Credit unions aren't fully sold on NCUA's second-chance measure
The National Credit Union Administration has moved to make it easier for credit unions to hire individuals with a low-level criminal conviction, but much of the rest of the industry isn’t ready to throw open the doors to job applicants with criminal records.
During NCUA’s November board meeting, the agency approved an update to its Interpretive Ruling and Policy Statement to allow those previously convicted of a criminal offense involving dishonesty or a breach of trust to work at a credit union. Application waivers were previously required by the credit union regulator for any CU who was interested in hiring someone who had a criminal record.
The move is similar to a recent measure by the Federal Deposit Insurance Corp. which would ease the path forward for ex-cons to work at banks.
With NCUA’s updated rule in place, certain offenses by persons age 21 or younger that resulted in convictions or probation will no longer require application to NCUA if a credit union wants to hire that individual. These de minimis convictions include offenses related to small dollar simple theft, false identification, simple drug possession, insufficient funds checks of aggregate moderate value and other isolated minor offenses.
With unemployment at its lowest level in decades, competition for jobs is fierce, and many credit unions may need additional tools that make it easier to hire candidates. One in three adults (75 million Americans) have a criminal record, according to the Trone Center for Justice & Equality. Research has shown that unstable or lack of employment is the leading cause of recidivism. This particularly impacts minority and impoverished communities, despite exhibiting lower risk factors.
Those with criminal records also face additional scrutiny from employers — and some managers and HR professionals are downright unwilling to work with those holding a criminal record.
Some credit union leaders aren’t yet fully on board with NCUA’s plans. Many executives contacted for this story were unwilling to discuss the topic, but at least one CEO isn’t ready to move ahead with the new rules.
"I would have to [review these individuals] on a case-by-case basis," said Bill Brooks, president and CEO of Mid-Atlantic Federal Credit Union. "You need to do a deeper dive into the applicant.” He likened it to examining a credit report, which might indicate bad credit “but the truth of the matter is that they have a devastating illness or something that caused it that you could possibly overlook.”
Some who commented on NCUA’s proposal also noted that amending these rules could pose safety and soundness risks for the industry.
“Federally insured credit unions are often much smaller than their banking counterparts, and even a small loss at a credit union is much more impactful to that one credit union and the credit union system as a whole than a small loss to a bank,” wrote Patrick Conway, president and CEO of the Pennsylvania Credit Union Association.
But Ann Kossachev, director of regulatory affairs at the National Association of Federally-Insured Credit Unions, pushed back on that, suggesting job applicants with minor criminal convictions “don’t pose a risk to the safety and soundness of the credit union.”
“They’re not putting employees or other members of the credit union at risk and it allows credit unions greater opportunity to seek out those employees and get them on boarded quicker without having to go through the rigorous application and waiver process to get approval to [work] at the credit union,” she said.
Insurance impact TBD
One other concern that has come up is whether the new rule will impact fidelity bonds and insurance rates credit unions pay.
Kossachev said credit union executives have sent questions to NAFCU about insurance fees and whether premiums would increase as a result of hiring employees within the new de minimis exception. An increase from insurance providers would affect a credit union’s bottom line.
“While we have some concern that insurance costs could increase, after discussing the issue with industry partners, we understand no immediate premium increases are likely to result from the proposed IRPS,” said a Credit Union National Association spokesperson. “However, there is the possibility that such costs could increase if the expanded list of offenses ultimately leads to increased fraud at credit unions.”
That's not how some other insurers see it, including Dennis Adams, president and CEO of American Share Insurance and its subsidiary, Excess Share Insurance.
Adams believes IRPS is a regulatory issue rather than an insurance issue. He also said that if NCUA supports a second-chance measure then the excess insurer had no reason to oppose it, especially if there's no risk to the share insurance fund.
Insurers like Excess Share Insurance offer credit unions additional insurance options beyond a CU's primary insurance coverage, which maxes out once $250,000 in deposits is reached.
"[O]ur pricing is based on credit union failure rates and our ultimate risk due to insolvency, which can arise from far more issues than that associated with the past record of an individual or that of a group of individuals," Adams said. "Therefore, the adoption of this IRPS would not impact our premium rates."
Jay Isaacson, vice president, property & casualty solutions for CUNA Mutual Group, said that the full implications of the new rule may not be known for several years.
"Currently, CUNA Mutual Group does not anticipate any immediate premium adjustments for credit unions resulting from the new rule," Isaacson said. "The company will evaluate this position and credit unions’ experience under the rule over time.”