the RFA, the Board considers credit unions with assets less 
than $100 million to be small entities.\49\ A regulatory flexibility 
analysis is not required, however, if the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities and publishes its certification and a short, 
explanatory statement in the Federal Register together with the rule.
---------------------------------------------------------------------------

    \49\ NCUA IRPS 15-1, 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

    The Board does not believe the proposed rule would have a 
significant economic impact on a substantial number of small entities. 
In the period from 2019 through 2023, the NCUA received 4 consent 
applications. This averages to one application a year. Therefore, on 
average, only about one small entity--at most--would be affected by the 
proposed rule annually.
    As discussed in the SUPPLEMENTARY INFORMATION section, the proposed 
rule would align the NCUA's regulations with the FHBA's provisions and 
more closely align the NCUA's section 205(d) regulations with those of 
other federal financial regulators. Most of the proposed changes were 
precipitated by the FHBA--which was effective immediately upon 
passage--and the proposed rule aligns the NCUA's regulations with these 
elements of the FHBA; therefore, most of the associated changes in the 
proposed rule will have no direct effect on individuals or credit 
unions. Further, since the NCUA estimates that on average approximately 
one NCUA-insured institution could be affected by the proposed rule 
annually, any direct effects realized because of the proposed rule are 
likely to be small and

[[Page 76712]]

affect a relatively small number of entities.
    In light of the foregoing, the NCUA certifies that the proposed 
rule would not have a significant economic impact on a substantial 
number of small entities. The NCUA invites comments on all aspects of 
the supporting information provided in this section. In particular, 
would this proposed rule have any significant effects on small entities 
that the NCUA has not identified?

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the executive order to adhere to fundamental 
federalism principles.
    This proposed rule would apply to all insured credit unions, 
including federally insured, state-chartered credit unions. The Board 
has determined that the proposed amendments would not have a 
substantial direct effect on the states, on the connection between the 
national government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Further, the 
proposed rule would implement a statutory amendment, and the NCUA does 
not have discretion in implementing the statutory changes to section 
205(d). In particular, the Board does not believe that these changes 
will affect its existing agreements and division of supervisory 
responsibilities with state regulatory agencies. The Board expects to 
continue to coordinate with these agencies as appropriate in carrying 
out its responsibilities under section 205(d) and related provisions. 
Therefore, the Board has determined that this rule does not constitute 
a policy that has federalism implications for purposes of the executive 
order.

Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule may affect family 
well-being positively within the meaning of section 654 of the Treasury 
and General Government Appropriations Act, 1999, Public Law 105-277, 
112 Stat. 2681 (1998). In particular, the NCUA has reviewed the 
criteria specified in section 654(c)(1) of that act, by evaluating 
whether this proposed regulatory action (1) impacts the stability or 
safety of the family, particularly in terms of marital commitment; (2) 
impacts the authority of parents in the education, nurture, and 
supervision of their children; (3) helps the family perform its 
functions; (4) affects disposable income or poverty of families and 
children; (5) only financially impacts families, if at all, to the 
extent such impacts are justified; (6) may be carried out by State or 
local government or by the family; or (7) establishes a policy 
concerning the relationship between the behavior and personal 
responsibility of youth and the norms of society. Under this statute, 
if the agency determines the proposed regulation may negatively affect 
family well-being, then the agency must provide an adequate rationale 
for its implementation.
    The proposed rule would implement legislative amendments that 
increase employment opportunities for individuals with certain older or 
minor criminal offenses involving dishonesty or breach of trust. These 
increased employment opportunities may strengthen the stability of 
families, help families perform their functions, and increase 
disposable income. These changes are not likely to affect the rights of 
parents in the education or nurture of their children. The changes call 
for federal rather than state or local government action because the 
legislation affects the federal statute governing all federally insured 
credit unions. The Board also notes that it has limited discretion in 
whether and how to implement the legislative amendments and thus cannot 
substantially vary from the legislation. The Board has determined that 
this proposed rule may affect family well-being positively within the 
meaning of this statute.\50\ As with all aspects of the proposed rule, 
commenters are invited to offer their opinion on this issue.
---------------------------------------------------------------------------

