We do not believe that you need to retain any records for charged-off loans that are over ten years old.

The Illinois Code of Civil Procedure contains a ten-year statute of limitations to initiate collection proceedings for written contracts (with some exceptions), and the Federal Financial Institutions Examination Council (FFIEC) recommends that banks maintain supporting documentation (which may include evidence of charge-offs and recoveries) for Call Reports for three years after the report date. Additionally, the IRS requires reporting of debt cancellations over $600 on Form 1099-C (or, for some secured loans, Form 1099-A) and imposes a four-year retention period for the form or related data.

Consequently, you may wish to retain documents related to charged-off loans for ten years in case your bank wishes to initiate a collection proceeding for a loan within the ten-year limitations period. However, we believe that retaining documents related to charged-off loans is unnecessary after ten years from the date of the charge-off.

The IBA offers guidance on general loan record retention in its “Record Retention Manual.” However, be aware that this guide has not been updated since 2014, and some of the information in the manual now is out-of-date. For example, the manual recommends that supporting evidence for charge-offs and recoveries for the purposes of Call Reports be retained for five years after the report date. As noted above, this time period has been updated to three years.

For resources related to our guidance, please see:

• Illinois Code of Civil Procedure, 735 ILCS 5/13-206 (“Ten year limitation. Except as provided in Section 2-725 of the ‘Uniform Commercial Code,’ actions on bonds, promissory notes, bills of exchange, written leases, written contracts, or other evidences of indebtedness in writing and actions brought under the Illinois Wage Payment and Collection Act shall be commenced within 10 years next after the cause of action accrued; . . .”)

• Illinois UCC, 810 ILCS 5/4-111 (“An action to enforce an obligation, duty or right arising under this Article must be commenced within 3 years after the cause of action accrues.”)

• FFIEC, Reports of Condition and Income Instructions for the FFIEC 031 and 041 Report Forms, General Instructions (page 10a) (December 2020) (“In general, a bank should maintain in its files a signed and attested record of its completed Call Report, including any amended reports, and the related workpapers and supporting documentation for three years after the report date, unless any applicable state requirements mandate a longer retention period. This three-year time period is consistent with the time period specified in Section 7(b)(4) of the Federal Deposit Insurance Act . . . .”)

• Federal Deposit Insurance Act, 12 USC 1817(b)(4) (“Each insured depository institution shall maintain all records that the Corporation may require for verifying the correctness of any assessment on the insured depository institution under this subsection until the later of—
   

  (A) the end of the 3-year period beginning on the due date of the assessment; or

  (B) in the case of a dispute between the insured depository institution and the Corporation with respect to such assessment, the date of a final determination of any such dispute.”)
   

• IRS, Form 1099-A and 1099-C Instructions (“Recordkeeping — If you are required to file Form 1099-C, you must retain a copy of that form or be able to reconstruct the data for at least 4 years from the due date of the return.”)