House Banking Scandal - The Scandal

The Scandal

The House banking scandal ultimately involved more than 450 representatives, most of whom did not break any laws. Twenty-two congressmen and -women were singled out by the House Ethics Committee for leaving their checking accounts overdrawn for at least eight months out of a sample of 39 months.

The following 22 House members were singled out by the House Ethics Committee:

The scandal contributed to a perception of corruption and malfeasance and was a contributing factor to major changes in the House, in which 77 Representatives resigned or were ousted in the 1994 election. Four ex-Congressmen, a Delegate, and the former House Sergeant at Arms were convicted of wrongdoing as a result of the investigation that followed. Among these, former Rep. Buz Lukens (R-OH) was convicted on bribery and conspiracy charges. Former Rep. Carl C. Perkins (D-KY) pled guilty to various charges including a check kiting scheme involving several financial institutions including the House Bank. Former Rep. Carroll Hubbard (D-KY) pled guilty to three felonies. Former Rep. Mary Rose Oakar (D-OH) was charged with seven felonies, but she ended up pleading guilty only to a misdemeanor campaign finance charge not related to the House Bank. The House Bank investigation also led to Delegate Walter E. Fauntroy (D-DC) pleading guilty to an unrelated charge of a making a false statement relating to a charitable contribution to his church. The former Sergeant at Arms, Jack Russ, pled guilty to three felonies.

The House Bank functioned according to rules different from the laws governing deposit institutions. The facility was operated under very loose rules at the time, using a pencil and ledger system rather than a computerized accounting system, and the bank manager did not provide regular account statements to House members, nor were notifications sent to House members in the event they had overdrawn their accounts. Further contributing to the problem was the fact that the House Bank didn't post deposits in a timely manner, often as much as seven weeks after the fact. Thus, while some knowingly took advantage of the system (and were ultimately convicted of wrongdoing) many members of the House who wrote overdrafts were not actually at fault, as it was the House Bank's responsibility to post deposits in a timely manner.

Another practice which contributed to the scandal was that House members were allowed to overdraw their accounts, provided that the overdraft did not exceed the member's next paycheck. Many House members used this practice to take unauthorized advances on their paychecks which they would repay in the future. In a corporate context the practice of drawing money out of the corporation's accounts for personal use is a violation of fiduciary duty to the corporation's shareholders. Many U.S. banks, like the House Bank, offered overdraft protection to checking account holders.