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NCUA's Records Preservation ANPR & Transcript


2024 April NCUA Board Meeting.mp4


⏰Fri, 04/19 16:09PM · 30mins


Todd Harper 00:00

Good morning, everyone, and welcome. I call this meeting of the NCUA Board to order. In addition to those joining us in the boardroom, I want to note for the record that today's meeting is open to the public through a live webcast as well.


Todd Harper 00:16

In fact, I am participating virtually in today proceedings. As we begin today's agenda, it's my pleasure to welcome the newest member of the NCUA Board's team, Renita Marcellin, who recently joined as the Senior Advisor to Board Member Otsuka.


Todd Harper 00:34

Renitah, welcome aboard. I, along with the rest of NCUA team look forward to working together with you to achieve the agency's many mandates, including protecting consumers, advancing safety and soundness, and safeguarding the share insurance fund.


Todd Harper 00:50

The sole item of business today is the advanced notice of proposed rulemaking part 749 records preservation program. Staff presenting are Kelly Lay, Director, Office of Examination and Insurance, and Matt Huston, Policy Officer, office of examination and insurance.


Todd Harper 01:09

And joining them to answer questions is Ghira Bose, Senior Staff Attorney, Office General Counsel. Good morning, Kelly, Matt, and Ghira. Matt I understand that this is your first presentation at an open board meeting.


Todd Harper 01:23

So welcome to the board table. You're gonna do great. Please meet anyone who already.


Kelly Lay 01:30

Good Morning Chairman Harper, Vice Chairman Hoffman and board member Otsuka. Today we are seeking the boards approval to publish an advanced notice of proposed rulemaking or ANPR addressing into a regulation part 749 and its appendices with a 60 -day comment period.


Kelly Lay 01:47

I would like to extend my appreciation to the members of the NCUA working group who reviewed this issue in detail over the last several months. This included representatives from the Office of Examination and Insurance, the Office General Counsel, the office of National Examinations and Supervision, and of course the regions.


Kelly Lay 02:06

Their contributions and input were critical in helping bring this matter before you today. I will now turn it over to policy officer Matt Huston for additional background and support for this ANPR.


Matt Huston 02:17

Thank you Kelly. Good morning Chairman Harper, Vice Chairman Hotman and board member Otsuka. It's an honor to be here today and present this material to you all. As Kelly mentioned we are here to present for your approval an ANPR on the topic of NCUA regulations part 749 Records Preservation Program and its two appendices.


Matt Huston 02:37

Records retention guidelines and catastrophic act preparedness guidelines. The ANPR we present today was developed by the NCUA in part due to recent feedback we received from a small credit union committee.


Matt Huston 02:51

Specifically we learned that several small credit unions find part 749 to be confusing and increasingly costly and unclear as to whether the appendices included in this regulation are requirements or guidance.


Matt Huston 03:07

While section 749 .0b states Appendix A and Appendix B provide guidance concerning appropriate length of time, credit unions should retain various types of records and for developing a program for responding to catastrophic act, we understand credit union may be confused as to whether these appendices are requirements given their inclusion in NCUA's regulations.


Matt Huston 03:32

In addition to the helpful feedback from the industry, the NCA identified Part 749 as an area potentially in need of updating in recent years. Part 747 has not been substantially updated since it was established in August 2001.


Matt Huston 03:48

Since then, there have been significant changes in credit union operations, including an increased reliance on technology and the accelerated demand for digital products, services and technologies for operations and membership.


Matt Huston 04:02

There have also been changes to formats, methods, and practices credit units used to store their records in accordance with the requirements of Part 749. As a result, we are recommending approval and issuance of this ANPR to allow the NCUA to seek input from stakeholders and to better understand and analyze specific costs or issues that may exist regarding part 749.


Matt Huston 04:27

This feedback as well as information the NCUA received or gathers will allow the board to determine whether to propose updates to the rule. And this ANPR is broken out into four sections with 20 total questions within these sections on which we would like feedback from the industry.


