[Congressional Record Volume 143, Number 1 (Tuesday, January 7, 1997)]
[Extensions of Remarks]
[Page E68]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         LENDING ENHANCEMENT THROUGH NECESSARY DUE PROCESS ACT

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                           HON. BILL McCOLLUM

                               of florida

                    in the house of representatives

                        Tuesday, January 7, 1997

  Mr. McCOLLUM. Mr. Speaker, I rise today to reintroduce the Lending 
Enhancement Through Necessary Due Process Act.
  In the aftermath of the Savings and Loan [S&L] crisis, Congress 
empowered the Federal Deposit Insurance Corporation [FDIC], the 
Resolution Trust Corporation [RTC], and other agencies to prosecute the 
S&L crooks and pursue other wrongdoers through civil suits to collect 
damage awards to lessen the taxpayer costs of the thrift debacle.
  Although the government's efforts have been successful in carrying 
out Congress' mandate, government agencies have launched a zealous 
civil litigation campaign against anyone even remotely connected to a 
failed bank or thrift. Litigation against marginal defendants and the 
use of highly-paid outside counsel have aggravated the credit crunch in 
the early 1990's. Directors and officers in financial institutions are 
reluctant to make character loans or business loans with any element of 
risk for fear that they could be accused of negligence by the 
regulators if the loan ever failed. Currently, banks and thrifts have 
found it difficult to attract qualified bank directors and officers 
because of the campaign of fear brought on by the regulators.
  Taxpayer funds have been wasted and the lives and reputations of 
countless individuals are being ruined. In their fervor to squeeze 
every last dollar out of S&L and bank professionals, the RTC and the 
FDIC are spending an inordinate amount of time and money pursuing 
marginal cases in which the culpability of the defendants is highly 
questionable. Faced with an enormous pool of potential individuals to 
sue, the FDIC and the RTC have employed over 2400 law firms, paying 
them more than $504 million in 1992 alone. These law firms had little 
incentive to reduce taxpayer costs and every incentive to bill 
thousands of hours in the pursuit of former directors and officers, 
regardless of their culpability. Meanwhile, defending these suits is a 
costly, demeaning, and time consuming enterprise. Many defendants have 
agreed to costly settlements, regardless of guilt, in order to avoid 
bankruptcy.
  The Lending Enhancement Through Necessary Due Process Act will remedy 
these types of abuses and still allow the regulators to pursue culpable 
individuals. First, accused directors and officers will be allowed to 
assert defenses to overreaching accusations. One example is the 
business judgment defense. The courts in all of the States recognize 
the business judgement rule either by case law or by statute. This bill 
will establish defenses for business judgement, regulatory actions and 
unforseen economic consequences.
  Second, this legislation would require that regulators have good 
cause to obtain the personal financial records of potential defendants. 
The current practice is to ask for the financial records of all parties 
and then sue the richest, regardless of culpability. This bill requires 
that the regulators demonstrate a violation of the law and the 
likelihood that the individual will dissipate assets.
  Third, this act will give defendants additional protection to prevent 
the freezing of their assets without good cause. Finally, the standard 
for director and officer liability will be clarified by stating that 
the standard is gross negligence rather than simple negligence. I 
understand the Supreme Court has seen it necessary to take a closer 
look at the standard of negligence as it applies to these cases.
  Mr. Speaker, although most of these cases have been brought to their 
final disposition, I strongly believe that changes need to be made so 
the abuses I described do not continue during the resolution of future 
failures. While I understand, but do not necessarily agree with, the 
need to use excessive force to resolve the S&L debacle, the time has 
come for the pendulum to swing back to the center. This bill will 
accomplish this.

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