I
105TH CONGRESS
1ST SESSION
H. R. 220
To amend the Federal Deposit Insurance Act to clarify the due process
protections applicable to directors and officers of insured depository
institutions and other institution-affiliated parties, and for other pur-
poses.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 7, 1997
Mr. MCCOLLUM introduced the following bill; which was referred to the
Committee on Banking and Financial Services
A BILL
To amend the Federal Deposit Insurance Act to clarify the
due process protections applicable to directors and offi-
cers of insured depository institutions and other institu-
tion-affiliated parties, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Lending Enhancement
Through Necessary Due Process Act’’.
SEC. 2. FINDINGS.
The Congress hereby finds the following:
(1) Excessive and groundless litigation against
innocent directors and officers of failed financial in-
stitutions is adversely affecting the national economy
by creating an environment where bankers are reluc-
tant to make loans.
(2) The efforts by Federal banking regulators
to impose liability on bank officials for good faith
business decisions is impeding our banking system
by making it difficult for financial institutions to at-
tract officers and directors.
(3) Since 1989, Federal regulators have used
enhanced powers to pursue not only culpable individ-
uals but also countless innocent people who are tar-
geted because of their financial condition.
(4) Tactics used by regulators to induce settle-
ments include the threat of attachment of assets and
the use of taxpayer-funded outside fee counsel to file
lawsuits, the costs of which often bankrupt individ-
uals trying to clear their names.
(5) Reform of the banking laws are needed to
curtail regulatory abuse and to ensure that directors
and officers have due process protections and the
ability to make good faith lending decisions.
SEC. 3. FACTORS AND STANDARDS FOR CERTAIN ENFORCE-
MENT PROCEEDINGS.
Section 8(i) of the Federal Deposit Insurance Act (12
U.S.C. 1818) is amended by adding at the end the follow-
ing new paragraphs:
‘‘(5) AFFIRMATIVE
DEFENSES
APPLICABLE
WITH RESPECT TO CERTAIN ADMINISTRATIVE AND
JUDICIAL PROCEEDINGS.—In the determination of
whether any director, officer, or institution-affiliated
party of an insured depository institution has com-
mitted any violation or breach of duty for purposes
of this section or section 11(k), the following affirm-
ative defenses shall be available to the director, offi-
cer, or institution-affiliated party in any civil action
against the director, officer, or party before a Fed-
eral banking agency or a court of jurisdiction:
‘‘(A) BUSINESS
JUDGMENT.—A director,
officer, or institution-affiliated party of an in-
sured depository institution shall not be deemed
to have committed any violation or breach of
duty in the making of any business judgment
(without regard to whether such business judg-
ment is later determined to have been in error),
if—
‘‘(i) in a case in which the director,
officer, or institution-affiliated party had
an interest in the subject of the business
judgment, the director, officer, or party—
‘‘(I) disclosed that interest at or
before the time the business judgment
was made; or
‘‘(II) abstained from any vote
taken in connection with such busi-
ness judgment or from otherwise par-
ticipating in making the business
judgment;
‘‘(ii) at or before the time the busi-
ness judgment was made, the director, offi-
cer, or institution-affiliated party made
such inquiry about the subject of the busi-
ness judgment as a reasonably prudent
person would have made under the cir-
cumstances;
‘‘(iii) after being put on reasonable
notice of a need to act, the director, offi-
cer, or institution-affiliated party took such
actions as a reasonably prudent person
would have taken under the circumstances;
and
‘‘(iv) the director, officer, or institu-
tion-affiliated party acted in good faith.
‘‘(B) REGULATORY
APPROVAL.—A direc-
tor, officer, or institution-affiliated party of an
insured depository institution shall not be
deemed to have committed any violation or
breach of duty if any examiner or other rep-
resentative of an appropriate Federal banking
agency or State bank supervisor, upon full and
accurate disclosure of the relevant facts, ap-
proved the good faith practice, action, or omis-
sion which is alleged to be the violation or
breach, whether or not such approval was com-
municated to the director, officer, or institution-
affiliated party or any other person at such in-
stitution.