    \50\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

Providing Accountability Through Transparency Act of 2023

    The Providing Accountability Through Transparency Act of 2023 (5 
U.S.C. 553(b)(4)) (Act) requires that a notice of proposed rulemaking 
include the internet address of a summary of not more than 100 words in 
length of a proposed rule, in plain language, that shall be posted on 
the internet website under section 206(d) of the E-Government Act of 
2002 (44 U.S.C. 3501 note) (commonly known as regulations.gov). The 
Act, under its terms, applies to notices of proposed rulemaking and 
does not expressly include other types of documents that the Board 
publishes voluntarily for public comment, such as notices and interim-
final rules that request comment despite invoking ``good cause'' to 
forgo such notice and public procedure. The Board, however, has elected 
to address the Act's requirement in these types of documents in the 
interests of administrative consistency and transparency.
    In summary, the proposal would incorporate the ``Second Chance'' 
Interpretive Ruling and Policy Statement 19-1 and the Fair Hiring in 
Banking Act into the NCUA's regulations. Section 205(d) of the Federal 
Credit Union Act prohibits, except with the Board's prior written 
consent, any person who has been convicted of certain criminal offenses 
involving dishonesty or breach of trust, or who has entered into a 
pretrial diversion or similar program in connection with a prosecution 
for such an offense, from participating in the conduct of the affairs 
of an insured credit union.
    The proposal and the required summary can be found at https://www.regulations.gov.

List of Subjects

12 CFR Part 701

    Administrative practice and procedure, Credit, Credit unions.

12 CFR Part 741

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

12 CFR Part 746

    Administrative practice and procedure, Claims, Credit unions, 
Investigations.

12 CFR Part 748

    Computer technology, Confidential business information, Credit 
unions, internet, Personally identifiable information, Privacy, 
Reporting and recordkeeping requirements, Security measures.

12 CFR Part 752

    Administrative practice and procedure.

    By the NCUA Board on October 19, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons discussed in the preamble, the Board proposes to 
amend 12 CFR chapter VII as follows:

PART 701-- ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
1. The authority citation for part 701 continues to read as follows:


[[Page 76713]]


    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789. 
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

0
2. In 701.14, revise paragraphs (c)(1), (c)(3)(iii), and the second 
sentence in paragraph (e) as follows:


Sec.  701.14  Change in official or senior executive officer in credit 
unions that are newly chartered or are in troubled condition.

    (c) * * * (1) Prior Notice Requirement. An insured credit union 
must give the NCUA written notice at least 30 days before the effective 
date of adding or replacing any member of its board of directors or 
committee member, employing any person as a senior executive officer of 
the credit union, or changing the responsibilities of a board member, 
committee member, or a senior executive officer so that the person 
would assume a different position if:
    (i) The credit union has been chartered for less than 2 years; or
    (ii) The credit union meets the definition of troubled condition in 
paragraph (b)(3) or (4) of this section.
* * * * *
    (3) * * *
    (iii) Processing. Within 15 calendar days after receiving the 
notice, the Regional Director will inform the credit union either that 
the notice is complete or that additional, specified information is 
needed and must be submitted within 30 calendar days. If the initial 
notice is complete, the Regional Director will issue a written decision 
of approval or disapproval to the individual and the credit union 
within 30 calendar days of receipt of the notice. If the initial notice 
is not complete, the Regional Director will issue a written decision 
within 30 calendar days of receipt of the original notice plus the 
amount of time the credit union takes to provide the requested 
additional information. If the additional information is not submitted 
within 30 calendar days of the Regional Director's request, the 
Regional Director may either disapprove the proposed individual or 
review the notice based on the information provided. If the credit 
union and the individual have submitted all requested information and 
the Regional Director has not issued a written decision within the 
applicable time period, the individual is approved. Regional Director 
communications may be done through electronic mail.
* * * * *
    (e) * * * The Notice of Disapproval will identify the reason(s) for 
the denial and advise the parties of their rights to request 
reconsideration from the Regional Director and/or file an appeal with 
the NCUA Board in accordance with the procedures set forth in 12 CFR 
part 746, subpart B.
0
3. In the Official Commentary to Appendix A to part 701, under 
``Article V. Elections,'' revise paragraph i.(b) to read as follows:

