We are not aware of any laws or regulations that would require a bank to take action if it becomes aware of a frontline employee’s loan default or bankruptcy (or other adverse information about an employee’s credit). If an employee is a mortgage loan originator (MLO) subject to Regulation Z’s screening requirements, your bank must evaluate the MLO’s “financial responsibility, character, and general fitness” — but these screening requirements are limited to MLOs and apply “before the individual acts as a loan originator in a consumer credit transaction secured by a dwelling,” and not throughout the individual’s employment at your bank.

Of course, some limits on the employee’s responsibilities may be prudent, based on the severity of the employee’s problems and other contextual factors. Also, your bank’s employee handbook may provide for certain standards or requirements for employees who have accounts at your bank.

However, there are some limitations on the actions your bank can take in response to an employee’s credit problems. The U.S. Bankruptcy Code prohibits employers from discriminating against an employee based solely on the employee’s bankruptcy. Also, if your bank disciplines or terminates an employee based on information found in the employee’s credit report, your bank must comply with the Fair Credit Reporting Act (FCRA)’s adverse action requirements. 

We also recommend reviewing your bank’s insurance and bonding agreements, which may require you to report instances of an employee’s bankruptcy or other credit issues.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.36(f)(3)(ii)(B) (Requires financial institutions to investigate whether a loan originator “(B) Has demonstrated financial responsibility, character, and general fitness such as to warrant a determination that the individual loan originator will operate honestly, fairly, and efficiently,” among other requirements, “before the individual acts as a loan originator in a consumer credit transaction secured by a dwelling. . . . .”)

• FCRA, 15 USC 1681b(b)(1) (“Except as provided in subparagraph (B), a person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer, unless (i) a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and (ii) the consumer has authorized in writing (which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person.”)

• FCRA, 15 USC 1681a(k) (“The term ‘adverse action’” means “(ii) a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee.”)

• FCRA, 15 USC 1681m(a) (“If any person takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report, the person shall [among several other items of information] (1) provide oral, written, or electronic notice of the adverse action to the consumer; (2) provide to the consumer written or electronic disclosure (A) of a numerical credit score . . . used by such person in taking any adverse action based in whole or in part on any information in a consumer report; . . .”)

• U.S. Bankruptcy Code, 11 USC 525(b)  (“No private employer may . . . discriminate with respect to employment against an individual who is or has been a debtor under [the Bankruptcy Code], solely because such debtor or bankrupt (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.”)