One last post to see what everyone is doing. Our bank does not have a "deposit" application. Therefore, we drafted a CIP worksheet to capture certain information that is not on our signature agreements. We made the worksheet required for all accounts, including loans. However, loans have their own application that captures the personal information. As long as lenders note how they resolved discrepancies,describe the ID and / or make copies of non-doc verification, I see no reason to require the worksheet completed for loans. What is everyone else doing?

On individual deposit accounts, there is room on the signature card to record CIP verification.

On business entity deposit accounts, we have always had a "legal file" that contains copies of the entities documents - Articles of Incorp, Partnership Agreement, etc. Among other reasons, we have those "legal" files to refer to if we get a legal process and we need to make absolutely sure the correct name of our customer.

For loans, that information will be kept in the loan file.

If you use a loan application as your documentation for CIP's verification process then the loan application is subject to CIP's record retention requirements, not those normally applicable to loan applications. At a minimum, you more than double the application's record retention period.

Loan applications are routinely reviewed by third parties in connection with fair lending issues. Generally, it is suggested that they be destroyed as soon as practicable. Voluntarily prolonging their retention could subject your institution to scrutinty/liability in other areas.

We did design forms for the lending side, primarily for the purpose of recording discrepancy issues. We also had an existing procedure that required that copies of legal documents be retained in a legal file.

For consumer loans we designed a checksheet to capture the government identification information as well as discrepancy information.

The recordkeeping requirements are unfortunately causing many of us to create/revise forms.

For deposits we have a "Customer Profile" sheet that is attached to the signature card where we record all CIP information. For loans we have added a section on our document checklist for CIP. It has to be completed and signed off before we will fund.

Doubling the retention of loan application information should normally not be a problem when we make a loan. If the loan is subject to RESPA, we have a retention requirement anyways. If the loan is not RE secured and is over $10,000, we have a 5 year retention.

If the loan is not approved, we have no requirement for retention under CIP.

Bonnie,
Please educate me a little bit. The record retention requirement for a loan "application" that I was referring to was from Reg B 12 CFR 202.12(b) which is generally 25 months. It's the only federal record retention requirement I know of that mentions a loan "application" as such.

The preconditions you mention, more than $10,000 and not secured by real estate may come from BSA at 31 CFR 103.33(a), but that requirement mentions information, not the loan application itself - a bank could comply with it without keeping a copy of the application.

It's RESPA that's confusing me. Where is the requirement that a bank keep a copy of the loan application?

Since you said "we", I realize you may have been talking about your institution's practices rather than legal requirements; e.g. you may keep the application as a method of complying with BSA even though the regulation does not require you to. I don't claim a lot of expertise on the lending side and want to make certain I get it right.

The retention requirement in Reg B states that you must keep an application on file for 25 months (12 for business credit) after you have notified an applicant of action taken or of incompleteness.

In most cases, when a lender makes a loan, the lender will keep that application in the loan file for the duration of the loan since there are certain attestations that are usually incorporated in the application.

When I say "we" are not required to keep records of loans not made for CIP purposes, I am speaking in general terms. If the loan is not opened, no account has been established, therefore CIP does not apply. (Remember - the final regulation took out the "seeking to open" from the definitions of coverage.)

The BSA recordkeeping requires information that is essentially on the application - but again, this is only for an actual extension of credit. Declined loans would not be covered.

For RESPA see Section 24 CFR 3500.10
The lender shall retain each completed HUD-1 or HUD-1A and related documents for 5 years after settlement uless the lender disposes of its interest in the mortgage and does not service the mortgage.

Again - we have record retention for loans that have been made, so it seems that we will have to tack on an extra 5 years for closed loans because of CIP. If the concern is about extending retention periods for declined files, there should not be an issue. Keep the declined files 25 months (12 months for small business) and that should be it.

So, individual bank practices aside, if the loan is covered by RESPA, 24 CFR 3500.10 applies and the legal record retention requirement for the application is 5 years. If the loan is not covered by RESPA, the general requirement is the 25 months referenced in Reg B earlier.

