There is no de minimus exception under Reg. Z, so employees subject to that exemption under the Safe Act would fall in this category and require action:

"for whom there were no applicable statutory or regulatory background standards in effect at the time of hire or before January 1, 2014, used to screen the individual."

to take this conversation a step further, We pull a CR on all new hires, but not a background check. If we have a current employee who is being promoted to a LO position and we run a background check on them that comes back disclosing any activity related to fraud, dishonesty, BSA, money laundering or breach of trust, we would have a basis to terminate the employee. correct?

You might be forced to, as depending on what you find, they may be unemployable under FDIC rules Section 19.

http://www.fdic.gov/regulations/laws/rules/5000-1300.html

I think my confusion sometimes occurs over the licensed vs. registered. Is it safe to assume the CFPB did not use these terms interchangeably within the qualification requirements? We are a National FI so we do not need to license our LOs, only register them under the SAFE Act. Am I correct that after January 2014, since we require all of our loan officers to register with the NMLS per the SAFE Act, the only other thing we will need to do is pull a credit report for any new LO (since the other requirements are embedded in the SAFE registration process)?

So, if we have someone who has been at the bank for over 10yrs and is under reg. z a LO and we pull a current credit and the credit report is not so good anymore... what then? terminate that employee who otherwise is a good employee?

There is no specific standards in the regulation regarding someone's credit.

RLCarey,

Under the financial responsibility, character, and general fitness: to determine financial responsibility, character, and general fitness, you must assess all the required information as well as reasonable available information, including information that you know or would discover during a reasonably prudent hiring process.

Your review and assessment of financial responsibility is sufficient if it considers, as relevant factors: the existence of current outstanding judgments, tax liens, or government liens; nonpayment of child support; a pattern of bankruptcies, foreclosures, or delinquent accounts.

so, the delinquent accounts would be in the credit report... If this employees is past due on loans at the Bank or have NSF? would that be a reason the LO does not meet the standards for financial responsibility?

It possibly could, but each bank is going to have to develop its own standards and then apply them equally across the board to prevent any unequal employment treatment.

If you have LOs that can't seem to manage their own finances in a manner that would bring into question their over character and general fitness, do you really want them as employees anyway? IMHO - It would have to be pretty bad and much more significant that a couple of NSFs and a 30 day past due.

I guess I would be questioning any situation in which I felt through a background investigation an applicant was non-hirable, but I had current employees on board that were no better, regardless of how long they have worked for the bank.

This is all really a lot more complex and has a lot of ramifications that a lot of banks have not thoroughly contemplated. I would highly recommend that the bank engage appropriate employment legal counsel anytime a bank is contemplating the development of employment standards.

For example, while the regulation mentions a pattern of bankruptcies - most any action by an employer based on a employee's bankruptcy violates the law. Those are the type of things that need to be reconciled.

Have you compared the SAFE Act triggers with the Reg Z triggers? This really requires an evaluation of job duties all over again. Reg Z is a single prong test and is much easier to trip than SAFE Act.

It is quite easy to not be an MLO under SAFE but be an LO under Z. Banks should be looking at actual tasks being performed, not just job descriptions, and perhaps moving things around to limit exposure.

Also, there are some states that have rules that require licensing even if a bank (including a national bank). Rules can be tricky.

Yes, States can be different. For example in Texas, it is a one prong test for State licensing unless the individual registered. It has become a complex web.

OK, I'm jumping in with my confusion. All of our LOs make mortgage loans and are therefore REGISTERED under the SAFE Act. So do I understand that nothing further needs done? Then if we hire a new LO and they register under the SAFE Act then we still do not need a credit report? I guess what I'm asking is if all our LOs register under the SAFE Act then there is nothing else we have to do?

If all of your employees that meet the definition of a loan originator under Regulation Z are currently registered with the NMLS, then you are done - except for the on-going training piece under Regulation Z. Any future loan originators will have to meet all of the requirements - of maybe both Reg. Z and the SAFE Act if they also required to be or are registered under the SAFE Act.

Does a criminal background check always involve fingerprints? The rule says from a law enforcement agency, (who would take fingerprints), or a commercial service. What is a commercial service, an HR vendor like ADP?

All criminal background checks do require FBI fingerprint checks. Some go to local police for fingerprints, I went to UPS and had prints scan in computer there.

I was under the impression that the commercial services that supply background checks didn't involve fingerprinting, but i'm admittedly no expert on the subject. Is that incorrect?

I'm asking because we (HR person and I) visited this subject yesterday and i came to the conclusion in my mind that the background check being performed at hire for our processors would do for the criminal background checks required under Reg. Z for "loan originators".

We use a commercial service for background checks. Their contract states that they conduct civil and criminal checks on the last 2 counties of residence and a criminal check of the national registry. They do not require fingerprints.

I'm not an expert on fingerprints and background checks either. I do not see any requirement in the regulation where fingerprints have to be utilized for the background checks. Fingerprints are required by the SAFE and the NMLS for registered MLOs, but I don't remember seeing anything in Reg Z about fingerprints being required for the checks for non-registered Reg Z LOs.

Someone please correct me if I am wrong.

I think it would be a little hard to say without knowing the reliability or the sources checked by whoever is performing your background checks. That would all be determined through your vendor due diligence process.

Unless previously registered or Licensed MLO must meet following requirements. This is for SAFE ACT Registration and not for Reg Z LO.

From Federal Register July 2010:
(4) Employees previously registered or
licensed through the Registry—(i) In
general. If an employee of a bank was
registered or licensed through, and
obtained a unique identifier from, the
Registry and has maintained this
registration or license before the
employee becomes subject to this
subpart at this bank, then the
registration requirements of the S.A.F.E.
Act and this subpart are deemed to be
met, provided that:
(A) The employment information in
paragraphs (d)(1)(i)(C) and (d)(1)(ii) of
this section is updated and the
requirements of paragraph (d)(2) of this
section are met;
(B) New fingerprints of the employee
are submitted to the Registry for a
background check, as required by
paragraph (d)(1)(ix) of this section,
unless the employee has fingerprints on
file with the Registry that are less than
3 years old;

Ok, so if I am reading this correctly, it appears that you agree that fingerprints are not necessarily required for non-registered LOs (Reg Z LOs, but not SAFE MLOs) provided that the commercial service is using reliable, up to date information (ie up to date NCIC data, etc). Is that accurate?

Yes - Regulation Z does not specify fingerprints and specifically allows the use of a commercial service like the SAFE Act requirements.

So the rule regarding the credit/backgroundc check is not just for LOs hired on or after the January effective date, but also for employees who transfer from another department within the bank, who might not have been an LO before, correct?

That is my understanding.

What if I have MLOs who were only state registered but whose registration has expired prior to 1/1/14. I just finished registering them federally. Do I pull a credit report on each of them?