Appendix A to Part 701--Federal Credit Union Bylaws

    Official NCUA Commentary--Federal Credit Union Bylaws
    Article V. Elections
* * * * *
    i. Eligibility Requirements: * * *
    (b) The individual cannot have been convicted of a crime covered 
under section 205(d) of the Federal Credit Union Act (12 U.S.C. 
1785(d)) unless the NCUA Board has waived the prohibition for the 
conviction; and
* * * * *

PART 741--REQUIREMENTS OF INSURANCE

0
4. The authority citation for part 741 continues to read as follows:

    Authority:  12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31 
U.S.C. 3717.

0
5. In Sec.  741.3, revise the second sentence of paragraph (c) as 
follows:


Sec.  741.3  Criteria.

    (c) Fitness of management. * * * No person shall serve as a 
director, officer, committee member, or employee of an insured credit 
union who has been convicted of a crime covered under section 205(d) of 
the Federal Credit Union Act (12 U.S.C. 1785(d)), except with the 
written consent of the Board.
* * * * *

PART 746--APPEALS PROCEDURES

0
6. The authority citation for part 746 continues to read as follows:

    Authority:  12 U.S.C. 1766, 1787, and 1789.


Sec.  746.201  [Amended]

0
7. In Sec.  746.201, in paragraph (c), add ``752.11(b),'' between 
``745.201(c),'' and ``subpart J to part 747 of this chapter,''.

PART 748--SECURITY PROGRAM, SUSPICIOUS TRANSACTIONS, CATASTROPHIC 
ACTS, CYBER INCIDENTS, AND BANK SECRECY ACT COMPLIANCE

0
8. The authority citation for part 748 continues to read as follows:

    Authority:  12 U.S.C. 1766(a), 1786(b)(1), 1786(q), 1789(a)(11); 
15 U.S.C. 6801-6809; 31 U.S.C. 5311 and 5318.

0
9. Revise footnote 7 in appendix B to part 748 to read as follows.

Appendix B to Part 748--Guidance on Response Programs for Unauthorized 
Access to Member Information and Member Notice

    \7\ Credit unions must also conduct background checks of 
employees to ensure that the credit union does not violate 12 U.S.C. 
1785(d), which prohibits a credit union from hiring an individual 
convicted of certain criminal offenses or who is subject to a 
prohibition order under 12 U.S.C. 1786(g).
* * * * *
0
10. Add part 752 to read as follows:

PART 752--CONSENT TO SERVICE OF PERSONS CONVICTED OF, OR WHO HAVE 
PROGRAM ENTRIES FOR, CERTAIN CRIMINAL OFFENSES

Sec.
752.1 What is section 205(d) of the FCU Act?
752.2 Who is covered by section 205(d)?
752.3 What offenses are covered under section 205(d)?
752.4 What constitutes a conviction under section 205(d)?
752.5 What constitutes a pretrial diversion or similar program under 
section 205(d)?
752.6 What are the types of consent applications that can be filed?
752.7 When must a consent application be filed?
752.8 De minimis offenses.
752.9 How to file a consent application.
752.10 How a consent application is evaluated.
752.11 What will the NCUA do if the consent application is denied?

    Authority:  12 U.S.C. 1785(d).


Sec.  752.1  What is section 205(d) of the Federal Credit Union Act?

