WASHINGTON - Under attack from the new Republican congressional majority, federal regulators said they would curb their use of a controversial legal doctrine in lawsuits involving failed thrifts and banks.
Sen. William S. Cohen of Maine, chairman of the Senate Governmental Affairs subcommittee on oversight, said in a hearing last week that regulators' extensive use of the doctrine is one reason Americans are so dissatisfied with government.
The senator, calling the issue one of his top five priorities for the year, plans to introduce reform legislation "within the next month."
Sen. Cohen said the Federal Deposit Insurance Corp. and the Resolution Trust Corp. have acted like "robocops" in their unrelenting use of the doctrine, known as D'Oench Duhme.
Both agencies testified they would cooperate with the Senator's reform efforts. The controversial doctrine - which dates to a 1942 Supreme Court case - allows receivers to deny payment for certain undocumented claims against failed institutions.
John F. Bovenzi, director of the FDIC's division of depositor and asset services, said the agency had adopted new guidelines in November for all staffers, outside law firms, and contractors. They require prior case-by- case approval from FDIC headquarters before invoking the D'Oench Duhme doctrine under certain circumstances.
In addition, the two agencies suggested that Congress alter the statute by:
*Allowing claims for bank payment for goods and services of $20,000 or less.
*Allowing claims based on agreements approved by authorized bank employees, not just agreements approved by the loan committee or boards of directors
*Eliminating the requirement that a claim must be based on a written decision executed "contemporaneously" with the bank's acquisition of the asset in question.
The FDIC would also amend the statute by recognizing agreements in which a customer received a written agreement that was signed by an authorized bank officer but is not included in the failed bank's records.
William M. Dudley, vice president of the Atlanta RTC office, stressed that the doctrine should be modified, not eliminated. If it were scrapped, "collusive side deals made on a wink or a handshake would flourish in a manner that could not be discovered by federal regulators, possibly encouraging the impairment of an institution's financial condition."
Sen. Cohen stressed that he was "not trying to revoke D'Oench." He said he only wants to modify it to allow bank customers to seek redress "for legitimate claims against failed banks." A number of bank customers' suits against the RTC and FDIC - which take the place of the failed institutions in litigation - have been dismissed in the courts under the doctrine.
Sen. Cohen said he had talked with Senate Banking Committee Chairman Alfonse M. D'Amato about reforming the doctrine. "I believe he is going to lend his support to changes long overdue" in the statute, Sen. Cohen said. "There is a sense that the rules and regulations are being stacked up against the average citizen."
