Family Selection, Volunteer and Employee Background Checks

1. Family Selection, Volunteer and Employee Background Checks John Bradley Sr. Staff Attorney February 19, 2013

2. Objectives (At the end of this session, affiliates should be able to …) • Conduct sex offender checks in compliance with HFHI policy and legal guidelines • Run Office of Foreign Assets Control (OFAC) checks with recommended frequency • Incorporate new rules and guidance for criminal background checks • Loan origination employees – new SAFE Act requirements • Equal Employment Opportunity Commission (EEOC) guidelines in employment decisions • Use revised Fair Credit Reporting Act (FCRA) form during employment application denials

3. Why does HFHI recommend background checks? • Some checks required by law • Protect vulnerable populations (e.g. elderly, disabled, children) • Assist in credit risk assessment • Confirm information provided on an application • Part of an affiliate’s internal controls • May help reduce lawsuits • May be helpful in obtaining suitable insurance

4. Sexual Offender Registration Checks

5. Affiliates must conduct sex offender registry checks for: • Board members • Staff members • Key volunteers • Generally refers to individuals who: • Volunteer 8 or more hours each month with the affiliate, or • Have contact with vulnerable populations such as children, the elderly or persons with disabilities. • Potential homeowners • Includes all members of the family that will reside in the Habitat home

6. Design & Implementation of Sex Offender Policy • Framework of written policy • How affiliate will conduct the check • How it will use the information to make decisions, and • How it will communicate a denial • Contents considerations • HFHI sample policy • State and local law

7. Conducting Sex Offender Check • Dru Sjodin National Sex Offender Public Website – www.nsopw.gov • Central location to search for registered sex offenders • Information limited to what each state provides • Free • Notice • Affiliates should provide notice and obtain consent prior to conducting sex offender registry checks. • More information: HFHI Legal Advisory: Sex Offender and Criminal Background Checks (Feb 2013 update)

8. Criminal Background Checks

9. Criminal Background Check Policy • Affiliates should adopt a written policy on criminal background checks that addresses: • Who will be checked? • How will we check? • For what are we looking? • At what period of time will we look? • What action will we take? • More information: HFHI Legal Advisory: Sex Offender and Criminal Background Checks (Feb 2013 update)

10. Criminal Background Checks Policy • HFHI encourages affiliates to conduct criminal background checks on potential partner families, board members, staff members, and key volunteers • Required for loan origination employees (new SAFE Act regulations) • Policy should reflect that the nature, seriousness and time period of the offense • Apply policy consistently - use predetermined criteria to avoid discriminatory treatment • Consistency is required but not sufficient • New Equal Employment Opportunity Commission guidelines • New Fair Housing Act rule

11. Criminal Background Checks: Sources • Sources typically used • Local police precincts • County courthouses • State repositories • Federal Courts – PACER • Third Party Servicers, i.e., LexisNexis • Most affiliates use a 3rd Party Servicer. • Notice and Consent requirements (FCRA) • HFHI sample background check policy and factor score sheet; Denial under FCRA legal advisory

12. OFAC Checks

13. What are OFAC background checks? • Required by federal law to check Office of Foreign Assets Control (OFAC) list for SDNs • Specially Designated Nationals (SDN): supporters of terrorist activity, terrorists, or international narcotics traffickers • Assets of SDNs are blocked and U.S. persons are generally prohibited from dealing with them • Entering into transaction with SDNs can result in severe civil and criminal penalties

14. When should you run an OFAC check? • Financial transactions • Consider risk/exposure • Homeowners and partner family applicants • Others • Employment applicants • Subcontractors • Land purchases • Everyday transactions • More information on OFAC Compliance: AML Risk Assessment Template

15. When should you perform OFAC checks on partner families? • At the beginning of the family selection process • Again before the closing • Periodically for families whose mortgages are in your portfolio • List can be updated daily • HFHI recommends that affiliates recheck at least quarterly

16. How do you conduct an OFAC check? • Recommended (more accurate & timely): • Background check vendor (e.g., ADP, Backcheck, First Advantage, BIG) • For mortgage servicing, third party mortgage servicer can take on obligation • Affiliates can check themselves using SDN List on U.S. Treasury website • If a match, then what? • Determine if true match (See HFHI’s Specially Designated Nationals (SDNs) Quick Reference Summary) • Contact OFAC (1-800-540-6322) • If accurate match, transaction cannot be made with SDN

17. Background Checks in Employment Context: Additional Considerations

18. New SAFE Act Requirements

19. Criminal Background Checks – Loan Origination Employees • New: For loan origination employees, affiliate must obtain criminal background check, credit report and information from the originator related to any civil, criminal or administrative decision • Confirm: • Not convicted of • Any felony during last 7 years or • Felony involving fraud, dishonesty, breach of trust, or money laundering at any time • Meets financial responsibility, character and general fitness standards

20. Loan Originator Employees (con’t) • Effective with January 10, 2014 hires • But previous hires must have undergone similar screen • Applies to employees only – not volunteers • No exemption applicable to Habitat affiliates • More information: HFHI Legal Advisory: Sex Offender and Criminal Background Checks (Feb 2013 update)

21. EEOC Guidelines

22. Discriminatory Impact in Employment Decisions • Some use of criminal records in employment decision-making may result in illegal employment discrimination • Do not treat criminal history information differently for different applicants/employees based on race, national origin or other protected basis • Do adopt a neutral policy and apply it neutrally • But neutral policy & practice is not enough • Employer must also show that policy/practice is: • Job related for the position in question and • Consistent with business necessity

23. “Job related andConsistent with business necessity” • No automatic, across-the-board exclusion from all employment • Link the specific criminal conduct with the risk inherent in the duties of a particular position by using a targeted screen. • To Do: • identify essential job requirements and actual job circumstances, • determine the specific applicable offenses, and • come up with time duration that will be considered • Do not use the fact of an arrest as a reason not to hire

24. Targeted Screen • Consider at least: • Nature of the crime (e.g., harm caused, elements of crime) • Time elapsed since offense, conduct and/or completion of sentence • Nature of the job • May provide opportunity for individualized assessment • Notice • Opportunity to demonstrate that exclusion should not apply • Consideration of exception

25. EEOC “Employer Best Practices” • Develop narrowly tailored written policy & procedure • Only ask about convictions which would lead to a justifiable exclusion • Do not to inquire into criminal background until late in selection process • More information: EEOC section in Legal Advisory for Criminal Background Checks

26. Fair Credit Reporting Act

27. New under FCRA • New “Summary of Rights” published by CFPB • Must be sent to applicant before taking adverse employment action • All other Fair Credit Reporting Act (“FCRA”) requirements remain • FCRA applies when affiliates obtain background information on employment applicants or potential partner families. • Link to new Summary of Rights and more information: Legal Memo Denial under the Fair Credit Reporting Act(includes sample notice, disclosure and letter)

28. Conclusion - New “To Do” for Affiliates • Run OFAC checks against housing applicants and families whose mortgage in Affiliate’s portfolio at least quarterly • Prepare to run criminal background checks and credit reports for loan origination employees (revise policy accordingly) • Revise criminal background check policy and practice to be able to show that any use of checks: • For employment purposes is job related for the position and consistent with business necessity and • For housing selection purposes has a legally sufficient justification • Use new Summary of Rights from CFPB to send to employment applicants or employees before taking adverse action based on a consumer report

29. Contact John Bradley Senior Staff Attorney, HFHI 1-800-HABITAT ext. 3160 jbradley@habitat.org