    (a) This subpart covers consent applications under section 205(d) 
of the Federal Credit Union Act (FCU Act), 12 U.S.C. 1785(d). The NCUA 
refers to such applications as ``consent applications.'' Under section 
205(d), any person who has been convicted of any criminal offense 
involving dishonesty or breach of trust, or has agreed to enter into a 
pretrial diversion or similar program (program entry) in connection 
with a prosecution for such offense (collectively, covered offenses), 
may not become, or continue as, an institution-affiliated party (IAP) 
of an insured credit union; or otherwise participate, directly or 
indirectly, in the conduct of the affairs of any insured credit union 
without the prior written consent of the NCUA. Section 205(d) imposes a 
ten-year ban against the Board granting consent for a person convicted 
of certain crimes enumerated in Title 18 of the United States Code. In 
order for the Board to grant consent during the ten-year period, the 
Board must file a

[[Page 76714]]

motion with, and obtain the approval of, the sentencing court.
    (b) In addition, the law prohibits an insured credit union from 
permitting such a person to engage in any conduct or to continue any 
relationship prohibited by section 205(d). Insured credit unions must 
therefore make a reasonable, documented, inquiry to verify an 
applicant's history to ensure that a person who has a conviction or 
program entry covered by the provisions of section 205(d) is not hired 
or permitted to participate in its affairs without the written consent 
of the NCUA issued under this subpart. Insured credit unions may extend 
a conditional offer of employment contingent on the completion of a 
background check satisfactory to the credit union to determine if the 
applicant is prohibited under section 205(d), but the applicant may not 
work for, be employed by, or otherwise participate in the affairs of 
the insured credit union until the credit union has determined that the 
applicant is not prohibited under section 205(d).
    (c) If there is a conviction or program entry covered by the 
prohibitions of section 205(d), a consent application under this 
subpart must be filed seeking the NCUA's consent to become, or to 
continue as, an IAP; or to otherwise participate, directly or 
indirectly, in the affairs of the insured credit union. The consent 
application must be filed, and consented to, prior to serving in any of 
the foregoing capacities unless such consent application is not 
required under the subsequent provisions of this subpart. The purpose 
of a consent application is to provide the applicant an opportunity to 
demonstrate that, notwithstanding the prohibition, a person is fit to 
participate in the conduct of the affairs of an insured credit union 
without posing a risk to its safety and soundness or impairing public 
confidence in that credit union. The burden is upon the applicant to 
establish that the consent application warrants approval.


Sec.  752.2  Who is covered by section 205(d)?

    (a)(1) Persons covered by section 205(d) include IAPs, as defined 
by 12 U.S.C. 1786(r), and others who are participants in the conduct of 
the affairs of an insured credit union. Therefore, all directors, 
officers, and employees of an insured credit union who fall within the 
scope of section 205(d), including de facto employees, as determined by 
the NCUA based upon generally applicable standards of employment law, 
will also be subject to section 205(d).
    (2) Whether other persons who are not IAPs are covered depends upon 
their degree of influence or control over the management or affairs of 
an insured credit union. Those who exercise major policymaking 
functions of an insured credit union are deemed participants in the 
affairs of that institution and covered by section 205(d). Similarly, 
directors and officers of subsidiaries or joint ventures of an insured 
credit union will be covered if they participate in the affairs of the 
insured credit union or are in a position to influence or control the 
management or affairs of the insured credit union. Typically, an 
independent contractor does not have a relationship with the insured 
credit union other than the activity for which the credit union has 
contracted. However, an independent contractor who influences or 
controls the management or affairs of the insured credit union would be 
covered by section 205(d).
    (b) The term person, for purposes of section 205(d), means an 
individual and does not include a corporation, firm, or other business 
entity.


Sec.  752.3  Which offenses qualify as ``Covered Offenses'' under 
section 205(d)?

