Record Retention Refresh Part Two

Happy Tuesday, compliance friends! Previously I wrote a refresher blog on some basic record retention requirements, which you can find here . Today’s blog serves as Part Two and will focus on record retention requirements under the Truth in Lending Act, as implemented by Regulation Z . Regulation Z includes several record retention provisions that credit unions should be aware of. Let’s take a closer look:

General Record Retention Rule 

First, the general record retention rule can be found in section 1026.25(a) . That section states the following:

“(a) General rule. A creditor shall retain evidence of compliance with this part (other than advertising requirements under §§ 1026.16 and 1026.24 , and other than the requirements under § 1026.19(e) and (f) ) for two years after the date disclosures are required to be made or action is required to be taken. The administrative agencies responsible for enforcing the regulation may require creditors under their jurisdictions to retain records for a longer period if necessary to carry out their enforcement responsibilities under section 108 of the Act.”

As you can see, the general requirement is to retain records for two years from “the date disclosures are required to be made or action is required to be taken.” Notably, there are some exceptions to this general rule including:

• Advertising requirements under section 1026.16 and section 1026.24 (which do not have a record retention requirement in Regulation Z); and
• Exceptions for the requirements in sections 1026.19(e) and (f) (which deal with mortgage loan disclosures).

As we’ll learn later, there are also specific retention requirements for loan originator compensation requirements and records related to minimum standards for transactions secured by a dwelling.

Record Retention for Records under Sections 1026.19(e) and (f)

Now, going back to the requirements for records under sections 1026.19(e) and (f). Section 1026.25(c) is the place to look as it discusses records related to certain requirements for mortgage loans. It includes a general requirement in section 1026.25(c)(1)(i) :

“(i) General rule. Except as provided under paragraph (c)(1)(ii) of this section, a creditor shall retain evidence of compliance with the requirements of  § 1026.19(e) and  (f) for three years  after the later of the date of consummation, the date disclosures are required to be made, or the date the action is required to be taken.” (Emphasis added). 

However, specific requirements under section 1026.25(c)(1)(ii) impose a longer retention requirement for completed disclosures required under section 1026.19(f)(1)(i) (closing disclosure) or section 1026.19(f)(4)(i) (transactions involving a seller): 

“(ii) Closing disclosures.  

(A) A creditor shall retain each completed disclosure required under  § 1026.19(f)(1)(i) or  (f)(4)(i) , and all documents related to such disclosures, for five years after consummation, notwithstanding  paragraph (c)(1)(ii)(B) of this section .

(B) If a creditor sells, transfers, or otherwise disposes of its interest in a mortgage loan subject to § 1026.19(f) and does not service the mortgage loan, the creditor shall provide a copy of the disclosures required under § 1026.19(f)(1)(i) or (f)(4)(i) to the owner or servicer of the mortgage as a part of the transfer of the loan file. Such owner or servicer shall retain such disclosures for the remainder of the five-year period described under paragraph (c)(1)(ii)(A) of this section.

(C) The Bureau shall have the right to require provision of copies of records related to the disclosures required under § 1026.19(f)(1)(i) and (f)(4)(i) .” (Emphasis added). 

Per the commentary , the disclosures under section 1026.19(f)(4)(i) appear to be about disclosures the settlement agent provides. 

Other Notable Record Retention Provisions

I mentioned earlier there were a couple other exceptions to the general rule. So, what other record retention requirements should credit unions keep in mind when working under Regulation Z? See below:

With respect to loan originator compensation, section 1026.25(c)(2) requires evidence of all compensation paid to a loan originator and the compensation agreement governing payments be retained for three years after the date of payment. Specifically, that section requires:

“(2) Records related to requirements for loan originator compensation. Notwithstanding paragraph (a) of this section, for transactions subject to § 1026.36 :

(i) A creditor shall maintain records sufficient to evidence all compensation it pays to a loan originator, as defined in § 1026.36(a)(1) , and the compensation agreement that governs those payments for three years after the date of payment.

(ii) A loan originator organization, as defined in § 1026.36(a)(1)(iii) , shall maintain records sufficient to evidence all compensation it receives from a creditor, a consumer, or another person; all compensation it pays to any individual loan originator, as defined in § 1026.36(a)(1)(ii) ; and the compensation agreement that governs each such receipt or payment, for three years after the date of each such receipt or payment.”

Lastly, section 1026.25(c)(3) has record retention requirements for records related to minimum standards for transactions secured by a dwelling (i.e., requirements regarding evidence of compliance with section 1026.43):

“Notwithstanding paragraph (a) of this section, a creditor shall retain evidence of compliance with § 1026.43 of this regulation for three years after consummation of a transaction covered by that section.”

As always, when it comes to record retention, it’s important to consult with the credit union’s legal counsel about identifying any applicable state laws or other issues that may influence the credit union’s record retention policies. While the regulatory requirements can provide credit unions with a starting point for minimum retention periods, consulting with legal counsel regarding any state laws or other practical considerations can help a credit union create sound record retention policies and procedures.