Consumer finance is a highly regulated industry.  That’s an understatement to you if you are a reader of this blog. The vast number of federal laws, rules, and regulations that affect the consumer finance industry provides me with an almost endless supply of topics. And, then, of course, there are all of the state laws and regulations that I seldom touch on here.

So, what about record keeping?  Well, generally speaking, the record keeping requirements are set forth in state law. However, there are several federal statutes and regulations that set forth specific record retention requirements.  Here are some:

  • Under Regulation Z of the federal Truth-In-Lending Act, section 1026.25 states the general rule that evidence of compliance with the disclosure requirements is two years.  But, evidence of compliance relating to loans secured by real property must be maintained for three years; and certain documents related to disclosures actually must be maintained for five years after consummation.
  • Under Regulation B of the federal Equal Credit Opportunity Act, section 1002.12, as a general rule, applications should be preserved for 25 months.  
  • Under Regulation V of the federal Fair Credit Reporting Act, there is no specific record retention requirement. Rather, creditors must maintain records long enough to substantiate the accuracy of any information about consumers it furnishes to CRAs.
  • RESPA’s Regulation X requires that the HUD-1 and HUD-1As be retained for five years following closing.  
  • And, the Fair Credit Reporting Act requires that the criteria used to make prescreening offers be retained for three years.

Of course, there is a yin and a yang to record keeping—as there is to many matters in life according to the ancient Chinese religion and philosophy of Taoism. On the one hand, it is often said that it is not the records you have destroyed (pursuant to a published records destruction policy) that gets you into trouble.  Rather it is the records that you have indiscriminately kept that causes problems.

Practice Pointer #1: Be certain that you follow the record keeping requirements of both federal law and the laws of the states in which you operate.  Failure to do so can get you into hot water with regulators.  

Practice Pointer #2:  But, don’t maintain records longer than required!

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