    (a) General definitions. The conviction or program entry must be 
for a criminal offense involving dishonesty or breach of trust.
    (1) The term criminal offense involving dishonesty--
    (i) Means an offense under which an individual, directly or 
indirectly--
    (A) Cheats or defrauds; or
    (B) Wrongfully takes property belonging to another in violation of 
a criminal statute;
    (ii) Includes an offense that federal, state, or local law defines 
as dishonest, or
    for which dishonesty is an element of the offense; and
    (iii) Does not include--
    (A) A misdemeanor criminal offense committed more than 1 year 
before the date on which an individual files a consent application, 
excluding any period of incarceration; or
    (B) An offense involving the possession of controlled substances. 
At a minimum, this exclusion applies to criminal offenses involving the 
simple possession of a controlled substance and possession with intent 
to distribute a controlled substance. This exclusion may also apply to 
other drug-related offenses depending on the statutory elements of the 
offenses or from court determinations that the statutory provisions of 
the offenses involve dishonesty or breach of trust as noted in 
paragraph (b) of this section. Potential applicants may contact their 
appropriate NCUA Regional Office or the Office of National Examinations 
and Supervision, if applicable, if they have questions about whether 
their offenses are covered under section 205(d).
    (iv) The term offense committed in paragraph (a)(1)(iii)(A) means 
the last date of the underlying misconduct. In instances with multiple 
offenses, offense committed means the last date of any of the 
underlying offenses.
    (2) The term breach of trust means a wrongful act, use, 
misappropriation, or omission with respect to any property or fund that 
has been committed to a person in a fiduciary or official capacity, or 
the misuse of one's official or fiduciary position to engage in a 
wrongful act, use, misappropriation, or omission.
    (b) Dishonesty or breach of trust. Whether a crime involves 
dishonesty or breach of trust will be determined from the statutory 
elements of the offense itself or from court determinations that the 
statutory provisions of the offense involve dishonesty or breach of 
trust.
    (c) Certain older offenses excluded. -- (1) General. Section 205(d) 
does not apply to an offense if--
    (i) it has been 7 years or more since the offense occurred; or
    (ii) the individual was incarcerated with respect to the offense, 
and it has been 5 years or more since the individual was released from 
incarceration.
    (iii) The NCUA interprets the term ``offense occurred'' to mean the 
last date of the underlying misconduct. In instances with multiple 
covered offenses, ``offense occurred'' means the last date of any of 
the underlying offenses.
    (2) Offenses committed by individuals 21 years of age or younger. 
For individuals who committed an offense when they were 21 years of age 
or younger, section 205(d) shall not apply to the offense if it has 
been more than 30 months since the sentencing occurred. The NCUA 
interprets ``sentencing occurred'' to mean the date on which a court 
imposed the sentence, not the date on which all conditions of 
sentencing were completed.
    (3) Limitation. This paragraph (c) shall not apply to an offense 
described under 12 U.S.C. 1785(d)(2).
    (d) Designated lesser offenses excluded. Section 205(d) does not 
apply to the following offenses, if 1 or more years has passed since 
the applicable conviction or program entry: using fake identification; 
shoplifting; trespassing; fare evasion; and driving with an expired 
license or tag.
    (e) Foreign convictions. The NCUA considers individuals who are 
convicted of or enter into a pretrial diversion program for a criminal 
offense involving

[[Page 76715]]

dishonesty or breach of trust in foreign jurisdictions to be subject to 
section 205(d), unless the offense is otherwise excluded by this 
subpart.


Sec.  752.4  What constitutes a conviction under section 205(d)?

    (a) Convictions requiring a consent application. There must be a 
conviction of record. Section 205(d) does not cover arrests or pending 
cases not brought to trial, unless the person has a program entry as 
set out in Sec.  752.5. Section 205(d) does not cover acquittals or any 
conviction that has been reversed on appeal, unless the reversal was 
for the purpose of re-sentencing. A conviction with regard to which an 
appeal is pending requires a consent application. A conviction for 
which a pardon has been granted will require a consent application.
    (b) Convictions not requiring a consent application. When an 
individual is charged with a covered offense and, in the absence of a 
program entry as set out in Sec.  752.5, is subsequently convicted of 
an offense that is not a covered offense, the conviction is not subject 
to section 205(d).
    (c) Expungement, dismissal, and sealing. A conviction shall not be 
considered a conviction of record and shall not require a consent 
application if--
    (1) there is an order of expungement, sealing, or dismissal that 
has been issued in regard to the conviction in connection with such 
offense, or if a conviction has been otherwise expunged, sealed, or 
dismissed by operation of law; and
    (2) it is intended by the language in the order itself, or in the 
legislative provisions under which the order was issued, or in other 
legislative provisions, that the conviction shall be destroyed or 
sealed from the individual's state, tribal, or federal record, even if 
exceptions allow the conviction to be considered for certain character 
and fitness evaluation purposes.
    (d) Youthful offenders. An adjudication by a court against a person 
as a ``youthful offender'' (or similar term) under any youth-offender 
law applicable to minors as defined by state law, or any judgment as a 
``juvenile delinquent'' by any court having jurisdiction over minors as 
defined by state law, does not require a consent application. Such an 
adjudication does not constitute a matter covered under section 205(d) 
and is not a conviction or program entry for determining the 
applicability of Sec.  752.8.


