I. COVERAGE
This article is comprised of a review of Nebraska and federal laws, regulations and other legal issues pertaining to record retention requirements for banks “engaged in the business of banking.” Not included are record retention requirements that apply to banks because they are taxpayers, corporations, employers, fiduciaries or are engaged in other activities.
II. RECORD RETENTION POLICY CONSIDERATIONS
A. General
When developing or reviewing your bank’s record retention policy, consideration should be given to the following procedures:
B. Specifics
In drafting or amending an “ideal” bank record retention policy, the following are some goals that the bank should strive to achieve:
C. Statutes of Limitations/Other Related Principles
Laws and regulations mandate that certain bank records be kept for minimum periods, but only for governmental purposes, which eliminates any opportunity for discretion.
There are often bank records that are not covered by law or the period of retention is not scheduled. In these situations, you must determine what records should be preserved, possibly well beyond any statutory or regulatory minimum period, considering the possibility that such records may be needed to defend or support your bank regarding legal claims. In other words, consideration should be given to documents that may be associated with litigation or imminent litigation and in which they will be vital to have available for defense purposes or even for use by the prosecution. Therefore, a case could be made that the bank’s record retention officer may have to use discretion or make an educated guess as to the appropriate time limit for holding unto documents may be, particularly when there is neither any state or federal guidance whatsoever.
From the September 11, 2001, terrorist attacks and the difficulty encountered in retrieving and reconstructing records to the case of Enron/Arthur Anderson records destruction when an investigation was imminent, bank examiners have become more and more concerned with bank record retention program and retrieval procedures. In addition, the USA PATRIOT Act provides that certain records must be produced within a 120 hour period, meaning the bank must have a system in place to meet that standard.
There are a number of statutes of limitations in Nebraska which give the time period within which an action may be brought or a right enforced. There are also statutes of limitations in many federal laws. These too must be considered when setting up your record retention plan. The bank may destroy records upon termination of the statutes of limitations, but determining when the period has run can be difficult. This is because there are exceptions and the time limits are not necessarily absolute. For example, three exceptions are worth noting:
Some attorneys believe that banks should not keep records “longer than required by law” in light of strict enforcement provisions contained in FIRREA of 1989. Provisions in the law increased the statute of limitations for banking statutory violations from 5 years to 10 years. As a result, there are banks that may ignore their own destruction schedule. For example, the Nebraska state regulatory requirement is that cashier check records be maintained for seven years after payment of the check. If a bank should keep such records beyond the seven year minimum requirement, e.g., 25 years, should the bank receive a court order to produce all cashier’s checks payable to a named person if they exist, then a bank will have to sort through 25 years, rather than seven years, of checks. Therefore, when considering a record retention period, a banker should consider the totality of the circumstances and should do so with the aid of counsel.
D. Unclaimed Property in Nebraska
The Uniform Unclaimed Property Act requires banks to retain records of the owner of unclaimed property after the property becomes reportable. But the Nebraska version of the Act has no requirement for banks to keep property records once property has been delivered to the state, except for a record of the delivery date. The State Treasurer’s Office suggests, however, that records be maintained for a reasonable period of time, e.g., at least two years.
E. Releases
Banks might consider obtaining signed releases from depositors whose records it wishes to destroy, e.g., a statement signed by a depositor acknowledging that the account statement is correct and not subject to further question could protect the bank in the course of destruction of the records involved.
F. Uses and Forms of Records
Nebraska has adopted the Uniform Photographic Copies of Business and Public Records as Evidence Act (§§ 25-12,112 to 12,114), which permits regularly kept bank records of this kind to be introduced into evidence. While federal evidence rules provide that regularly prepared business records may be admitted into evidence in federal court, the courts still have discretion to refuse to admit business records if the “circumstances of preparation indicate lack of trustworthiness.”
The Act also provides conditions for substituting microfilm, microcard, optical imagery or disk or other photographic copies for original hard copies. The destruction of the original, after copying, is allowed and reproductions may be admissible in court. Note that this Act does not allow for the destruction of original records held in a custodial or fiduciary capacity nor does it permit the destruction of original records where preservation is required by law. The entire Act appears in the article entitled Uniform Photographic Copies of Business and Public Records as Evidence Act, which can be found in this section of the NBA Compliance Handbook.
G. Computer Records
Nebraska courts appear to have been willing to admit computer printouts into evidence upon a proper showing of their reliability. A nationally recognized landmark computer records case was decided by the Nebraska Supreme Court. In Transportation Indemnity Co. v. Seib, 178 Neb. 253 (1975), the court held that if information is regularly converted into machine readable form (e.g., put on magnetic tapes) in a timely fashion and for a regular business purpose, the retrieval of that information is admissible into evidence even though the retrieval of printouts was specifically for litigation. The court held that under the Nebraska Uniform Business Records as Evidence Act (Note: this Act was subsequently repealed by the legislature), no particular form of record is required and that the law was intended to bring the realities of business practice into the courtroom.
This case and the previously referred to Nebraska laws should assist banks in their procedures covering any destruction of original records.
H. Destruction of Records
Destruction of records should always be authorized by a senior officer who should indicate the type of destruction, such as shredding, burning, returning to customer, etc. If there are any questions concerning particular items, do not destroy. At the time of destruction, a destruction certificate authorizing the destruction should be made.
III. RECORDS MANAGEMENT CONSIDERATIONS
A. Definitions
“Records Management” is an organized and systematic control of all information either required by law or required to run a bank. “Control” includes these concepts: security; easy retrievability; and timely, cost efficient and legal methods of records destruction. Bank policy and procedure should take into consideration four main principles:
B. Compliance
See, “Records Retention Policy Considerations” under II., above, as well as the state and federal schedules that appear in other articles found in the Record Retention section of the NBA Compliance Handbook.
C. Disaster Recovery
References are available from the Nebraska Department of Banking and Finance booklet, entitled “Nebraska Automation Guidelines” and from the Federal Emergency Management Agency, entitled “Disaster Planning Guide for Business and Industry,” FEMA 141/August 1987.
In any event, the disaster recovery program should ensure that the bank will continue to operate despite crisis conditions, such as fire, flooding, tornado, sabotage or other forms of physical catastrophe. Specific documents are considered vital:
D. Space Management
Some records retention “experts” observe that only about 5% of documents are retrieved after three years of life. Less expensive alternatives to prime bank space should be explored to accommodate inactive, but essential information.
E. Information Security
This principle requires information to be secure from physical harm and free from unauthorized copying, destruction or alteration, all the while allowing for the monitoring and enforcing of efficient information access. If bank policy promotes physical and access security, then the retrieval and appropriate destruction of records may occur efficiently, without undue cost or delay.
IV. CONCLUSION
Records management has to be analyzed both in light of legal considerations and cost effectiveness. A written schedule has two main functions:
Developing or reviewing your bank’s record retention policy and schedule should be done in conjunction with your bank counsel. The schedules and laws contained in this section will hopefully be an aid to help your bank in its record retention program.