Using the application to record CIP verifications would have no dramatic effect on a RESPA covered application. However, it would extend the record retention period on all others to five years from the date the information was obtained. Got it.

(I wasn't questioning anything about declined applications.)

The primrose path is one that seems appropriate enough, until you get to the end.

The statement in my preceding post that RESPA has a retention requirement for applications is dead wrong. That regulation has a record retention requirement for settlement statements, not applications. I should have made certain I understood it before providing a map to a dead end street. I apologize.

My original statement, that the record retention requirement for a loan application is generally 25 months or less was correct. The suggestion that recording CIP's identity verification records on a loan application (thereby extending its record retention period) is a bad idea, is emphatically reoffered.

Not to belabor this point, but in most banks that I have seen, if there is a record retention for any part of a loan file, then the entire loan file is usually retained.

It would be difficult for many banks to go through loan files when they close to selectively pick out documents that can be destroyed and yet save others. (or vice-versa)

If a bank is going to keep the application in file for the life of the loan, and let's say we are talking about a 15 year Home Equity Line of Credit, are you saying that the bank should destroy the application the day the loan is paid? Or do you think banks should destroy applications 2 years after the loan is made?

I'm not trying to nitpik here, but I've having trouble with the logistics of selectively saving or destroying certain documents at a certain point in time either after the loan has funded or after the loan is paid.

I agree with Bonnie. We keep the full loan file for the longest period of retention required for any of its contents.

Great Blue,
There is no disagreement about how long to keep the file, that varies among banks.

I was trying, somewhat desparately, to keep the conversation focused on the legal record retention requirements for the loan application. Some banks do store them separately and systematically destroy them. Including CIP verification info on them would require them to keep them longer.

When DOJ did its public fair lending crucifixions a few years ago, some of the banks had every application the customer had ever filled out in their files. It was very helpful to DOJ in their investigation. If those banks had not kept those applications the charges would have been much more narrow in their scope.

Ken, I definitely think you make some very valid points. You're right, there is a distinction between what the regulation requires, and what banks in practice do, for good or for bad. I think in most cases, the difficulties of sorting through loan files for the few docs that have to be kept outweigh the possible problems associated with keeping the full file. But, as you said, that's an individual bank's call to make.

Quote:

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When DOJ did its public fair lending crucifixions a few years ago, some of the banks had every application the customer had ever filled out in their files. It was very helpful to DOJ in their investigation. If those banks had not kept those applications the charges would have been much more narrow in their scope.

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I think the key in that case is the bank keeping "every application the customer had ever filled out" which to me would indicate they kept the declined and withdrawn applications as well. It is easy enough to mark each month's worth of declined applications for destruction 26 months after the month of application. It's quite another to go fishing through existing or paid loan files to do the same.

word

Yo...yo...yo!!!!

Bonnie,
You're right, I just wanted to know if you ever let anybody else have the last word.

Although it was never the issue I was trying to discuss here, I want folks to understand that the aps on approved loans can be the smoking gun. The only DOJ fair lending case that I would claim more than "newspaper" familiarity with was the one in Vicksburg. It only invovled loans that were approved, but on disparate terms that alledgely tracked race. (Link to complaint filed in Federal court.) They were able to go back 8 years based on applications retained in the bank's files.

When I was training for the FDIC I heard DOJ attorneys make several presentations to senior examiners telling them what to look for when they were going through loan files. They repeatedly stressed how helpful the old applications were in fair lending examinations and prosecutions.

The only point I was repeatedly trying to make here is that you do not want to be forced to keep the applications longer than you have to - it not an academic observation. I would add to that observation now that if you keep them longer than required and they are used against you it is a self-inflicted wound.

I am a teacher. Since people learn by repetition, by making me repeat myself (several times) you've helped me teach. Thank you.

Is anyone willing to share the checklist forms?