[Federal Register Volume 66, Number 150 (Friday, August 3, 2001)]
[Rules and Regulations]
[Pages 40578-40580]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19104]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 749


Records Preservation Program

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is revising its regulation establishing standards for 
vital record preservation. The revised regulation clarifies that a 
credit union may preserve records in electronic form, as authorized by 
the Electronic Signatures in Global and National Commerce Act. The 
revision permits a credit union's board of directors to determine which 
employee will be responsible for storing vital records under the record 
preservation program, in contrast to the current regulation which names 
the credit union's financial officer. It also incorporates an appendix 
to provide suggested guidelines to credit unions on retention periods 
for various types of records.

EFFECTIVE DATE: This rule is effective September 4, 2001.

FOR FURTHER INFORMATION CONTACT: Dianne M. Salva, Staff Attorney, 
Division of Operations, Office of General Counsel, at 1775 Duke Street, 
Alexandria, Virginia 22314, or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    NCUA published a proposal to revise its regulation governing the 
preservation of vital records. 66 FR 11239, February 23, 2001. At the 
end of the sixty-day public comment period, NCUA had received eleven 
comment letters. After carefully considering the comments, the NCUA 
Board is publishing this final rule, which is substantially identical 
to the proposal. Only one minor change was made to the appendix to the 
regulation: the reference to 5300 financial reports as semiannual and 
annual filings has been omitted since some credit unions now file such 
reports quarterly.
    The revision makes three substantive modifications to the 
regulation and changes the format to question and answer. First, the 
revision clarifies that credit unions may store records in any format 
that is accurate, accessible and capable of being reproduced by 
printing, transmittal or other methods, as permitted by the Electronic 
Signatures in Global and National Commerce Act, 15 U.S.C. 7001. Second, 
it permits a credit union's board of directors to determine which 
employee will be responsible for carrying out the vital record 
preservation duties. The current regulation requires that the credit 
union's financial officer be designated as responsible for those 
duties. Third, to address the need for guidance about record retention, 
the revision incorporates an appendix on recommended retention periods 
for various types of credit union records.

Comments

    NCUA received eleven comment letters, all of which expressed 
general support for the proposal. Four comments letters were from 
credit unions; two were from national credit union trade associations; 
four were from state credit union leagues; and one was from a credit 
union service provider.
    Eight commenters strongly supported the change to the regulation to 
clarify that credit unions may retain records electronically.
    Five commenters expressed approval for the addition of the appendix 
containing record retention guidelines. Of these, three suggested 
various changes in the guidance for retention periods and types of 
records that must be retained. The NCUA Board notes that the record 
retention guidelines are merely recommendations and credit unions may 
adopt other retention periods for these or other types of records.
    Five commenters strongly supported the change to the regulation 
permitting a credit union's board of directors to determine which 
employee will be responsible for vital record preservation. Two 
commenters favored eliminating the requirement that the credit union's 
financial officer be responsible for vital records preservation but 
suggested that the credit union manager, rather than the board should 
determine which employee to designate. The NCUA Board did not adopt 
that suggestion in

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the final rule. The Board believes that a credit union's board of 
directors is in the best position to know who among the credit union 
staff should be responsible for carrying out the important 
responsibilities of the vital records preservation program. In revising 
this regulation to eliminate the requirement that designated the 
financial officer as responsible, the NCUA Board does not want to 
replace it with another provision removing the ability and 
responsibility of a credit union's board of directors to make the 
selection itself.
    NCUA requested comment concerning whether the rule is 
understandable and minimally intrusive. One commenter praised the rule 
for being clear and understandable. Two commenters expressed dislike 
for the question and answer format. One commenter, while acknowledging 
that the proposal is designed to be more user friendly, questioned 
whether the question and answer format makes the rule easier to 
understand. The NCUA Board finds that the question and answer format is 
understandable and is appropriate for this regulation. One commenter 
suggested that additional records, sufficient for auditing or to detect 
fraud, should be included among vital records. Two commenters suggested 
that the term ``vital record'' should be defined with more specificity 
and the description should be augmented with more examples. The Board 
notes that the proposed rule did not materially alter the description 
of vital records from that in the current regulation. To give credit 
unions maximum flexibility, the description of vital records is brief 
and lists only the minimum types of records included. A credit union 
may include additional records it determines would be necessary to 
carry on its business in the event of a catastrophe.

