Frequently Asked Questions Regarding Section 205(d) of the Federal Credit Union Act

Section 752.2 of the NCUA’s regulations identifies who is covered by Section 205(d). IAPs, as defined by the Federal Credit Union Act,² are covered, as well as volunteer and de facto employees.

A person who does not meet the definition of IAP is nevertheless prohibited by Section 205(d) if the person is considered to be participating, directly or indirectly, in the conduct of the affairs of an insured credit union. Whether other participants, such as independent contractors, are covered by the statutory prohibition depends upon their degree of influence or control over the management or affairs of an insured credit union.

“Participants in the affairs of a credit union” is a term of art and is not capable of more precise definition. The NCUA does not define what constitutes participation in the conduct of the affairs of an insured credit union but will analyze each individual’s conduct on a case-by-case basis and make a determination. Agency and court decisions will provide the guide as to what standards will be applied. As a general proposition, however, participation will depend upon the degree of influence or control over the management or affairs of the insured credit union. For example, those who exercise major policymaking functions of an insured credit union are deemed participants in the affairs of that credit union and covered by Section 205(d). Directors and officers of affiliates, or joint ventures of an insured credit union, are covered if they participate in the conduct of affairs of the insured credit union or are able to influence or control the management or affairs of the insured credit union.

Section 752.1 of the NCUA’s regulations provides that insured credit unions must make a reasonable, documented inquiry regarding an applicant’s history to ensure that a 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. An insured credit union’s reasonable, documented inquiry should, at a minimum, establish a background screening process to obtain information about convictions and program entries from job applicants.

Credit unions are permitted to make conditional offers of employment to prospective applicants. An insured credit union choosing to adopt a policy to extend conditional offers of employment may establish its own procedures to make criminal record inquiries at any stage of its choosing in its hiring process, so long as applicants do not commence work for or be employed by the credit union until the applicant is determined to not be prohibited under Section 205(d) or receives consent from the NCUA Board.

If an insured credit union learns that a prospective employee has a prior conviction or entered into a pretrial diversion program for a de minimis 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. The insured credit union should be prepared to demonstrate that the covered offense meets the de minimis criteria enumerated in the regulation at 12 Code of Federal Regulations (C.F.R.) §752.8.

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 205(d), unless the offense is otherwise excluded by Part 752 of the NCUA’s regulations.

Credit union employers may be unaware of an applicant’s foreign offenses without conducting their own inquiry, and many countries have their own application processes to conduct criminal background checks. There are several non-exhaustive ways in which insured credit unions could comply with this requirement. For credit union operations outside the United States, the insured 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. And if a foreign jurisdiction forbade background investigations by an insured credit union, the credit union could note this restriction as part of its reasonable, documented inquiry.

The Fair Hiring in Banking Act (FHBA), which was enacted on December 23, 2022, amended Section 205(d) to, among other things, include “designated lesser offenses” as a sub-category of de minimis offenses. Designated lesser offenses, including use of fake identification, shoplifting, trespass, fare evasion, or driving with an expired license or tag, are described in the FHBA as low-risk offenses statutorily excluded from the scope of Section 205(d).

Section 752.8(b)(4) of the NCUA’s regulations exempts those designated lesser offenses from the prohibitions of Section 205(d) if 1 year or more has passed since the applicable conviction or program entry. Therefore, no application is required for designated lesser offenses that meet that condition.

This approach is a substantive departure from the NCUA’s longstanding treatment of de minimis offenses, in which potential applicants with such offenses on their records did not need to file an application with the Board because the NCUA deemed their (potential) application automatically approved. In other words, prior to the passage of the FHBA, the NCUA considered such offenses covered under Section 205(d), while the FHBA exempts those offenses entirely from Section 205(d).

The NCUA’s consent application forms as well as additional information concerning Section 205(d) can be accessed on the NCUA’s website.