Matt Huston 04:45

Section A requests input from stakeholders on recommended changes to the definitions and what, if any, minimum retention period should be incorporated in Part 749. Section B relates to record retention practices and requests credit unions provide what processes they are currently using to comply with Part seven 49.


Matt Huston 05:06

In this section, we ask about any impediments encountered in complying with the rule, feedback on documents that should be retained permanently, suggested timeframes for retention for other documents, and other program framework suggestions.


Matt Huston 05:23

Section C incorporates four questions to clarify what stakeholders have understood to be regulation versus guidance in the appendices of Part 749. It has been a long -standing agency practice to incorporate guidance into an appendix of the rule.


Matt Huston 05:38

However, we are interested to learn whether the structure in Part 749 particularly Appendix A the inclusion of Appendix a and Appendix B is confusing or if alternative approaches for providing guidance in this area would benefit would provide a benefit to credit unions we would also like input on what content should be incorporated in future guidance related to records retention and catastrophic act preparedness the last section section D is one question related whether records retention provisions and other NCUA regulations should be incorporated in part 749.


Matt Huston 06:15

We would like input from stakeholders on whether specific document retention requirements and other regulations, should, be included as a vital record in Part 7 49. In conclusion, our primary goal with this ANPR is to collect information from stakeholders, give the NCUA insight into existing and potential records preservation methods, systems, and technologies.


Matt Huston 06:40

This feedback would be used to enhance any potential future Part 749 rulemaking efforts. Thus, we are requesting the Board approve the issuance of this ANPR to allow stakeholders to provide their feedback and recommendations regarding Part seven 49 and its appendices.


Matt Huston 06:57

Thank you for your time. We will be happy And we will be happy to answer any questions you may have.


Todd Harper 07:03

Thank you, Matt, for that detailed presentation and for Kelly and Ghira for being at the table to help answer questions about this advance notice of proposed rulemaking related to Part 749, which covers the NCUA's records preservation program requirements.


Todd Harper 07:21

It's important that federally insured credit unions maintain a robust records Preservation Program, a program whereby vital records can be readily reconstructed. Maintaining vital record is central to a credit union's ability to properly serve its members and to the NCUA's abilities to fulfill its supervisory, enforcement, and even liquidation functions.


Todd Harper 07:45

It's also important for credit unions to understand the necessary legal requirements and the agency's guidance about records preservation. Part 749, last updated about 15 years ago, was last update about about fifteen years ago times change, technology changes.


Todd Harper 08:03

There are modern needs and best practices that should be incorporated in policies for records retention and preservation for these reasons alone. I support this advance notice of proposed rulemaking and welcome comments from all stakeholders on how the NCU -A can update, modernize, and streamline its records preservation program regulations and accompanying guidance.


Todd Harper 08:26

Before I wrap up, I do have a few questions for staff. First, would you provide a view examples of what constitutes vital records? That is, what records must a credit union preserve and why?


Matt Huston 08:40

I'll take that question. A few examples of vital records include members' share and loan records, bank account information and reconcilements, insurance policies, and emergency contact information. You can find a list of these vital record in section 749 .1 of the regulation.


Matt Huston 08:58

Regarding why a credit union must preserve these records they are viewed as essential so a Credit Union could identify and reconstruct its vital reports to promptly restore operations in case these record are destroyed.


Matt Huston 09:09

For example, several credit unions experienced an outage due to a cyber incident in late 2023. By maintaining vital records, such as a list of member account balances, those credit units were able to continue servicing their members.


Matt Huston 09:23

I'll also share another good example that highlights why we ask questions related to third -party vendors in this ANPR. A credit union in New Jersey, impacted by Hurricane Ida, had significant damage to its building equipment and operated out of another local federal credit union for a few months.


Matt Huston 09:41

Since all the credit unions' files were wet, they used a third -party freeze and drag company for restoration. That concludes my response.


Todd Harper 09:50

And Matt, that's really helpful. I can also think of a credit Union that ultimately had to be liquidated after Hurricane Katrina because all of its paper files and all its records were flooded. It really does emphasize the point that a credit union needs these vital records in order to continue its work.