Regulatory Procedures

Paperwork Reduction Act

    This regulation will impose no additional information collection, 
reporting or record keeping requirements.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (RFA) 
(5 U.S.C. 605(b)), NCUA certifies that these amendments will not have a 
significant economic impact on a substantial number of small entities. 
NCUA expects that these regulations will not: (1) Have significant 
secondary or incidental effects on a substantial number of small 
entities; or (2) create any additional burden on small entities. 
Accordingly, a regulatory flexibility analysis is not required.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their regulatory actions on state and local 
interests. In adherence to fundamental federalism principles, NCUA, an 
independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the Executive Order. Since this regulation 
will only apply to federal credit unions, it will not have a 
substantial direct effect on the states, on the relationship between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government.

Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that this rule 
is not major for purposes of the Small Business Regulatory Enforcement 
Fairness Act of 1996.

List of Subjects in 12 CFR Part 749

    Archives and records, Credit unions, Reporting and recordkeeping 
requirements.

Becky Baker,
Secretary of the Board.

    For the reasons set forth in the preamble, 12 CFR Part 749 is 
revised to read as follows:

PART 749--RECORDS PRESERVATION PROGRAM AND RECORD

Retention Appendix

Sec.
749.0  What is covered in this part?
749.1  What are vital records?
749.2  What must a credit union do with vital records?
749.3  What is a vital records center?
749.4  What format may the credit union use for preserving records?
749.5  What format may credit unions use for maintaining writings, 
records or information required by other NCUA regulations?

Appendix A to Part 749--Record Retention Guidelines

    Authority: 12 U.S.C. 1766, 1783 and 1789, 15 U.S.C. 7001(d).


Sec. 749.0  What is covered in this part?

    This part describes the obligations of all federally insured credit 
unions to maintain a records preservation program to identify, store 
and reconstruct vital records in the event that the credit union's 
records are destroyed. It establishes flexibility in the format credit 
unions may use for maintaining writings, records or information 
required by other NCUA regulations. The appendix also provides guidance 
concerning the appropriate length of time credit unions should retain 
various types of operational records.


Sec. 749.1  What are vital records?

    Vital records include at least the following records, as of the 
most recent month-end:
    (a) A list of share, deposit, and loan balances for each member's 
account which:
    (1) Shows each balance individually identified by a name or number;
    (2) Lists multiple loans of one account separately; and
    (3) Contains information sufficient to enable the credit union to 
locate each member, such as address and telephone number, unless the 
board of directors determines that the information is readily available 
from another source.
    (b) A financial report, which lists all of the credit union's asset 
and liability accounts and bank reconcilements.
    (c) A list of the credit union's financial institutions, insurance 
policies, and investments. This information may be marked ``permanent'' 
and stored separately, to be updated only when changes are made.


Sec. 749.2  What must a credit union do with vital records?

    The board of directors of a credit union is responsible for 
establishing a vital records preservation program within 6 months after 
its insurance certificate is issued. The vital records preservation 
program must contain procedures for storing duplicate vital records at 
a vital records center and must designate the staff member responsible 
for carrying out the vital records duties. Records must be stored every 
3 months, within 30 days after the end of the 3-month period. 
Previously stored records may be destroyed when the current records are 
stored. The credit union must also maintain a records preservation log 
showing what records were stored, where the records were stored, when 
the records were stored, and who sent the records for storage. Credit 
unions, which have some or all of their records maintained by an off-
site data processor, are considered to be in compliance for the storage 
of those records.


Sec. 749.3  What is a vital records center?

    A vital records center is defined as a storage facility at any 
location far enough from the credit union's offices to

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avoid the simultaneous loss of both sets of records in the event of 
disaster.


Sec. 749.4  What format may the credit union use for preserving 
records?

    Preserved records may be in any format that can be used to 
reconstruct the credit union's records. Formats include paper 
originals, machine copies, micro-film or fiche, magnetic tape, or any 
electronic format that accurately reflects the information in the 
record, remains accessible to all persons who are entitled to access by 
statute, regulation or rule of law, and is capable of being reproduced 
by transmission, printing or otherwise.


Sec. 749.5  What format may credit unions use for maintaining writings, 
records or information required by other NCUA regulations?

    Various NCUA regulations require credit unions to maintain certain 
writings, records or information. Credit unions may use any format, 
electronic or other, for maintaining the writings, records or 
information that accurately reflects the information, remains 
accessible to all persons who are entitled to access by statute, 
regulation or rule of law, and is capable of being reproduced by 
transmission, printing or otherwise. The credit union must maintain the 
necessary equipment or software to permit an examiner access to the 
records during the examination process.