Completed applications must be sent to the appropriate NCUA field office. Consent applications filed by a credit union on behalf of an individual (credit union-sponsored application) must be filed with the NCUA Regional Office where the credit union’s home office is located, or with the Office of National Examinations and Supervision for credit unions that office supervises. Consent applications filed by an individual (individual application) must be filed with the NCUA Regional Office where the person lives.

Contact information for the NCUA’s Central and Regional Offices is also available on the NCUA’s website. States covered by each NCUA Regional Office are also listed on the website and in 12 C.F.R. §790.2.

Applications seeking the Board’s consent for covered persons to occupy clerical, maintenance, service or purely administrative positions at an insured credit union 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, and generally can be approved without an extensive review. These types of applications do not require an extensive review because the person will not be in a position to present any substantial risk to the safety and soundness of the insured credit union. A more detailed analysis, however, will 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.

All federally insured credit union employees and officials, including clerical or similar employees, continue to be subject to the fidelity bond and insurance coverage rules under 12 C.F.R. part 713 and must be bondable to work for or participate in the conduct of the affairs of the credit union.³ The Board’s approval of any consent application will be subject to at least two conditions. First, fidelity bond coverage must be obtained on the person to the same extent as others in similar positions. Second, the person must disclose the presence of the conviction(s) or program entry(ies) to all insured credit unions in the affairs of which that person intends to participate.

In addition to a completed consent application, fingerprinting will be required to enable the NCUA to obtain the covered individual’s criminal history record from the Federal Bureau of Investigation (FBI). FBI criminal history records are also referred to as “identity history summary checks,” or more commonly known as “rap sheets.” Additional documentation and instructions for the completion of the fingerprinting process will be provided by the applicant’s respective NCUA field office. It is not necessary for the covered individual to request their own criminal history record from the FBI. Other items may be requested and will be identified in the application or sought on a case-by-case basis.

In accordance with the FHBA, the NCUA will primarily rely on the FBI criminal history record in reviewing a consent application. 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 FBI. The NCUA will provide the FBI criminal history record to the individual to review for accuracy. The NCUA will not provide the record to the credit union, but only to the individual who is the subject of the application.

The NCUA will make reasonable efforts to communicate with the subject of the application within 15 calendar days of receipt of the criminal history record from the FBI to inform the individual that the NCUA will be providing them with a copy of the report and to verify the individual’s contact information. The NCUA will also make reasonable efforts to send the report to the individual within 5 business days of successful verification of the individual’s contact information. If the individual believes that there are any inaccuracies in the report, the NCUA will direct the individual to the FBI, where the individual can seek corrections.

While understanding that the consent application process may impose inconveniences and uncertainties to covered individuals and credit unions as they await the agency’s determination, the NCUA maintains it is impracticable to establish a timetable for action on consent applications because each application is fact specific and varies in complexity. However, past applications submitted to the NCUA have generally been adjudicated within 60 days from receipt, and often the processing time was significantly less. The NCUA remains committed to processing consent applications as promptly as practicable.

Subsequent consent applications may be submitted to the NCUA at any time after a consent application is denied.

Section 19 of the Federal Deposit Insurance Act (Section 19) contains a prohibition provision similar to Section 205(d). Under the Federal Deposit Insurance Corporation’s (FDIC) Section 19 regulations, 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 NCUA’s Section 205(d) rules do not include a similar “cooling off” period. Thus, an individual will not be delayed from seeking employment if the consent application was denied for a reason that can be immediately addressed by the applicant. For example, if the consent application was denied due to insufficient support showing rehabilitation, the individual may 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.

If a consent application is denied by the NCUA field office, the applicant can file a written request for reconsideration or appeal under the administrative review process contained in Part 746, subpart B of the NCUA’s regulations. 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 field office 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 field office on any request for reconsideration, a petitioner may file an appeal seeking review of the determination by the Board. A petitioner may also request an oral hearing before the Board. Additional information about the administrative appeals process may be found in Part 746, subpart B.

Any questions regarding the process to request the Board’s consent pursuant to Section 205(d), including whether an application is required, may be directed to the NCUA Office of General Counsel at 703.518.6540 or OGCmail@ncua.gov.