FDIC Emphasizes Pre-Employment Screening Guidance Requires Process

by: Scott Daugherty, Assistant General Counsel, Texas Bankers Association

Financial institutions should develop a risk-focused approach in determining when pre-employment background screening is considered appropriate or when the level of screening should be increased based upon the position and responsibilities.

Section 19 of the Federal Deposit Insurance Act prohibits any person who has been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or has agreed to enter into a pretrial diversion or similar program in connection with a prosecution, from becoming or continuing as an institution-affiliated party; owning or controlling, directly or indirectly, an insured institution; or otherwise participating, directly or indirectly, in the conduct of the affairs of an insured institution without the prior written consent of the FDIC.

The FDIC's guidance requires that all insured financial institutions have in place pre-employment screening processes that will at least uncover information about applicants' convictions and program entries to ensure that no barred persons are employed without first applying to the FDIC for consent. Failing to obtain the FDIC's permission to hire such an individual can result in penalties of up to $1 million per day for the duration of the violation, or imprisonment for up to five years, or both.

The FDIC suggests that applications be used in the hiring process. Resumes often include information that cannot be used in the hiring process. Written applications can include a statement that untruthfulness or material omissions will be grounds for termination and that the applicant's signature on the form attests to the accuracy of the information. This provides the institution with clean and sufficient reasons for disqualification or termination if criminal convictions or other serious discrepancies are discovered.

Pre-employment screening is not an invasion of privacy, but a verification of information provided by the applicant. Nevertheless, the pre-screening process must comply with the Fair Credit Reporting Act, as information about a person's credit, character, general reputation, mode of living and personal characteristics are included.

Credit reporting agencies, which are covered by the FCRA, collect and communicate this information for employment purposes to the bank conducting the pre-employment background screening process. Before requesting such a report, the bank must disclose in a separate document that the institution will be obtaining a consumer report on the applicant for employment purposes, and obtain the applicant's written consent.

The National Federal Bureau of Investigations (FBI) Fingerprint Service is a program offered by the FBI. All financial institutions can submit fingerprint cards through this service. The FBI compares the submitted fingerprints against a criminal database and informs institutions of a positive match if a criminal record is discovered. A copy of the criminal identification record is then mailed to the financial institution.

The pre-employment background screening process can assist management in the hiring of qualified applicants, while simultaneously reducing turnover, deterring fraud and avoiding litigation. However, to be effective, management should establish in writing criteria for when pre-employment background screening should be used and for circumstances or positions that may warrant increased screening procedures based upon perceived risks.

Editor's Note: Bankers' Hotline Advisor Dana Turner will be doing a two hour telephone seminar on Background Checks on April 4, 2006. To participate, contact your state bankers association.

Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 12, 12/05