Where Wells Fargo’s “Background Checks Project” Went Wrong

Jennifer Gladstone

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Did they do it to comply with the law, or to cook the books and maximize profits?

That is the question facing Wells Fargo Bank after they abruptly fired hundreds of employees over old criminal charges, many of which had been expunged or dismissed.

A Wells Fargo spokesman told the San Francisco Business Examiner, “As an insured depository institution, Wells Fargo is prohibited from hiring or continuing the employment of any person who has a criminal record involving dishonesty or breach of trust unless that person has previously received a waiver from the FDIC.”  A 2008 federal law bars banks and mortgage lenders from employing people convicted of crimes involving dishonesty. Wells Fargo set up a Background Checks Project ostensibly to comply with the law.

It all seems pretty cut-and-dried until you hear some of the stories:

  • Kathryn Eastman told the bank that she had been arrested for stealing a hairbrush back in 1982. She was told it would not affect her employment with the bank. She was hired and passed two rounds of background checks over the years. In 2012 the bank fired her over the 30-year-old misdemeanor because she did not have a waiver from the Federal Deposit Insurance Corporation (FDIC) to allow her to work in the industry. (She was never told she needed to obtain a waiver.)
  • While applying for a job with Wells Fargo, Phetsamone Dary disclosed that he had been arrested on some minor criminal charges. The criminal record was expunged, but he also received the necessary FDIC waiver. He worked at the bank for 10 years before he was shown the door because of those expunged charges.

Nearly a dozen former employees are suing the bank, all claiming similar treatment. Many had worked for the company for decades, several had been recently promoted; others were looking forward to bonuses or retirement. The lawsuit alleges the bank did this to make a massive payroll reduction and to maximize profits.

So why are we talking about this?

Because there are a couple lessons employers can learn here, and they relate to the Fair Credit Reporting Act (FCRA).

First, you need to be very diligent with your use of dismissed records when it comes to making hiring decisions. In many cases, these records will not even show up on background check reports. If you work in an industry that is regulated, like banking, you need to be sure to understand how the FCRA allows such records to be considered.

It is also essential that you follow adverse action procedures anytime you make an employment decision based on information in a background report. Even if the person is already an employee or the case is decades old, you must give them a copy of the report, a copy of their rights under the FCRA,  as well as a reasonable amount of time to correct any mistakes before any action is taken.

The suit has been filed in the South Dakota District of Federal Court.

 Employer Guide to Adverse Action

Background Checks

Jennifer Gladstone

Posted By: Jennifer Gladstone

Jennifer Gladstone is a news anchor and journalist with more than 20 years of experience in front of the camera. She's worked in several markets, large and small, and has performed nearly every task needed in a newsroom. As EBI’s Screening News Editor, she keeps EBI’s customers and blog subscribers up to date on the latest screening news and legislative alerts affecting companies of all sizes.

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