Last week we wrote about the Disposal of Consumer Report Information and Records (the Disposal Rule). That blog is accessible here.  Following that blog publication, several people asked about the duties concerning record retention.  So, I wanted to address that topic now.

If you think about it, records retention and records disposal are opposite sides of the same coin.  The Federal Trade Commission (FTC) has given us pretty specific guidelines on records disposal.  But, what about records retention?  Well, it turns out that we must go to several different sources to determine the rules relevant to records retention.

The first stopping-off point in this discussion is the records retention rule found in the Truth-In-Lending Act’s Regulation Z Section 1026.5 (TILA and its Regulation).   That Regulation states a general rule that records evidencing compliance with TILA should be retained for two (2) years following pay-out.  With this said, the Commentary to the Regulation makes clear that there are longer holding periods for loans secured by real property.

Another place to search for records retention requirements is in the Equal Credit Opportunity Act and Regulation B.  Generally, the retention period is 25 months for credit applications and notices of action taken under that act and regulation.

Finally, records retention requirements are usually a matter of state law and regulation as well.  So, any records retention policy must take into account the requirements of the states in which the finance company operates.

There is an important caveat here:  The records retention requirements not only are a function of the type of records, but also the type of records keeper.  As a result, the rules for banks, bank subsidiaries, credit unions and mortgage lenders differ from the rules for consumer finance companies. The records retention requirements under the Real Estate Settlement Procedures Act, the Flood Insurance Regulations under Part 339, the Regulation C Home Mortgage Disclosures, and the Part 103 Financial Recordkeeping regulation, each have specific and longer retention requirements.

So, if we want to standardize the records retention time frame for a customer’s paid-out account file, we need to err on the side of the longest retention requirement applicable to the records within that account file.

And, of course, the opposite side of that coin is the reality that more often than not, it is the records that you maintain that cause you heartburn—not the records that you destroy.

Practice Pointer: If you do not have a Records Disposal and Retention Policy, you are asking for trouble.

Please note: This is the fifty-third blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking here.