Sec.  752.5  What constitutes a pretrial diversion or similar program 
under section 205(d)?

    (a) The term ``pretrial diversion or similar program'' (program 
entry) means a program characterized by a suspension or eventual 
dismissal or reversal of charges or criminal prosecution upon agreement 
by the accused to restitution, drug or alcohol rehabilitation, anger 
management, or community service. Whether the outcome of a case 
constitutes a program entry is determined by relevant Federal, State, 
or local law, and, if not so designated under applicable law, then the 
determination of whether a disposition is a program entry will be made 
by the Board on a case-by-case basis.
    (b) When a covered offense either is reduced by a program entry to 
an offense that would otherwise not be covered by section 205(d) or is 
dismissed upon successful completion of a program entry, the covered 
offense remains a covered offense for purposes of section 205(d). The 
covered offense will require a consent application unless it is de 
minimis as provided by Sec.  752.8 of this subpart.
    (c) Expungements, dismissals, or sealings of program entries will 
be treated the same as those for convictions.


Sec.  752.6  What are the types of consent applications that can be 
filed?

    (a) The NCUA will accept consent applications from--
    (1) an individual; or
    (2) an insured credit union applying on behalf of an individual.
    (b) An individual or an insured credit union may file consent 
applications at separate times. Under either approach, the consent 
application(s) must be filed with the appropriate NCUA Regional Office, 
or the Office of National Examinations and Supervision, as required by 
this subpart.


Sec.  752.7  When may a consent application be filed?

    (a) Except for situations in which no consent application is 
required under section 205(d) and this subpart, a consent application 
must be filed when there is a conviction by a court of competent 
jurisdiction for a covered offense by any adult or minor treated as an 
adult, or when such person has a program entry regarding that offense. 
Before a consent application may be filed, all of the sentencing 
requirements associated with a conviction, or conditions imposed by the 
program entry, including but not limited to, imprisonment, fines, 
condition of rehabilitation, and probation requirements, must be 
completed, and the case must be considered final by the procedures of 
the applicable jurisdiction.
    (b) The NCUA's consent application forms as well as additional 
information concerning section 205(d) can be accessed at the NCUA's 
Regional Offices or the Office of National Examinations and 
Supervision, if applicable, or on the NCUA's website.


Sec.  752.8  De minimis offenses

    (a) In general. Approval is automatically granted, and a consent 
application will not be required where all of the following de minimis 
criteria are met.
    (1) The individual has been convicted of, or has program entries 
for, no more than 2 covered offenses, including those subject to 
paragraph (b) of this section; and for each covered offense, all of the 
sentencing requirements associated with the conviction, or conditions 
imposed by the program entry, have been completed (the sentence- or 
program-completion requirement does not apply under paragraph (b)(2) of 
this section);
    (2) For each covered offense, the individual could have been 
sentenced to a term of confinement in a correctional facility of 3 
years or less and/or a fine of $2,500 or less, and the individual 
actually served 3 days or less of jail time for each covered offense.
    (i) Jail time is calculated based on the time an individual spent 
incarcerated as a punishment or a sanction--not as pretrial detention--
and does not include probation or parole where an individual was 
restricted to a particular jurisdiction or was required to report 
occasionally to an individual or a specific location. Jail time 
includes confinement to a psychiatric treatment center in lieu of a 
jail, prison, or house of correction on mental-competency grounds. The 
definition is not intended to include either of the following:
    (ii) Persons who are restricted to a substance-abuse treatment 
program facility for part or all of the day; and
    (iii) Persons who are ordered to attend outpatient psychiatric 
treatment.
    (3) If there are 2 convictions or program entries for a covered 
offense, each conviction or program entry was entered at least 3 years 
prior to the date a consent application would otherwise be required, 
except as provided in paragraph (b)(1) of this section; and
    (4) Each covered offense was not committed against an insured 
depository institution or insured credit union.
    (b) Other types of offenses for which the de minimis exception 
applies and no consent application is required--(1)

