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WASHINGTON - The banking industry is preparing for a fight with the Department of Justice over the issue of fair lending.

A lawyer for Barnett Banks Inc. said Friday that the Florida institution is gearing up for a court battle if Justice files a fair-lending compliant, as it has threatened.

At the same time, the head of government relations for the American Bankers Association said he has been directed by the trade group's board to "explore every option" the industry has to challenge the Justice Department.

The law enforcement agency has launched a high-profile assault this year on lending discrimination, pressing some banks into settlements. Last week, Justice clashed with the Federal Reserve on the issue. The Fed approved an acquisition by Barnett despite an ongoing Justice probe into possible bias at Barnett.

Robert Bennett, a prominent Washington attorney representing Barnett, said the bank has marshaled its own statistical analysis that shows Barnett has not discriminated.

"There was no discrimination," said Mr. Bennett, who is also representing President Clinton on sexual harassment charges. He added and that an analysis performed for the Justice Department in the Barnett case is "fatally flawed."

Justice said last week it will file a complaint against Barnett within 30 days if the bank does not first settle. Mr. Bennett said Barnett has not made a firm decision whether to proceed, but left no doubt that the bank is ready to defend itself.

He took strong exception to letters the Department of Justice fired off to the Federal Reserve, which appeared to suggest that a merger application should not be approved until the fair-lending investigation is completed. Those letters were reported on last week.

"I was very troubled to see these allegations that were made in the American Banker because they [appeared aimed at] trying to derail approval of the acquisitions," Mr. Bennett said.

Meanwhile, Edward L. Yingling, the ABA's director of government relations, said he is to explore options, including "everything from the ABA taking action itself" to providing financial and legal support to a financial institution that mounted a challenge to a Justice Department complaint.

Mr. Yingling acknowledged that the ABA might not have standing to bring a court action on its own, as it did in a series of cases challenging the credit union industry's interpretation of the "common bond" doctrine.

"I have been directed by my board to undertake, on a crash basis, an analysis of two things," Mr. Yingling said. "First, we will explore the legal options for the industry to challenge the Justice Department's theories on fair lending."

Second, he said, the ABA will undertake a through analysis of the fair-lending law and attempt to show that the Justice Department's theories go beyond the intent of the statute.

Challenging a fair-lending charge became a lot less risky last week when the Federal Reserve Board allowed Barnett to complete an acquisition, despite the ongoing Department of Justice probe.

Lawyers for Barnett hailed the Fed's decision allowing it to acquire the Florida operations of a thrift, saying the bank no longer must sacrifice growth to attain justice.

"This decision gives us the option to deal with the Justice Department on a level playing field," Mr. Bennett said. "We don't have a gun to our head to require us to rise above principle in order to continue to grow."

The Fed's approval marks a new chapter in fair lending because it contradicts past central bank decision, banking advocates said. For example, the Fed previously delayed expansion plans by Shawmut National Bank until it resolved a Justice Department complaint.

A Justice Department spokesman declined to comment except to say that the office will continue to press fair-lending issues before the federal banking agencies.

Al Hirshen, and attorney now with Pettit & Martin, said the Fed created this safe haven when it demanded that Justice turn over its evidence, a demand that the government lawyers cannot ethically meet.

"The Fed is asking Justice something that is impossible for them to do," Mr. Hirshen said. "Therefore it would seem that the Fed's position would allow an application to go forward after a complaint was filed."

That means other banks should be able to grow despite Justice Department investigations, he said.

Mr. Bennett's firm has prepared a stinging criticism of the Justice Department's study, which reportedly finds only a one-in-a-million probability that chance accounts for the differences it found between how the bank treats white and black loan applicants.

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