Appendix A to Part 749--Record Retention Guidelines

    Credit unions often look to NCUA for guidance on the appropriate 
length of time to retain various types of operational records. NCUA 
does not regulate in this area, but as an aid to credit unions it is 
publishing this appendix of suggested guidelines for record 
retention. NCUA recognizes that credit unions must strike a balance 
between the competing demands of space, resource allocation and the 
desire to retain all the records that they may need to conduct their 
business successfully. Efficiency requires that all records that are 
no longer useful be discarded, just as both efficiency and safety 
require that useful records be preserved and kept readily available.

A. What Format Should the Credit Union Use for Retaining Records?

    NCUA does not recommend a particular format for record 
retention. If the credit union stores records on microfilm, 
microfiche, or in an electronic format, the stored records must be 
accurate, reproducible and accessible to an NCUA examiner. If 
records are stored on the credit union premises, they should be 
immediately accessible upon the examiner's request; if records are 
stored by a third party or off-site, then they should be made 
available to the examiner within a reasonable time after the 
examiner's request. The credit union must maintain the necessary 
equipment or software to permit an examiner to review and reproduce 
stored records upon request. The credit union should also ensure 
that the reproduction is acceptable for submission as evidence in a 
legal proceeding.

B. Who Is Responsible for Establishing a System for Record 
Disposal?

    The credit union's board of directors may approve a schedule 
authorizing the disposal of certain records on a continuing basis 
upon expiration of specified retention periods. A schedule provides 
a system for disposal of records and eliminates the need for board 
approval each time the credit union wants to dispose of the same 
types of records created at different times.

C. What Procedures Should a Credit Union Follow When Destroying 
Records?

    The credit union should prepare an index of any records 
destroyed and retain the index permanently. Destruction of records 
should ordinarily be carried out by at least two persons whose 
signatures, attesting to the fact that records were actually 
destroyed, should be affixed to the listing.

D. What Are the Recommended Minimum Retention Times?

    Record destruction may impact the credit union's legal standing 
to collect on loans or defend itself in court. Since each state can 
impose its own rules, it is prudent for a credit union to consider 
consulting with local counsel when setting minimum retention 
periods. A record pertaining to a member's account that is not 
considered a vital record may be destroyed once it is verified by 
the supervisory committee. Individual Share and Loan Ledgers should 
be retained permanently. Records, for a particular period, should 
not be destroyed until both a comprehensive annual audit by the 
supervisory committee and a supervisory examination by the NCUA have 
been made for that period.

E. What Records Should Be Retained Permanently?

    1. Official records of the credit union that should be retained 
permanently are:
    (a) Charter, bylaws, and amendments.
    (b) Certificates or licenses to operate under programs of 
various government agencies, such as a certificate to act as issuing 
agent for the sale of U.S. savings bonds.
    (c) Current manuals, circular letters and other official 
instructions of a permanent character received from the NCUA and 
other governmental agencies.
    2. Key operational records that should be retained permanently 
are:
    (a) Minutes of meetings of the membership, board of directors, 
credit committee, and supervisory committee.
    (b) One copy of each NCUA 5300 financial report or its 
equivalent.
    (c) One copy of each supervisory committee comprehensive annual 
audit report and attachments.
    (d) Supervisory committee records of account verification.
    (e) Applications for membership and joint share account 
agreements.
    (f) Journal and cash record.
    (g) General ledger.
    (h) Copies of the periodic statements of members, or the 
individual share and loan ledger. (A complete record of the account 
should be kept permanently.)
    (i) Bank reconcilements.
    (j) Listing of records destroyed.

F. What Records Should a Credit Union Designate for Periodic 
Destruction?

    Any record not described above is appropriate for periodic 
destruction unless it must be retained to comply with the 
requirements of consumer protection regulations. Periodic 
destruction should be scheduled so that the most recent of the 
following records are available for the annual supervisory committee 
audit and the NCUA examination. Records that may be periodically 
destroyed include:
    (a) Applications of paid off loans.
    (b) Paid notes.
    (c) Various consumer disclosure forms, unless retention is 
required by law.
    (d) Cash received vouchers.
    (e) Journal vouchers.
    (f) Canceled checks.
    (g) Bank statements.
    (h) Outdated manuals, canceled instructions, and nonpayment 
correspondence from the NCUA and other governmental agencies.

[FR Doc. 01-19104 Filed 8-2-01; 8:45 am]
BILLING CODE 7535-01-P