[[Page 76716]]

Age of person at time of covered offense. If there are 2 convictions or 
program entries for a covered offense, and the actions that resulted in 
both convictions or program entries all occurred when the individual 
was 21 years of age or younger, then the de minimis criteria in 
paragraph (a)(3) of this section shall be met if the convictions or 
program entries were entered at least 18 months prior to the date a 
consent application would otherwise be required.
    (2) Convictions or program entries for insufficient funds checks. 
Convictions or program entries of record based on the writing of 
``bad'' or insufficient funds check(s) shall be considered de minimis 
offenses under this provision if the following conditions apply:
    (i) The aggregate total face value of all ``bad'' or insufficient 
funds check(s) cited across all the conviction(s) or program entry(ies) 
for ``bad'' or insufficient funds checks is $2,000 or less;
    (ii) No insured depository institution or insured credit union was 
a payee on any of the ``bad'' or insufficient funds checks that were 
the basis of the conviction(s) or program entry(ies); and
    (iii) The individual has no more than 1 other de minimis offense 
under this section.
    (3) Convictions or program entries for small-dollar, simple theft. 
Convictions or program entries based on the simple theft of goods, 
services, or currency (or other monetary instrument) shall be 
considered de minimis offenses under this provision if the following 
conditions apply:
    (i) The value of the currency, goods, or services taken is $1,000 
or less;
    (ii) The theft was not committed against an insured depository 
institution or insured credit union;
    (iii) The individual has no more than 1 other de minimis offense 
under this section; and
    (iv) If there are 2 de minimis offenses under this section, each 
conviction or program entry was entered at least 3 years prior to the 
date a consent application would otherwise be required, or at least 18 
months prior to the date a consent application would otherwise be 
required if the actions that resulted in the conviction or program 
entry all occurred when the individual was 21 years of age or younger.
    (v) Simple theft excludes burglary, forgery, robbery, identity 
theft, and fraud.
    (c) Fidelity bond coverage and disclosure to institutions. Any 
person who meets the criteria under this section shall be covered by a 
fidelity bond to the same extent as others in similar positions, and 
shall disclose the presence of the conviction(s) or program entry(ies) 
to all insured credit unions in the affairs of which he or she intends 
to participate.
    (d) Non-qualifying convictions or program entries. No conviction or 
program entry for a violation of the Title 18 sections set out in 12 
U.S.C. 1785(d)(2) can qualify under any of the de minimis exceptions 
set out in this section.


Sec.  752.9  How to file a consent application.

    Forms and instructions should be obtained from the NCUA's website 
(www.ncua.gov), and the consent application(s) must be filed with the 
appropriate NCUA Regional Director. A consent application may be filed 
by an individual and by an insured credit union on behalf of an 
individual. The appropriate Regional Office for a credit union-
sponsored application is the office covering the state where the 
insured credit union's home office is located, or the Office of 
National Examinations and Supervision. The appropriate Regional Office 
for an individual consent application is the office covering the state 
where the person resides. States covered by each NCUA Regional Office 
are listed in section 790.2 of this chapter.


Sec.  752.10  How a consent application is evaluated.