‘‘(C) UNFORESEEABLE ECONOMIC CONDI-
TIONS.—A director, officer, or institution-affili-
ated party of an insured depository institution
shall not be deemed to have committed any vio-
lation or breach of duty if—
‘‘(i) unforeseeable economic condi-
tions, which develop after the occurrence of
the practice, action, or omission which is
alleged to be a violation or breach, were
the proximate cause of any loss experi-
enced by the institution; and
‘‘(ii) the director, officer, or institu-
tion-affiliated party acted in good faith.
‘‘(6) MINIMUM STANDARD FOR ORDER OF PRO-
DUCTION OF PERSONAL FINANCIAL INFORMATION.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a Federal banking agency,
including the Resolution Trust Corporation in
such corporation’s capacity as conservator or
receiver of an insured depository institution,
may not seek to obtain, directly or indirectly,
and no court (with respect to any request from
any such agency or corporation) may order the
production of, the personal financial records of
any person for the agency unless the head of
the agency or corporation (or the designee of
the head of the agency or corporation), submits
a written finding which is disclosed to such per-
son and certified to an appropriate court of ju-
risdiction, and the court through a de novo
finding determines, that the agency has reason-
able cause to believe that—
‘‘(i) the person whose records are
being sought has committed a violation for
which a civil penalty may be imposed
under paragraph (2) or has breached a
duty owed to an insured depository institu-
tion; and
‘‘(ii) the person’s financial condition is
undergoing or is likely, within 6 months of
the date of the request for the production
of financial records, to undergo a material
change.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply with respect to a request for the
production of financial records by an appro-
priate Federal banking agency of any person—
‘‘(i) in connection with an investiga-
tion of the person by the agency pursuant
to section 7(j); or
‘‘(ii) after an administrative or judi-
cial determination, on a record after oppor-
tunity for agency hearing, that the person
has committed a violation for which a civil
penalty may be assessed under paragraph
(2).’’.
SEC. 4. DUE PROCESS PROTECTIONS RELATING TO AT-
TACHMENT OF ASSETS.
Section 8 of the Federal Deposit Insurance Act (12
U.S.C. 1818) is amended—
(1) by striking subsection (i)(4)(B) and insert-
ing the following new subparagraph:
‘‘(B) STANDARD.—
‘‘(i) SHOWING.—Rule 65 of the Fed-
eral Rules of Civil Procedure shall apply
with respect to any proceeding under sub-
paragraph (A).
‘‘(ii) STATE PROCEEDING.—If, in the
case of any proceeding in a State court,
the court determines that rules of civil pro-
cedure available under the laws of such
State provide substantially similar protec-
tions to such party’s right to due process
as Rule 65 of the Federal Rules of Civil
Procedure, the relief sought under sub-
paragraph (A) may be requested under the
laws of such State.’’; and
(2) in subsection (b), by adding at the end the
following new paragraph:
‘‘(11) STANDARD FOR CERTAIN ORDERS.—No
authority under this subsection or subsection (c) to
prohibit any institution-affiliated party from with-
drawing, transferring, removing, dissipating, or dis-
posing of any funds, assets, or other property may
be exercised unless the agency meets the standards
of Rule 65 of the Federal Rules of Civil Procedure.’’.
SEC. 5. DIRECTOR AND OFFICER LIABILITY.
Section 11(k) of the Federal Deposit Insurance Act
(12 U.S.C. 1821(k)) is amended by adding at the end the
following new sentence: ‘‘Notwithstanding the preceding
sentence, a civil action for monetary damages for losses
due to a disregard of a duty of care may not be brought
against any director or officer of any insured depository
institution by the Corporation in any capacity described
in clause (1), (2), or (3) of the 1st sentence of this sub-
section under any provision of State law, unless the stand-
ard of disregard required to be demonstrated under such
provision of law is as great or greater than the standard
described in the 1st sentence.’’.