Community bankers fear they will end up paying a high price to comply with the Justice Department's new fair-lending push.

The agency's recent moves have sent community bankers into a panic over whether Justice will dictate whether they must open branches in low-income neighborhoods.

They are also concerned that their costs of compliance, legal advice, and retraining employees will constitute a greater percentage of the bottom line than that of larger banks, bankers and industry experts say.

"The industry as a whole feels they [Justice] have overstepped their authority," said John Shivers, president of the Independent Bankers Association of America. "How can someone do something wrong when they don't even know about it?"

Meanwhile, community bankers fear they would be crushed by the legal costs of challenging the agency in the Courtroom.

The concerns stem from Justice's actions against Chevy Chase Federal Savings Bank. Two months ago the $5-billion-asset Maryland thrift signed a consent decree with the government concerning fair lending laws. In the eyes of community bankers, Chevy Chase buckled under in part because of the astronomical legal costs it would have incurred in contesting the allegations.

If a $5 billion-asset institution is afraid to fight, what chance do $50 million-asset community institutions have, bankers asked.

Trade group officials and bankers believe that if Justice targets a community bank, the industry will throw its full weight behind supporting the institution.

"We're waiting for the next one to get hit, because you'll see us fight like hell," said Joseph Williams, president of the Community Bankers of Florida. "It's not fear we're feeling. It's anger. It's gone too far."

In the consent decree, it agreed to spend $11 million in serving minority and low-income neighborhoods in Washington, D.C., and $7 million in subsidized loans to customers in these areas.

"Every seminar I've gone to in the last several months, it's all everybody talks about," said George Freibert, president of Professional Bank Services Inc., a Louisville, Ky., consulting firm.

What many bankers find most disturbing about the Chevy Chase case is that Justice equated the thrift's decision not to open branches in low-income neighborhoods with lending discrimination. The thrift did not treat minority customers any differently than nonminority customers; it simply did not serve enough minority customers.

"This is a gross misuse of the banking system," said Mr. Williams.

"When banks are being used to drive the Clinton social agenda, what a travesty, what a gross abuse of power."

Mr. Williams said he and other bankers have done nothing differently in their lending procedures since the Chevy Chase case because they have no idea how to comply with such a decision.

In the end, "If Justice decides to hit you with that kind of firepower, forget it, you're done," he said.

"We really don't know how to dance to the music," said Robert Easterly, president and chief executive officer of the First National Bank of Denham Springs, La., and the state's Independent Bankers Association of America director.

"At this point, it's difficult for CEOs to educate and train their officers when we don't understand where the bomb is coming from. Unless things change, this will have a dramatic effect on the decisions to make loans."

The Justice Department apparently is not deaf to the protest. In an unusual move, it recently summoned the heads of five banking trade groups to an off-the-record open-ended discussion on fair lending issues.

The Oct. 12 meeting included representatives from the American Bankers Association, the Savings and Community Bankers Association, the Consumer Bankers Association, the Bankers Roundtable, and the IBAA, which was making its first appearance at Justice to discuss a policy issue, said Kenneth Guenther, executive director of the IBAA.

"This was a positive step," Mr. Guenther said. "The dialog has begun in looking towards more clarification. I don't think this was the last step."

In the meantime, some trade groups are taking steps to help their members by providing information kits on fair lending. The ABA, for example, will be releasing in two weeks a Fair Lending Tool Kit and also intends to hire a law firm to analyse Justice's actions regarding Chevy Chase, and its three previous rulings, two of which involved community banks.

Some analysts and bankers believe community banks actually may enjoy some advantages on fair lending over their larger competitors.

For one, their smaller size allows community banks to be more aware of the demographics of their customer base.

Some of the superregionals may lose track of whom they're not serving as they aggressively expand.

In addition, small banks do not approach a market area -- particularly a city With diverse-income groups -- with the idea of swamping it with branches. Community banks generally open one branch at a time, if any, and therefore cannot be expected to cater to all sections of a city, bankers said.

Sherran Blair, president of First Community Bank in Columbus, Ohio, believes most community banks can work to target niches in low-income, minority neighborhoods without a large increase in costs.

First Community, for example, offers a tax refund loan program to low-income customers that allows them to receive their tax refund three weeks earlier than the norm.

"I think they've [Justice] gone overboard, but the intent is proper," Ms. Blair said.

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