Todd Harper 10:11

Second, would you provide an example of current industry standards or methodologies that should be considered for preserving vital record?


Kelly Lay 10:21

Thank you, Chairman. I'll take that question. I think a good example is storing your vital records electronically and having a backup such as the cloud that can be accessed to get a credit union back up and running.


Kelly Lay 10:33

But that's really, I think your question highlights the information that we are seeking in this ANPR to really determine what some of those standards and methodologies are that exist out there in the industry so that can plan to use that information to better help inform any future work that would do in these regulation.


Kelly Lay 10:51

Thank you, that concludes my response.


Todd Harper 10:53

Kelly, thank you so much for that information and finally, with respect to part 749 compliance, What has the NCUA done to make records retention more efficient?


Matt Huston 11:05

Thank you, Chairman. I'll take this question. To improve the efficiency of a credit union's record retention program, the NCUA has issued guidance in Part 749, Appendix A, concerning suggested guidelines for record retention and Appendix B to guide credit unions in developing a program for responding to a catastrophic act.


Matt Huston 11:25

Also, our NCUA .gov website includes a page to aid credit unions in efficiently managing their records retention program. In addition, Section 749 .4 of the rule allows credit units to preserve records in any format as long as they can be used to reconstruct their record.


Matt Huston 11:43

This flexibility in the Rule, as well as the agency's guidance in appendices and on our website promote efficient records -retention practices. That concludes my response. Thank you.


Todd Harper 11:54

Thank you again, Matt, Kelly and Gira. And thank you to everyone in the office of examination and insurance and the Office of General Council who worked on this item. That concludes my remarks and I now recognize Vice Chairman Hoffman.


Kyle Hauptman 12:08

Thank you, Mr. Chairman. Thank you Kelly, and Matt for the presentation and for being available for questions. I want to also thank Kelly for taking the time to look into the impact of NCA's regulations on records preservation as they're currently written and I definitely want to thank the leaders of small credit unions which I think are the reason we're here.


Kyle Hauptman 12:28

We had a meeting a few months back there's small crediting they brought up a a couple actionable items and I believe that meeting and then our subsequent ones and discussions with Kelly are why we are here today.


Kyle Hauptman 12:41

My point is a broader one that we actually do listen and there is point to talk to us and it can actually have value so I I think there are only maybe three or four credit union leaders on that call we had, but they're going to wind up helping thousands of other people.


Kyle Hauptman 12:58

So I want to thank those folks. They did a real job, and I wanna thank our staff for that. That meeting, bringing something to our attention, actually is gonna bring real results to a lot of people, so.


Kyle Hauptman 13:12

To wit, the crush of regulatory burden weighs more heavily on small credit unions. we cannot talk about financial inclusion or talk about helping small credit unions unless we're doing the sort of things we are doing here today, providing clarity that frees up scarce resources to focus on their actual credit union members.


Kyle Hauptman 13:28

If you go to the extreme, regulatory burden is often cited as a reason why otherwise healthy credit unions merge out of existence. But you know what's worse than a regulatory burden? Finding out you're doing things that your regulator didn't even need you to do.


Kyle Hauptman 13:47

we found out credit unions were storing boxes of records from decades ago because they thought that we at NCUA wanted them to. Now we're aware that other agencies etc may require records but they said we thought you wanted that.


Kyle Hauptman 14:02

Some were paying for storage facilities and unfortunately it made sense to do all of this hoarder like record retention because as long as you get in trouble for not having a document, and you never get in any trouble for having extra documents, the behavior is fairly obvious.


Kyle Hauptman 14:22

Credit unions and banks talk about this with suspicious activity reports, why they file so many. They never getting trouble from filing too many, and they only get trouble not filing one. Their behavior obviously flows from that.


Kyle Hauptman 14:35

Yesterday, and I wish you thought of it earlier, we had the idea to email two people and ask about their specific credit unions records practices. Got a couple of photos at 5 .30 p .m. last night. Slide, please.


