Thu, Feb 23, 2017
There’s not much worse than throwing something away, then later realizing that you should have kept it. For example, you just bought a new jacket. At the store, you loved it. It looked great. So you bought it even though the price tag made you cringe. You ripped off the tags, threw away the receipt, and wore it out of the store. But now, you’re at home. In your bedroom mirror, the jacket makes you look 20 pounds heavier and is actually a disgusting green color, rather than the nice brown color it had under the dim store lighting. And that’s when you realize you’ve thrown away the receipt and you’re stuck with an ugly jacket.
When it comes to financial records, you don’t want to suddenly discover that you didn’t keep a document you need. Keeping track of how long to keep various types of records can be a challenge, but there are some guidelines and general rules of thumb about record keeping that can help. However, it’s important to note the word “guideline.” There are relatively few records that have federal retention requirements written into the code or statute. For example, the Fair Housing Act requires financial institutions to place the fair housing logo on all their mortgage related advertising, but does not require financial institutions to keep copies of the advertising for a certain period of time. In fact, the FHA doesn’t require financial institutions to keep copies of advertising at all. Of course, to determine whether you are complying with the FHA, examiners may ask for your advertising during their examinations and will likely not be amused if you don’t have it available for them. Thus, the guidance that has developed is to hold advertising for one examination cycle and then discard, but it is not written in the statute. It is a guideline.
Then there are regulations like Regulation B, the Equal Opportunity Credit Act (ECOA), which requires that adverse action notices must be kept for 25 months exactly. That is the law.
If you’re in charge of managing records at your financial institution, you may think that the best way to cover all your bases is to simply keep everything forever. That way, you wouldn’t have to worry about which records fall under law and which fall under guidelines. While this may seem like a good idea, it can actually increase risk. In fact, records should not be retained beyond their usefulness or beyond legal requirements.
The best way to manage record retention is to create a sound record retention policy. Your record retention policy should take into account both federal and state record retention requirements. Sometimes, a state regulation may require you to keep a record longer than a federal regulation or vice versa. When this happens, use the longer of the two. Also keep litigation in mind. If your institution is going through litigation, or if you expect litigation might occur, you’ll have to place a litigation hold on all records. This would mean that you’d keep all your records, even if it was time to get rid of some, until the litigation was over.
Finding out that you didn’t comply with a record retention requirement is a lot worse than finding out you’ve thrown away a receipt and now can’t return an ugly jacket. Creating and following a sound record retention policy will go a long way to ensuring your institution stays safe.
Request the 2017 Record Retention Schedule
AffirmX’s sister company, AdvisX, has developed a Record Retention Schedule for credit unions and another for banks. Until March 31, 2017, a complimentary copy of the record retention schedule is available to financial institutions that subscribe to our Risk Inbox e-newsletter. For more information, click here.