    (a) Criminal history records. In reviewing a consent application, 
the NCUA will--
    (1) primarily rely on the criminal history record of the Federal 
Bureau of Investigation; and
    (2) provide such record to the applicant to review for accuracy.
    (b) Certified copies. The NCUA will not require an applicant to 
provide certified copies of criminal history records unless the NCUA 
determines that there is a clear and compelling justification to 
require additional information to verify the accuracy of the criminal 
history record of the Federal Bureau of Investigation.
    (c) Factors for determination. The ultimate determinations in 
assessing a consent application are whether the person has demonstrated 
their fitness to participate in the conduct of the affairs of an 
insured credit union, and whether the affiliation, or participation by 
the person in the conduct of the affairs of the credit union may 
constitute a threat to the safety and soundness of the credit union or 
the interests of its members or threaten to impair public confidence in 
the credit union.
    (d) Individualized assessment. When evaluating consent 
applications, the NCUA will conduct an individualized assessment that 
will consider:
    (1) Whether the conviction or program entry is subject to section 
205(d) and the specific nature and circumstances of the offense;
    (2) Whether the participation directly or indirectly by the person 
in any manner in the conduct of the affairs of the insured credit union 
constitutes a threat to the safety and soundness of the credit union or 
the interests of its members or threatens to impair public confidence 
in the credit union;
    (3) Evidence of rehabilitation including the applicant's age at the 
time of the conviction or program entry, the time that has elapsed 
since the conviction or program entry, the relationship of the 
individual's offense to the responsibilities of the applicable 
position;
    (4) The individual's employment history, letters of recommendation, 
certificates documenting participation in substance-abuse programs, 
successful participating in job preparation and educational programs, 
and other relevant evidence;
    (5) The ability of management of the insured credit union to 
supervise and control the person's activities;
    (6) The applicability of the insured credit union's fidelity bond 
coverage to the person; and
    (7) For state-chartered, federally insured credit unions, the 
opinion or position of the state regulator; and
    (8) Any additional factors in the specific case that appear 
relevant to the consent application.
    (e) Underlying merits not at issue. The question of whether a 
person, who was convicted of a crime or who agreed to a program entry, 
was guilty of that crime shall not be at issue in a proceeding under 
this subpart or under 12 CFR part 746, subpart B.
    (f) Application of factors to 10-year ban exception. The foregoing 
factors will also be applied by the NCUA to determine whether the 
interests of justice are served in seeking an exception in the 
appropriate court when a consent application is made to terminate the 
10-year ban prior to its expiration date under 12 U.S.C. 1785(d)(2)(A) 
for certain Federal offenses.
    (g) Fidelity bond requirements not affected. All approvals and 
orders will be subject to the condition that the person be covered by a 
fidelity bond to the same extent as others in similar positions. If the 
NCUA has approved a consent application filed by an individual and has 
issued a consent order, the individual must disclose the presence of 
the conviction(s) or program

[[Page 76717]]

entry(ies) to all insured credit unions in the affairs of which they 
wish to participate.
    (h) Sponsored consent applications. When deemed appropriate by the 
NCUA, credit union-sponsored consent applications are to allow the 
individual to work for the same employer (without restrictions on the 
location) and across positions, except that the prior consent of the 
NCUA (which may require a new consent application) will be required for 
any proposed significant changes in the individual's security-related 
duties or responsibilities, such as promotion to an officer or other 
positions that the employer determines will require higher security 
screening credentials.
    (i) Subsequent consent applications. In situations in which an 
approval has been granted for a person to participate in the affairs of 
a particular insured credit union and the person subsequently seeks to 
participate at another insured credit union, another consent 
application must be submitted and approved by the NCUA prior to the 
person participating in the affairs of the other insured credit union.


Sec.  752.11  What will the NCUA do if the consent application is 
denied?

    (a) The NCUA will inform the applicant in writing that the consent 
application has been denied and summarize or cite the relevant 
considerations specified in Sec.  752.10 of this subpart.
    (b) The denial will also notify the applicant of the right to 
request reconsideration from the Regional Office or the Office of 
National Examinations and Supervision, or to file an appeal with the 
Board, and shall include a description of applicable filing deadlines 
and time frames for agency responses. The Regional Office or the Office 
of National Examinations and Supervision and the Board will apply the 
review process contained in 12 CFR part 746, subpart B, to any request 
for reconsideration or appeal. The request for review must include a 
statement of the underlying facts that form the basis of the request 
for reconsideration or appeal, a statement of the basis for the denial 
to which the applicant objects and the alleged error in such denial, 
and any other support, materials, or evidence relied upon by the 
applicant that were not previously provided.

[FR Doc. 2023-23509 Filed 11-6-23; 8:45 am]
BILLING CODE 7535-01-P


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