Kyle Hauptman 14:52

Franz, you got that slide? Yeah, all right. This is what we got back last time at five 30. You can see on the right how deep. This was just one credit union, which, by the way, is not particularly large.


Kyle Hauptman 15:03

I can say it's under $100 million in assets, okay? They're paying for this. you can see the yellow and old papers and so if someone says you know these days we have cloud storage just scan it well anyone that thinks the answer is just can it hasn't had to go through all those and even if you will scan wouldn't it be a pain to find out you scanned a hundred boxes of documents and you only had the scan five you have to often do it one at a time for old crinkled documents because you have to get the whole document otherwise why are you retaining it.


Kyle Hauptman 15:38

You can even see if any of you are old enough to remember the old dot matrix printers, you literally can't feed them in a stack into a modern scanner. They have those perforated edges on the side with the holes in it and you'll have pull them off.


Kyle Hauptman 15:51

I just looked it up, that's called continuous feed paper. So it's not very easy to do. Nobody can argue the need for keeping records. It's important, it's important for NCUA, and it is important for the credit union.


Kyle Hauptman 16:08

If I was a new credit unions CEO, I'd want them to have good practices. It is very helpful for new management. But after 15 years, there's time to reevaluate you on unforeseen effects of part 749 as it currently written.


Kyle Hauptman 16:21

Even if they are maintaining documents digitally, do they have to do that? That costs money too. This agency pays for cloud storage as well. We get it. And I will say that those boxes, the credit to the small guy, it's piles of old boxes that probably the people who put the ones in the back aren't, don't work there anymore.


Kyle Hauptman 16:41

And I'll say, I had to suppose, you know, this is more organized than the one I have, and I want to thank a couple people at NCU Way that cleaned out, that are supply closets in a hallway on this floor.


Kyle Hauptman 16:50

I can tell you they were a lot messier than that. So even if you have the wherewithal to digitize, do we actually need to digitized papers from 1985? Because you think NCUA? If the unintended consequences of a regulation, run counter to what was intended, a responsible regulator will reevaluate and adjust.


Kyle Hauptman 17:11

Many of you know that NCUA annual review is one -third of its regs for updates. Over three years, that means all of them are addressed. On many occasions, the agency has taken that opportunity to clarify, re -evaluate the impact of the regulations.


Kyle Hauptman 17:24

Today's action is an example of that, and although I do want to take credit for bringing in this to the board's attention, I'll take credit for that. I want to clarify that I don't think that the reg was written wrong.


Kyle Hauptman 17:38

I Don't Think It Was Written Incorrectly. I think back then I may well have written the exact same thing. It's just the result of it and the incentives that it winds up giving to any regulated institution.


Kyle Hauptman 17:51

And one more thing, we talk a lot about how important it is for small credit unions to have, well, any credit union, but particularly small credit units to succession planning. Well, one way we can help with that as an agency is make the job more appealing.


Kyle Hauptman 18:05

Records retention is the example of the straw that can break the camel's back. It's one of many important but tedious requirements that could make running a small credit union less attractive than it could otherwise be.


Kyle Hauptman 18:15

Those right -sizing the regulatory burden is one that NCUA can make it easier for credit unions to survive once a long -time CEO retires. The job shouldn't have to be a labor of love. So we can't control what records a credit union is required for their state or other agencies.


Kyle Hauptman 18:30

But we cannot reduce unnecessary burden by ensuring our rules are clear and do not require more that is needed. And so the next step here is we're going to look for ideas from the public on what should we actually write?


Kyle Hauptman 18:46

What will actually help that? That's what a creditor is going want. So, we can find ideas that reduce the cost, make it less so people are digging through old heavy documents. You probably don't need anything that uses the dot matrix printer, but we need to actually publish something.


Kyle Hauptman 19:06

The good news is we could probably get some easy ideas from other agencies. Second slide, France, please. From my Wall Street days, I remember everything was seven years. Okay, this is from the SEC. This is kind of what we're looking at.


