Maryland thrift in settlement with Justice Department.

WASHINGTON -- Chevy Chase Federal Savings Bank settled a fair-lending claim Monday by agreeing to fund $140 million in discounted loans for residents in predominantly African-American communities in the Washington metropolitan area.

Announcing the settlement Monday, Attorney General Janet Reno said this is the first time the Justice Department has gone after a bank because it does not have branches in minority areas.

"You can't deny service if no service is offered,"' Ms. Reno explained. Noting that Chevy

Chase has made 97% of its loans in predominately white areas and that 95% of its mortgage applicants were white, Ms. Reno said, It's discrimination, pure and Chevy Chase, based in suburban Maryland, does business in parts of Washington.

Under the settlement, Chevy Chase- the 271h largest thrift in the country, with assets of more than $5.1 billion -- also agreed to open three new mortgage offices; establish one new branch, and increase the share of loans it makes in minority communities.

MS. Reno, who said Chevy Chase did not operate any branches in a minority community prior to the start of the investigation, called the situation "sobering." She said the bank "red-lined" African-American Communities as recently as 1992.

Chevy Chase's attorney, Andrew L. Sandler of Skadden Arps, Slate, Meagher & Flora, said the bank strongly denies Ms. Reno's charge that it red-lined or that its lending practices were discriminatory.

Mr. Sandler said the thrift entered into the agreement because the document requires it to boost discounted lending, a goal it already was committed to achieving.

This settlement is the largest to date. Unlike previous settlements, Chevy Chase is not writing a check to cover damages caused to specific people. But the $140 million in cut-rate loans is expected to cost Chevy Chase $7 million.

That's considerably more than the last two banks hit earlier this year with fair-lending charges had to pay. First National Bank of Vicksburg, Miss., had to devote $800,000 to resolve its case and Blackpipe State-Bank of Martin, S.D., had to cough-up $125,000. In the only other fair-lending cases, Shawmut Mortgage Co. of Boston settled for $960,000 in 1993 and Decatur Federal Savings & Loan of Georgia spent $1 million in 1992.

The department's previous investigations focused on an institution's improper rejection of minority loan .applicants, That was not an issue in Chevy Chase's case, which was under investigation by Justice for 14 months.

Paul Hancock, who heads the housing and civil enforcement section at Justice, said his investigators were unable to find any "non-racial" reason for the disparities.

Ms. Reno said suburban banks should not fear the decision because her department will look at a bank's "natural" market. A suburban bank with no ties to the city would not include the urban area in its natural market. But, a suburban bank trying to encroach into parts of the city must consider the entire city as part of its natural market, she said.

Ms. Reno credited The Washington Post, which questioned Chevy Chase's operating practices in a series of stories last year. Mr. Hancock said the department is investigating similar complaints throughout the country. He declined to state which banks were involved.

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