FDIC Alters Policy on Nullifying Oral Contracts

The Federal Deposit Insurance Corp. has shifted its policy on voiding oral contracts made by banks and thrifts before failure.

The new guidelines, published in the Feb. 10 Federal Register, attempt to clarify when the FDIC will invoke the so-called D'Oench Duhme legal doctrine, the combination of court decisions and laws that gives the agency the power to void secret deals between banks and borrowers or vendors that could drain a failed bank's assets.

FDIC officials often use the doctrine to fend off borrowers who claim the bank orally forgave their loan obligation.

For agreements reached before enactment of the 1989 thrift bailout law, the FDIC will continue to assert the doctrine, according to the guidelines.

But regarding agreements made since then, the agency will rely on provisions in the 1989 law to void contracts.

The shift was made in light of conflicting court decisions and pending cases, said William F. Kroener 3d, the FDIC's general counsel.

Several appeals courts in recent years have disagreed over the scope of the D'Oench Duhme doctrine, raising questions whether the 1989 thrift bailout law scaled back the FDIC's powers under the doctrine. The FDIC will argue that the thrift bailout law left its power under D'Oench Duhme intact.