Kyle Hauptman 19:19

seven years records and then they say what exactly that means seven years okay I remember anything we wrote even in our Bloomberg chats was seven years right and you knew that right this is just an example it happens across government if you filed your taxes on Monday the IRS just so you know is you are supposed to only have three years worth of records to back up that 2023 return if they audit your 20 23 return they can ask you for information related it's your 2023, 2022, and 2021.


Kyle Hauptman 19:51

The IRS itself is published. We're not going to ask you about 2015 records. It's the exact same reason. It is the same that in criminal justice as a statute of limitations for most things. Because over time, memories fade.


Kyle Hauptman 20:07

Things get lost. People die. And in terms of which year they can audit, just so you guys know, Chairman Harper, You're off the hook from 2017 and earlier to see you know They can only even audit the last seven years from when you filed it at least.


Kyle Hauptman 20:22

Okay Yeah, right So thanks again for the staff working this I just have one question which is what I alluded to I think credit unions You know the people who sent that photo in are gonna be like, oh, man, I'm glad you're doing this.


Kyle Hauptman 20:37

What happens next they can't After this meeting go and throw out the old stuff just yet. What is the next step?


Speaker 5 20:46

I can take that question Vice Chairman so what happens next is really a question for the board. Today's action is an advanced notice of proposed rulemaking to solicit feedback from commenters and stakeholders and we expect to get robust feedback which can then inform any future action that the board decides to take and that could be well be a notice a proposed rule making but that would be future actions.


Kyle Hauptman 21:10

Somebody wants to send us a link an idea, can they do that today?


Speaker 5 21:15

They can. Okay. They can provide feedback all the time just as you received feedback prior to it.


Kyle Hauptman 21:21

That's right. So you have an easy idea that would also serve NCUA's purposes. We do need records kept. khoutmannca .gov. But a lot of these things, the notice comment period, it has an official start date, has and official end date and the comments are public.


Kyle Hauptman 21:39

Yes. Anyone can email or call anybody anytime but so if someone today is hearing about this they can send something in today to whom?


Speaker 5 21:51

They could send comments into the NCUA on our website but specifically in response to this ANPR this document once the board approves it it will be published in the Federal Register and we provide specific instructions for how the public can comment and it's a transparent process available to all.


Kyle Hauptman 22:15

But if it is top of mind for anybody out there who watches this or hears about it there's nothing stopping anybody every time for calling or emailing say here's an idea here isn't my state regulator does you know something like that if its top -of -mind that's the time to take action I'm pleased that I believe all three board members are supporting this item and that I believe all three board members know how important it is to not make the life of a small credit union CEO any harder than it has to be and I think the board is all in agreement that we know that sometimes regulations can make that less attractive that when a little credit you and goes away and that field of membership loses their own credit unit sometimes that's because government has made the job harder then it needs to be.


Kyle Hauptman 23:01

That concludes my remarks. Back to Chairman Harper.


Todd Harper 23:05

Thank you, Vice Chairman, Board Member


Tanya Otsuka 23:10

Otsuka. Thanks, Chair Harper, and thank you to the Vice Chairman for his comments. I guess before we get into the substance, I just want to thank Chairman Harper for His remarks at the top about welcoming my new Senior Policy Advisor, Renita.


Tanya Otsuka 23:24

Also want thank the vice chairman and his office who have been very welcoming to my new staff. So just thank you all. It's great to have them part of the team. So Kelly, Matt, I really appreciate your presentation.


Tanya Otsuka 23:39

And Gira, thank for being here to answer any other questions. Thanks to all the staff for their work on this ANPR. Sound record retention practices, not a topic often discussed, but critical to ensuring the continuity and longevity of credit unions and the credit union system as a whole.


Tanya Otsuka 23:57

The purpose of these important rules and guidance is to make sure that credit unions, especially smaller ones, can continue running in the event of a natural disaster or some other catastrophic or unforeseeable event.


