Banks insured by the FDIC must screen every prospective employee, director, contractor, and major stockholder for criminal convictions involving dishonesty, breach of trust, or money laundering, because federal law bars anyone with such a record from working at the institution without the FDIC’s written consent. FDIC bank background check requirements come from two sources working together: Section 19 of the Federal Deposit Insurance Act, which sets the substantive disqualifications, and the Fair Credit Reporting Act, which controls how the background check itself must be conducted when a third-party screening company is involved. Getting either piece wrong exposes the bank to serious liability.
What Section 19 Requires Banks to Screen For
Section 19, codified at 12 U.S.C. ยง 1829, makes it illegal for anyone convicted of a covered criminal offense to become or remain an “institution-affiliated party” at an FDIC-insured depository institution without the FDIC’s prior written consent.1Office of the Law Revision Counsel. 12 U.S. Code 1829 – Penalty for Unauthorized Participation by Convicted Individual The same restriction reaches anyone who entered a pretrial diversion or similar program in connection with such an offense, even when no formal conviction was entered.
Three categories of criminal conduct trigger the prohibition: offenses involving dishonesty, offenses involving a breach of trust, and money laundering. Common examples include forgery, embezzlement, bank fraud, identity theft, and misuse of entrusted funds. The severity of the charge does not matter. A misdemeanor conviction for writing a bad check triggers the same bar as a felony fraud conviction.1Office of the Law Revision Counsel. 12 U.S. Code 1829 – Penalty for Unauthorized Participation by Convicted Individual
Simple drug possession is explicitly excluded under the current version of the law. A conviction for possessing a controlled substance, standing alone, does not trigger the Section 19 bar.2Federal Deposit Insurance Corporation. Section 19 – Penalty for Unauthorized Participation by Convicted Individual A drug-related offense that also involves dishonesty, such as forging a prescription, can still qualify.
Who the Screening Covers
The screening obligation extends well beyond tellers and loan officers. “Institution-affiliated party” includes employees, officers, directors, agents, and independent contractors who provide services to the bank. The prohibition also reaches anyone who owns or controls a bank, directly or indirectly.3Federal Deposit Insurance Corporation. FDIC Statement of Policy for Section 19 of the FDI Act The law places a dual obligation on both the individual, who may not participate, and the bank, which may not permit the participation. A contractor hired to maintain the ATM network is as much within the screening net as a new hire in deposit operations.
Records That Don’t Disqualify
Not every covered conviction creates a hiring bar. Several categories of records fall outside Section 19 and allow a bank to proceed without filing anything with the FDIC.
Expunged, Sealed, and Dismissed Records
If a court has issued an order of expungement, sealing, or dismissal, and the order or the law under which it was issued intends the conviction to be destroyed or sealed from the individual’s record, Section 19 no longer applies.4GovInfo. 12 U.S. Code 1829 – Penalty for Unauthorized Participation by Convicted Individual This holds true even if certain exceptions allow the record to be considered for character and fitness evaluations. An expungement or sealing that happens automatically by operation of law, rather than through a court petition, also qualifies for this exception.
A presidential or gubernatorial pardon works differently. A pardoned conviction still requires an application for FDIC consent under the regulations, though the pardon strengthens that application considerably.5eCFR. 12 CFR Part 303 Subpart L
De Minimis Offenses
The statute carves out a de minimis exception for minor offenses posing minimal risk to the institution.1Office of the Law Revision Counsel. 12 U.S. Code 1829 – Penalty for Unauthorized Participation by Convicted Individual Two sub-categories apply:
- General de minimis offenses, which must have been punishable by three years or less of confinement and meet additional FDIC criteria concerning the nature of the offense and the individual’s overall record.
