WASHINGTON - To encourage banks to self-test for lending discrimination, the Department of Housing and Urban Development - like the Justice Department - has decided not to use a bank's results against it during an investigation.

Nevertheless, HUD is leaving a window open: Self-testing information could be used if a fair lending case goes to trial, according to Peter Kaplan, director of HUD's office of regulatory initiatives and federal coordination.

In addition, the data are fair game if the bank uses them as a defense before regulators.

"Once a bank offers self-testing (information), all bets are off," Mr. Kaplan said at a conference Monday sponsored by Women in Housing and Finance.

Mr. Kaplan's comments echoed those made recently by Deval Patrick, assistant attorney general for civil rights at Justice.

"HUD and Justice are in accord," Mr. Kaplan said.

The banking industry has begged for clarification from regulators in many areas of fair lending, especially self-testing. Worried that self- testing is being avoided for fear of reprisals, government officials are now trying to assuage bankers' concerns.

"We'd like to provide the maximum protection we can," Mr. Kaplan said.

Still, Valerie R. O'Brian, senior trial attorney in Justice's civil rights division, said the government will press discrimination cases in three main areas: loan underwriting, product pricing, and marketing.

"All three are enforceable domains," Ms. O'Brian said.

She said she is currently working on several investigations, including cases in conjunction with HUD.

Ms. O'Brian also noted that her boss, Mr. Patrick, has said Justice does not see on the horizon another case like the agency's settlement with Chevy Chase Federal Savings Bank in Maryland.

While agreeing that Chevy Chase was unique, Ms. O'Brian insisted that Justice would pursue a bank with circumstances similar to the thrift's.

What Justice found wrong at Chevy Chase, and what it will look for in future cases, she said, are discriminatory bank policies and selective marketing.

Another controversial fair lending topic discussed at the day-long seminar was disparate impact. That's the term used to describe a bank policy that, intentionally or unintentionally, disadvantages a group of customers protected by the Equal Credit Opportunity Act.

David H. Enzel, special counsel at the Office of Thrift Supervision, admitted that so little case law exists on disparate impact that regulators are having trouble addressing it in an exam.

"If we get a reasonable explanation, we move on," Mr. Enzel conceded.

Mr. Kaplan criticized a recent Federal Reserve Board proposed commentary to Regulation B, which implements the equal credit law.

That proposal would require banks to prove a "business necessity" in defending a practice that affects customers differently. The term business necessity, Mr. Kaplan said, comes from employee protection laws that aren't specifically aimed at the banking industry.

Mr. Kaplan suggested that the Fed should limit its regulations to laws that apply specifically to the banking industry.

"The notion of what is a business necessity has to reflect the characteristics of the business in mind," Mr. Kaplan said.

Ms. O'Brian said some of Justice's investigations have shown that even companies with reasonable policies have discriminated because employees applied the policies differently.

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