Tanya Otsuka 24:09

I think that is really the point of these rules in guidance is so that credit units can continue their operations and serve their members. The pandemic and its aftermath, for example, showed us how important it is for credit unions to have prudent business continuity practices and fail -safes.


Tanya Otsuka 24:28

Additionally, as the frequency and intensity of weather -related events like wildfires, hurricanes, floods, and cyber- related security threats continue to increase, it's even more important that the NCUA is clear about what is needed to ensure credit unions can withstand risks to their business operations so they can continue to serve their members when they need it the most.


Tanya Otsuka 24:48

To that end, we strongly encourage credit unions, members, advocates, other stakeholders to weigh in on what current practices are working or not and where the NCUA can provide clearer direction on which records should be retained, for how long, in what format, and for what purpose.


Tanya Otsuka 25:06

As institutions move away from paper filing systems, as my colleagues have pointed to, You know, they're starting to explore cloud computing and other electronic means of storing data. This rule is ripe for updating.


Tanya Otsuka 25:21

And we need to understand what, you know we want to have a better sense of the feedback that we're going to get from all stakeholders that will be impacted by record retention policies. You Know, I think there is a shift away from paper, but you Know as we all know electronic is not infallible either.


Tanya Otsuka 25:41

and so it's important that institutions and the NCUA and others really think through, you know, what do I really need? What is really needed for business operations and continuity? Credit union members should also feel empowered to provide their experiences dealing with credit unions during the pandemic, during natural disasters, or other events that cause lapses in credit union continuity.


Tanya Otsuka 26:07

members actually have a unique perspective on how well their credit unions can continue to offer services and allow members to access their funds quickly during these types of emergencies. Credit unions exist to serve their members and their broader community which is also central to the NCA's work.


Tanya Otsuka 26:25

Getting feedback from the public is an important step towards making sure that credit unions are well prepared to continue serving their members and that is why I support issuing the ANPR and appreciate your presentation.


Tanya Otsuka 26:38

Just one question and I think my colleagues alluded to this a little bit so just if there's anything to add that you hadn't already said how will NCY use this information obtained through the an ANPR that we get in


Kelly Lay 26:58

response? Thank you board member Otsuka for the question. Yes so we will use the feedback that we get from stakeholders to evaluate whether and so we should consider updating things like the vital records definitions or preservation program requirements so some of the things that are in the regulation currently how we might be how many might want to change that whether additional guidance is needed and then it will be up to the board to determine


Tanya Otsuka 27:22

those next steps okay great thank you and I just want to say I know this has been discussed but you know I I think I think it was Matt you responded to this earlier about the importance of vital records and what it means for credit unions when they're you know they need to continue their business operations and in case something that you know catastrophic happens you mentioned a few examples I've also heard some examples not just cyber events or cyber incidents but flooding where records are destroyed, even domestic terrorist acts, the tragedy in Oklahoma City in the 90s, credit unions may have been impacted by that and preserving vital records allowed them to continue to operate their institutions and serve their members.


Tanya Otsuka 28:15

So I think we need to really understand how to continue that purpose of why we keep these records and why vital record are so important while understanding what best practices are right now and what will allow institutions to continue to serve their members in these types of events.


Tanya Otsuka 28:33

Thank you.


Todd Harper 28:37

Indeed, Board Member Otsuka, there was a credit union that was operating in the Murrow Building during Oklahoma City that had to reestablish its records. And that's, it's a very hard task to go about and certainly a task we all need to prepare for.


Todd Harper 28:53

We hope that it would never will happen, But we need to be ready in case it does with that vice chairman Hoffman. Is there a motion?


Kyle Hauptman 29:02

Yes, sir. I move that the board approve advance. Notice a proposed rulemaking part 749 records preservation program for a 60 day comment period as attached to the Board action memorandum.


Todd Harper 29:13

Is their second second, there is a sufficient second. All those in favor say aye. Aye ayes all opposed. Say, nay. The ayes have it and let the record show the motion passed three to zero. That is the end of our agenda today.


Todd Harper 29:33

There being no further business, we are hereby adjourned. Thank you all for attending.

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