- Designated lesser offenses specifically named in the statute, including using a fake ID, shoplifting, trespass, fare evasion, and driving with an expired license or tag. For these, the prohibition drops away once one year or more has passed since the conviction or program entry.6Federal Deposit Insurance Corporation. Final Rule to Revise FDIC Regulations Concerning Section 19
When an offense qualifies as de minimis, the bank can hire the individual without filing an application. The bank should still document its analysis and keep records showing the offense meets the criteria, because examiners will want to see that work if they review the hire.
Handling a Record That Does Disqualify
When the prohibition applies and no exception covers the offense, someone must file for the FDIC’s written consent before the individual can start work. Applications can come from either side: the bank can sponsor the application, or the individual can file on their own.7Federal Deposit Insurance Corporation. Section 19 Rule Brochure
In a bank-sponsored application, the institution files on behalf of the individual for a specific role, agrees to supervise them, and must confirm the individual will be covered by the bank’s fidelity bond to the same extent as others in similar positions. Approval applies only to that specific role at that specific bank. An individual waiver, filed by the applicant without a sponsor, takes longer because it requires review by the FDIC’s Washington office, but if granted, it clears the person to hold any position at any FDIC-insured institution.
No application can be filed until the individual has completed every sentencing requirement tied to the conviction, including imprisonment, fines, restitution, probation, and any conditions of rehabilitation. The case must be final under the rules of the jurisdiction where the conviction occurred.5eCFR. 12 CFR Part 303 Subpart L Filing while still on probation or with outstanding fines will result in the application being returned.
Supporting materials typically include certified copies of all court records related to the conviction, a detailed personal statement, and evidence of rehabilitation such as steady employment, community involvement, completed treatment or educational programs, and full payment of restitution. For sponsored applications, the bank must describe the proposed position and the safeguards it will put in place. Character references round out the package.
Published processing targets are 30 days for bank-sponsored applications and 45 days for individual waivers, measured from the point the FDIC considers the filing complete.7Federal Deposit Insurance Corporation. Section 19 Rule Brochure The individual cannot begin work until the FDIC’s written approval is in hand.
FCRA Rules Banks Must Follow During the Check
Section 19 sets the substantive disqualifications. The Fair Credit Reporting Act controls how a bank actually runs the check when it uses a third-party consumer reporting agency, and the two sets of rules apply in parallel.
Before ordering the report, the bank must give the applicant a clear, written disclosure in a standalone document, separate from the job application, stating that a background check may be obtained. The applicant must provide written authorization before the bank can proceed.8Office of the Law Revision Counsel. 15 U.S. Code 1681b – Permissible Purposes of Consumer Reports Burying the disclosure inside the application packet is a common and expensive mistake.
If the report surfaces information that leads the bank to consider rejecting the applicant, the FCRA requires a two-step adverse action process. First, before making a final decision, the bank sends a pre-adverse action notice that includes a copy of the consumer report and a summary of FCRA rights. This gives the applicant a chance to dispute inaccurate information. Second, after the final decision, the bank sends a formal adverse action notice identifying the consumer reporting agency, stating that the agency did not make the hiring decision, and informing the applicant of the right to dispute the report’s accuracy and request a free copy within 60 days.9Federal Trade Commission. Using Consumer Reports – What Employers Need to Know Skipping either step exposes the bank to liability even when the underlying Section 19 disqualification is perfectly valid.
What Noncompliance Costs
Anyone who knowingly violates Section 19 faces a criminal fine of up to $1,000,000 for each day the violation continues, imprisonment for up to five years, or both.1Office of the Law Revision Counsel. 12 U.S. Code 1829 – Penalty for Unauthorized Participation by Convicted Individual The per-day structure means exposure compounds quickly. A prohibited person who works at a bank for a few weeks can generate potential liability in the tens of millions.
The penalties reach both sides. The individual who participates without consent violates the statute, and the bank that knowingly permits the participation does too. On top of the criminal exposure, banks face regulatory enforcement actions, consent orders, and reputational consequences that can outweigh the statutory fines. That combination of risks is why compliance departments treat Section 19 screening and the surrounding FCRA process as a required step before any offer takes effect, not a formality to be completed during onboarding.